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STANDING COMMITTEE ON RURAL AND REGIONAL AFFAIRS AND TRANSPORT
12/11/2008
Water Amendment Bill 2008

CHAIR —I welcome Professor Michael Young, representing the Wentworth Group. Do you wish to make a brief opening statement?

Prof. Young —I would. I have circulated to the committee a document called ‘Suggested amendments to the Water Act’. I would like to start by praising everybody—the governments of Australia, the state and the Commonwealth. The rest of the world is watching how Australia struggles to solve the Murray-Darling’s crisis and we really are at the eleventh hour. I would like to start by congratulating everybody on the progress made. It has been a very difficult journey in negotiating all of the amendments that have been put forward.

I would like also to recommend that the Senate pass all of the amendments that are before your consideration at the moment. The time has come to expedite implementation. We could go on arguing about reforms and trying to improve things, but the cost to communities and to the river itself is too high. We need a new authority. Having said that, I would like to identify four amendments that could be made to the legislation that would make it easier for the authority to start the next stage of implementing all of the reforms that are necessary in establishing a basin plan.

The first one is to give the authority an explicit responsibility for pursuing the objects of the act and to do that in partnership with other agencies. The act at the moment as drafted is not clear in its instruction to the authority. We have committed to setting up an independent authority and I would like to recommend to you that it would be useful if the authority were explicitly invited to pursue the objectives of the act.

The second amendment focuses on the extreme complexity of the Murray-Darling Basin and particularly the fact that the basin is not uniform in its water supply systems from one end to the other, particularly in terms of variability. The act as drafted at the moment talks about using averages, but this misunderstands the skewed nature of water supplies. In particular, if you work it out, the variability for the River Murray system is 15.5, but for the Darling system it is 300 times greater than that. It is actually 4,705.2. Hence to put into a basin plan a framework that says manage on averages overconstrains the options. I would like to recommend that we delete the word ‘average’ so that the authority when it prepares the basin plan can contemplate using means, medians, shares and all other mechanisms to set a sustainable limit. To constrain it to averages makes a mistake for the future of Australia. I recommend to you that you consider taking the word ‘average’ out so that we invite the authority in its basin plan to define the long-term sustainable diversion limit.

CHAIR —You know how these committees go. We really are interested in hearing about your amendments, but would it be possible to shorten them because I am sure there will be a lot of questions from senators?

Prof. Young —Could I have another one minute? That is what I was planning to do. I am almost there. The third amendment is to add in the option for the authority to define the sustainable diversion limit using shares as recommended in the National Water Initiative. The fourth is to include in there a reference that requires the plan to consider the implications of management in one part of the basin for all other parts of the basin. At the moment there is no clear instruction for that to happen.

In conclusion, I urge the committee to adopt all of the recommendations before it, and to give consideration to including a reference that invites the authority to pursue the objectives of the act, to take away the constraint of an average so that we can use other mechanisms where appropriate, to introduce the idea of shares as required under the National Water Initiative, and to require a basin-wide consideration.

CHAIR —Thank you. Through no fault of yours, we were a bit late in starting. We will go to questions. Senator Farrell.

Senator FARRELL —My question relates to the matters you have just spoken about. Is it not true that all of the things that you are proposing are things that are capable of being done under the current water act; that you do not actually need further amendments to the legislation to do what you are seeking to do?

Prof. Young —Yes, you are correct. It is possible to do all of these things now without amending the act. The difference is that it is harder for the authority to start the discussion in an open way. For example, if you read the fine print you discover that you do not have to use averages. You can use other methods. It would be much easier for an authority if it could go out and ask the community in which parts of the basin you should shares, in which parts you should use quantities, in which parts you should use an average and in which parts you should use a mode or a median. By putting in these extra words it makes it easier for the authority to start. You are correct that it is not necessary, but it does make it much easier for an authority to start from the objective basis of science rather than having to say, ‘Look, averages don’t work for half of the system.’

CHAIR —Senator Xenophon.

Senator XENOPHON —An integral part of this plan are savings from infrastructure where those savings are real. How do you make sure that those savings from infrastructure are real and what is the best way to achieve them? In relation to that, are you in a position to comment on the north-south pipeline from northern Victoria to Melbourne?

