SUSTAINABLE AUSTRALIA?

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Academy Symposium, November 2000

Stewardship of our Water for Responsible Growth Martin C Albrecht Non-executive Chair, Theiss Pty Ltd INTRODUCTION Few would argue that many of our river systems are overstressed due to excessive irrigation loads and insufficient environmental releases, nor that the real cost of the environmental damage caused to these river systems has ever been recovered from the users. One can no longer pick up a newspaper without reading about the problems in the Murray Darling Basin where over allocation of the water resource and inappropriate practices have resulted in land degradation and reduced water quality in the system. But we now find ourselves distracted by the publicity and emotion surrounding the concern for the Murray Darling and the Snowy River and losing sight of the positive aspects of these schemes, let alone working towards the development of new schemes which can be efficiently operated within sustainable limits. We are in danger of going backwards! The simple fundamental imperative is recognition of the real value of water. We need to gain broad community support for charges and incentives to be applied to all consumption. This will ensure informed decision making and enactment of laws which enable reallocation of benefits between existing and new beneficiaries at regional, state and national levels. It will also ensure funds are available to redress past land and water degradation and investment in essential sustainable new developments. The Need for Growth & Infrastructure The past century has seen Australia enjoying an ever improving standard of living. The secret to our "lucky country" status has been our abundant natural resources, developed by a young and expanding population. Figure 1 – Australia’s Population Growth (Foran and Poldy, 1996) We now find ourselves at a turning point – declining birthrates and a conservative view toward immigration has slowed our growth and seen a marked shift toward an ageing population. Figure 2 – Trends in Australia’s Average Age of Population (ABS 3201.00 1999) The popular belief is that our future relies on Australia being a ‘clever country’ – I too believe that knowledge is a key to our future however Australia has no mortgage on knowledge. When it comes to managing our future, our Nation’s economy is no different to a major corporation – zero growth is not an option. Such an approach would inevitably lead to stagnation and see us fall behind our competitors. If Australia is to sustain it’s standard of living, it needs to grow. As shown in Figure 3, water use in Australia has also shown continuous growth, running roughly parallel with the growth in population. According to the Australian Bureau of Statistics, over the four years from 1993-94 to 1996-97 our total net water consumption rose by 19% to 22,186GL. Consider this growth in water demand against the almost non existent development of new water storage schemes and it is not hard to understand why a good number of the river systems are overstressed and suffering major ecological damage. With irrigation in the Murray Darling and other river systems in NSW and Victoria continuing to exceed sustainable limits by around 2.5 million megalitres per annum, to suggest no new development condemns industry and people to declining standards and opportunities. Figure 3 – Water Use in Australia (CSIRO, 1997) New technology such as new desalination processes, improved reticulation systems and rationalisation and caps on existing water usage can be expected to slow and reduce impacts over this over use in NSW and Victoria, however I question the findings of the ATSE report ‘Water and the Australian Economy’ which concludes that there will be no new ‘Snowy type’ schemes and then examines scenarios to take our economy forward constrained by limited water availability. What the ATSE report does highlight is the tremendous contribution of the Murray Darling region to our economy as a result of irrigation based agricultural production. The Snowy Scheme which underwrites the production of $3.5 billion outputs from this region is an example of far sighted thinking at a time when Australia’s population numbered less than seven million. With the trend being very much back to the cities resulting in struggling rural economies, the Murrumbidgee Irrigation Area continues to support a population of around 50,000 – it is estimated that this figure would be less than 2,000 without irrigation. Moreover, we live in a land of extremes where television footage of both flooding and droughts and the resulting socio economic problems remains a regular feature of our news bulletins. Equally, recent events in our major capital cities have highlighted the dangers of relying on a single source for urban infrastructure, be it gas supply, water supply or other services. With the potential for contamination, natural disasters or changing weather patterns affecting our water supply, it is nothing short of irresponsible to continue with such policies in the more densely populated centres of Australia. It is now time for action if we are to underpin the security of future generations with a reliable and sustainable framework of water infrastructure. We need to increase the amount of environmental releases from certain dams, we need to repair the ecological damage but thirdly we need to replace this released water with new environmentally efficient water schemes. Report from the World Commission on Dams (WCD) In November 2000, the long awaited report from WCD was released. I would like to refer to a couple of pertinent points which appear in the Executive Summary of the report: The first which we should never forget is that ‘Dams have made an important and significant contribution to human development, and the benefits derived from them have been considerable’, but also, ‘In too many cases an unacceptable and often unnecessary price has been paid to secure those benefits, especially in social and environmental terms, by people displaced, by communities downstream, by tax payers and by the natural environment.’ The report then goes on to say that: ‘One of the greatest challenges facing the world in this new century is the need to rethink the management of freshwater resources.’ The Salinity Crisis Australia’s salinity problem has become a major public issue. The rate at which we are losing established agricultural landscape will without doubt affect the economic and social base of our country. The south western wheat belt in Western Australia is the worst affected region: authorities estimate that 1.8 million hectares in the region currently suffer from salinity. Worse still, they forecast that this area could double within the next 15 to 25 years if no action is taken. In all, a staggering six million hectares are at risk of becoming saline in Western Australia. On the eastern side of the continent, about 200,000 hectares of Australia’s most important catchment, the Murray Darling Basin, are afflicted. Scientists predict that this could increase to a million hectares by the year 2010. Federal and State Governments have now allocated large sums to undertake remedial works in an attempt to manage the impact of salinity. The proposed remedies will see a rationalisation of farming methods and reduced quantities of water being available for agriculture in these regions. What are our Governments doing? In 1994, the Council of Australian Governments (COAG) endorsed a reform framework for Australia’s water industry. The water reforms became part of the National Competition Policy (NCP) agreements, signed in 1995. Among the COAG water reforms was the requirement that future infrastructure developments be subject to tests of economic viability and ecological sustainability. States that did not comply faced stiff penalties. Dam building in Australia virtually ended with the introduction of these NCP reforms and some six years later there are some serious concerns about their appropriateness, in particular in lesser developed regions outside NSW and Victoria. One does not have to look far to find examples of ‘model’ water schemes which were established with Government assistance in Australia prior to the NCP reforms. The Emerald Irrigation Scheme, in Central Queensland was developed in the 1970’s and is based around the Fairbairn Dam. A joint scheme between Federal and State Governments, the scheme provides benefits to a wide range of stakeholders and has seen the population of Emerald increase from 2,000 in 1966 to 11,000 in 1999. The Fairbairn Dam also made possible the development of major coal fields and associated power stations and other industries, reflecting the multiplier effect resulting from such schemes and which now underpin the prosperity of the region. A slightly more urgent recognition of our current predicament came earlier this year from a House of Representatives Standing Committee in a report entitled ‘Time Running Out’ (Report of the inquiry into infrastructure and the development of Australia’s regional areas, entitled ‘Time Running Out’ prepared by House of Representatives Standing Committee on Primary Industries and Regional Services in February 2000.). Key issues which were identified in the report were: The Committee is convinced of the need for investment in existing and new water infrastructure and that the key to success will be the establishment of effective partnerships between governments and the private sector to facilitate investment. Considerable evidence was received criticising the NCP Water Reform Framework as unnecessarily stifling investment. Significant evidence was received relating to Queensland’s need for new and upgraded water resource infrastructure throughout that State. The State Government’s submission (as well as other groups) highlighted the State’s huge amount of water run off, currently largely untapped. Evidence from the NSW Government pointed to the need for national coordination of water infrastructure to ensure that Australia remains competitive from an investment and export point of view. Citing AusCID testimony that much of Australia’s irrigation system is over 60 years old and loses up to 30-40% of its volume through evaporation in open channels, seepage or outmoded practices. Committee recommends that government view water as a development resource and that it must play a part in facilitating upgrading and development, otherwise private interest and investment in developing new ideas for decaying areas will go elsewhere. Development of Australia’s Water Resources While NSW utilises 56% of its divertable resource and Victoria uses 41% of its water resource, it is the rest of Australia with its huge untapped resources, that is the key to the future prosperity of the nation. In Queensland only 11% of the resource is used while in the Northern Territory it is estimated that irrigated agriculture lands could increase ten fold if surface runoff could be harvested and stored. Equally in the north of Western Australia, frontier regions such as the Timor Sea division utilise little more than 1% of their resource. In other words, whilst we are continually reminded that Australia is the world’s driest inhabited landmass, we do in fact have abundant, largely untapped and unutilised water resources. Over the next century, while the world’s population expands and water becomes a scarce commodity in neighbouring regions, we have the opportunity and in fact an obligation to develop our resource in a sustainable manner. With