‘Sub-Prime’ Water, Low-Security Entitlements and Policy Challenges in Over-Allocated River Basins: the Case of the Murray–Darling Basin

Abstract

Environmental policy is often implemented using market instruments. In some cases, including carbon taxing, the links between financial products and the environmental objectives, are transparent. In other cases, including water markets, the links are less transparent. In Australia's Murray-Darling Basin (MDB), financial water products are known as 'entitlements', and are similar to traditional financial products, such as shares. The Australian water market includes 'Low Security' entitlements, which are similar to 'sub-prime' mortgage bonds because they are unlikely to yield an amount equal to their financial worth. Nearly half the water purchased under the Murray-Darling Basin Plan for environmental purposes is 'Low Security'. We suggest that the current portfolio of water held by the Australian Government for environmental purposes reflects the mortgage market in the lead-up to the global financial crisis. Banks assumed that the future value of the mortgage market would reflect past trends. Similarly, it is assumed that the future value of water products will reflect past trends, without considering climate change. Historic records of allocations to 'Low Security' entitlements in the MDB suggest that, in the context of climate change, the Basin Plan water portfolio may fall short of the target annual average yield of 2075 GL by 511 GL. We recommend adopting finance sector methods including 'hedging' 'Low Security' entitlements by purchasing an additional 322-2755 GL of 'Low Security', or 160-511 GL of 'High Security' entitlements. Securing reliable environmental water is a global problem. Finance economics present opportunities for increasing the reliability of environmental flows.

The paradox of production: Surface water supply drives agricultural productivity but not prosperity in California’s San Joaquin Valley

“…California's challenges in the San Joaquin Valley share similarities with those faced by these countries, including long-standing mismanagement of natural water resources driven by market-oriented decision-making and governance that often favors vested interests. To move forward, California must develop climate change adaptation strategies for water management while avoiding the pitfalls seen in Australia's Murray-Darling Basin Plan [54,55]. Achieving this requires policies and governance structures that reduce bias and ensure a balance between freshwater demands, all while addressing water access inequities in future water and land use decisions.…”

A Simple Analytical Method to Assess Multiple‐Priority Water Rights in Carryover Systems

“…Thus, we believe that the G‐D could be generalized to contain multiple priority water rights, as shown in Equation , which provides a potential framework to balance the water allocation among multiple water rights. In other words, this method could meet the specific allocation mechanisms of different countries and regions, including dual priority water rights (e.g., Australia, Moore et al., 2020) or multiple priority water rights (e.g., Spain, Gómez‐Limón et al., 2020).…”

“…The amount of water for each right holder within a priority class is allocated in proportion to their right up to 100% or full allocation. Under this allocation mechanism, there are two common water rights in terms of security (i.e., reliability): high‐priority water rights (hereafter, HPWR) and low‐priority water rights (hereafter, LPWR) (Moore et al., 2020). Generally, HPWR are allocated first at the beginning of the season, and LPWR are distributed after that and in response to the actual (rather than forecast) water available (e.g., from inflows throughout the season) (Quiggin, 2001).…”

Assessing Climate Change Impacts on Yield of “Dual‐Priority” Water Rights in Carryover Systems at Catchment Scale

“…Second, the amount of water for each priority class is proportionally allocated. There are two common types of water rights based on this allocation mechanism: high‐priority water rights (HPWRs) and low‐priority water rights (LPWRs; Moore et al., 2020). HPWRs are allocated first, and LPWRs are allocated after HPWRs are fully allocated (Quiggin, 2001).…”