world freshwater demand doubling every 20 years, the significance of a clean and reliable source of clean water to future prosperity has not been lost on other leading industrial nations. In 1999 the USA announced the commencement of the $US7.8 billion Everglades scheme in Florida, an historic partnership between Federal, State, local and tribal leaders. The proposed scheme will capture most of the fresh water that now flows unused to the ocean and the gulf and deliver it where and when it is needed most. With ecosystem restoration as the overarching objective, 80% of this new water will be devoted to environmental restoration throughout the Everglades with the remaining 20% benefiting cities and farmers, enhancing water supplies and supporting a strong sustainable economy for south Florida - well into the 21st century. Figure 4 – Distribution of Surface Run off versus Degree of Water Resource Commitment (ATSE, 1999). Does Australia have the reform zeal necessary to implement a strategy such as the Everglades scheme? Are our governments up to it? Are we capable of uniting the stakeholders and moving forward with a vision to match the far sighted thinking of the Americans or indeed those who got the Snowy scheme off the ground some 50 years ago? As demonstrated in Figure 4, with the exception of the Murray Darling area, a good portion of Australia’s rainfall flows back out to sea. In Queensland, the mean annual discharge of all its rivers is some 159 million megalitres, which is 40% of the total discharge from mainland Australia. (Contrast this volume of mainly unutilised water against over utilisation figure of around 0.9 million megalitres in the Murray Darling Basin where Australian governments are currently spending hundreds of millions on rescue packages). Figure 5 – Average Annual Discharges from Queensland’s Water Regions. New Schemes Queensland has substantial potential for future water resource development with major opportunities already identified on the Burnett, Fitzroy and Burdekin Basins, all of which run to the East Coast as well as other schemes in the Gulf. The Nathan Dam The Nathan Dam located on the Dawson River in Central Queensland is an example of a major water scheme which is ‘hung up’ as the private developer and the Queensland Government grapple with the COAG criteria. The $120m scheme would enable the development of up to 30,000 Ha of irrigated agriculture in the Dawson Valley as well as supporting a coal mine and a new power station. The project has negotiated all the normal hurdles including an Impact Assessment study but has stalled because the private developer is struggling to achieve a ‘bankable’ model based on assumptions normally used to assess and bring certainty to such private infrastructure schemes in Australia – put simply, he can’t make it stack up in the short term based purely on water sales. But evaluating a major water scheme which will have benefits, both direct and indirect, for decades, if not centuries to come, can be difficult. COAG needs to take a fresh look at their economic assessment methodology which should include realistic multipliers to account for the broader community benefits derived from these schemes - if the acclaimed Fairbairn Dam had been subjected to the same ‘financially viable’ process as faced by the Nathan Dam, then it would never have been built. Governments should be openly encouraged to participate in new infrastructure projects where many of the long term benefits flow not to the private developers, but to others. The farsighted Darwin to Alice Railway line is an example where the greater benefits to the nation are recognised through government contributions. This scheme is currently being assessed (along with dozens of others in Queensland) to confirm acceptable level of development under a Water Allocation and Management Plan (WAMP) as required by the COAG agreement. However until more realistic ‘multipliers’ are applied to these schemes, the outlook looks bleak. The Shoalhaven Scheme Figure 6 – Sydney’s Water Storage Capacity. Our largest city, Sydney, with some 3.9 million inhabitants, is now also well overdue for an upgrade of its water infrastructure - almost 80% of the city’s water storage capacity is currently contained within the Warragamba Dam. Whether it be in consideration of the recent water quality crisis, environmental releases to address the increasing problem of degradation in the Hawkesbury Nepean River, increased population demands, climatic change, alternative potential hydro schemes or catastrophe risk management, some urgency needs to be brought to securing the region’s future water supply. One potential option is to construct a dam on the upper reaches of the Shoalhaven River to the south, which would have the potential to not only double the existing water storage capacity of the region but also to contribute significant quantities of peak load hydro-electric power into the grid. The Border Rivers Scheme Another more visionary scheme currently being evaluated by Thiess Pty Ltd and Macquarie Bank is the Border Rivers Regional Development scheme in Northern NSW. The scheme involves the pumping around 950,000 MLpa of water from a weir located on the Mann River near Grafton via a 70km pressure tunnel to the west across the Great Dividing Range. The scheme which would be financed by the private sector has the potential to support major new rural industry west of the Range as well as providing flood mitigation and hydropower to the coastal areas. The scheme also provides the opportunity for environmental releases to the Murray-Darling Basin, where, incidentally, irrigation currently exceeds sustainable levels by about the same volume, 950,000 Megalitres per year. Long Pipelines One of the problems with our abundant water sources is that they are remote. I have no doubt that in the future we will see a shift of agriculture to the North but equally, the future will also see us transporting water long distances to existing population centres. Long pipelines have traditionally been ruled out due to their high capital costs – at today’s rates, a 2m diameter pipeline could cost around $1,200/m or say $1.2 billion for a distance of 1,000km to link up a water rich region to the north with an overloaded system in the south but the cost of owning and operating such a pipeline works out at not much more than $1 per day per household – a seemingly small price to pay for a reliable source of clean fresh water. When compared to the sums now being allocated to repair of overtaxed river systems or to the cost impost of creating new infrastructure in developed areas, long pipelines may become realistic options in the not too distant future. Whilst none of these schemes can be built without affecting the environment in some way or another, the fact remains that they can be built and operated in a far more environmentally efficient framework than the older existing schemes, which to some extent they should be replacing. Government Rescue Packages In October 2000, the NSW and Victorian state governments jointly announced a $300 million scheme to return flows to the Snowy River. Days later the Federal Government unveiled a $1.5 billion plan to tackle salinity and the water quality crisis – green groups felt that this funding fell well short of the $3.7 billion in annual expenditure which they believed was necessary. The so far unanswered question is, as we go forward, where does this money come from? Unless it is recovered directly from the water users through a levy, then this is nothing short of a straight out subsidy – tilting the playing field firmly in favour of the existing environmentally inefficient schemes and making a folly of COAG’s ‘economically viable’ criteria! New schemes such as the Nathan Dam, which are engineered to address environmental issues are doomed because they are unable to compete with the existing environmentally subsidised schemes. Australia’s commitments to reducing Greenhouse Gas and the role of hydro-electricity in this endeavour need also be considered in the water debate. In order to meet Australia’s implied commitments to the Kyoto protocol, we would need another two Snowy schemes – that was before the recent decision to redirect water with a hydropower potential of 500GWhr pa back down the Snowy River. Whether it be through a direct environmental levy applied to all water, a salinity levy paid by all Australians, or through taxation of the wealth created through new dams; governments are duty bound to implement long term solutions. Selling national assets such as Telstra to fund a patch up of overstressed river systems in NSW and Victoria may be politically expedient for the governments of those states, but it is not a long term solution for Australia. What is a realistic price for water? Water is crucial to Australia’s natural and economic wealth. Yet unlike other naturally occurring resources such as oil, water is a highly undervalued commodity. This results in waste, misuse, inefficiency and a disregard of our river systems. It is not difficult to arrive at a realistic value for water. The trading of water licences demonstrates that water has a high value and the water market brings this value into focus. But trading of water rights goes nowhere near far enough toward creating sustainable solutions, in particular in addressing the issue of environmental degradation. The annual losses, Australia wide, due to agriculture based degradation such as soil erosion and salinity are conservatively estimated to be $1.5 billion per annum. This cost must be included in the equation. The real value of the water needs to be recovered from the users of water in Australia, be they irrigators, industry or domestic – this can be best achieved through Government reinforced legislation. It is the duty of governments, working with private infrastructure providers to manage this process. The calculation of the value of water must be built up to include: an appropriate return on the funds employed in the capital infrastructure based at current replacement value; operating costs of the infrastructure, including costs of rehabilitation and upgrade of existing infrastructure: a fee or levy which should be used to; fund the repair of past environmental degradation; fund the buy back of environmental releases; fund development of new technology and research; and to promote the construction of new environmentally efficient schemes. Only when this system has been implemented will we: ensure efficient and cost effective stewardship of existing resources; allow future more ‘environmentally efficient’ schemes to become financially viable; fund the buy back of environmental releases back into river systems such as the Snowy river, but equally, to demonstrate the cost to the community of such an initiative; fund remedial works and technology to reverse damage already done to our river systems. A Consumption Levy on Water To dwell for a moment longer on my simple analogy between petrol and water pricing, Table 1 below highlights the huge and ever increasing revenues derived from petrol taxes in Australia, currently running at over $10 billion per year. These fuel taxes have certainly driven changes in society and I am convinced that the same logic could well be applied to our water. As demonstrated by the table, a comparatively miniscule tax on water would go a long way to raising the $3.7 billion per year which environmentalists suggest is needed to redress current problems.

Table 1 – Comparison between Petrol Tax and Possible Water Tax.