Prof. Young —Firstly, in terms of savings as I understand them, they should all come out from below the cap. There is a very important arrangement in the Murray-Darling Basin Agreement that makes a clear distinction between rules based water, which is above the cap, and water which is allocated for use, for example, to Goulburn Murray water and their bulk water entitlement. As I understand it, savings would need to come from below the cap, and therefore where they are made you would expect them to be demonstrated by the willingness of the person who holds that bulk water entitlement to amend their licence. If there are 100 gigalitres of savings to be returned to the environment, the first action you would expect to see would be the chair of that authority or the person who holds the licence amending that licence and reducing it by the size of the savings. If they are prepared to do that, it should be a reasonable deal, because they are forced to do the due diligence themselves and give up the water right in proportion to the savings they think they can achieve.

Senator XENOPHON —How are you suggesting the basin plan would best be developed? Would it be by being more prescriptive or by schedules?

Prof. Young —There is a tension in the way the basin plan is set up at the moment in that the basin plan is structured to deal with everything. Hopefully a mechanism can be found perhaps in the way we—

CHAIR —I am sorry. We will be back shortly after the division.

Proceedings suspended from 3.47 pm to 3.52 pm

CHAIR —Senator Xenophon will be back shortly. Senator Nash has some questions on the same topic.

Senator NASH —On the issue of the pipeline, a broader question just for your opinion is: given the nature of the decisions being made around the basin and the sustainability of the basin, especially given that at this stage only 849 megalitres of real water have been savings in the basin, do you think it is appropriate to suck 75,000 megalitres of real water out of the basin for Melbourne, in terms of the future sustainability of the basin?

Prof. Young —Let me comment on this carefully. Several years ago I was commissioned to write a study that looked at the implications for Australia of what would happen when we had another five million people in Australia and we had a reduction of 15 per cent in water supply across Australia. It became clear from the economic modelling that we did that, if Adelaide remained connected to the River Murray and Melbourne did not, jobs would shift from Melbourne to Adelaide. In an economy access to cheap water generates jobs. That is the reality. This has to be seen as part of which cities are allowed to connect and which cities are allowed to extract. That is background to what I am about to say, which is important.

The second part of it is that the accounting must be done very carefully and properly. When water is taken out of a basin 100 per cent of water is taken out and there is no return back. Under the current accounting arrangements we have we give people licences to take water out, but we do not require them to return water back. A lot of the water does return back through the groundwater systems and back into the river. When you pipe water out of a basin you pipe 100 per cent out and none returns. The second point is that the connections need to be understood very carefully and particularly return flows. Hopefully the new basin plan will deal properly with return flows and for the first time ever we will account for connections between ground and surface water systems particularly.

Senator NASH —I understand the premise of what you are saying, but that is all very well historically. We are now in a situation with the basin where perhaps jobs through cheap water out of the basin is not necessarily a good reason to do something considering the state of the basin at the moment. As you quite rightly said, if we pipe it out of the basin to Melbourne it is out. How do you see any water being returned to the basin?

Prof. Young —That is my point. No water would be returned.

Senator NASH —I just wanted you to clarify that. No water will be returned.

Prof. Young —There is an increased water use, because you are moving it out of the basin. If you are going to do that in a way that accounts properly for the water resource, you would say that, if you are going to take out, the amount you take out is not the amount you secure in the basin. If you do reduce somebody’s entitlement and, say, for example, Goulburn Murray’s water entitlement goes down and Melbourne water receives an entitlement, the amount that goes out of the basin would be less than the amount that is taken off Goulburn Murray water’s entitlement, so that the connections are properly accounted for.

Senator NASH —Given the nature of all of the work that is being done at the moment to ensure the sustainability of the basin, in your opinion is it sensible to be taking that much water, that 75,000 megalitres, out when we are trying to do everything we can to promote water efficiency and better water use within the basin itself? It seems a bit illogical.

Prof. Young —I think it is wiser if I do not make political judgements about choices between efficiency and equity, and about trade-offs between regional development. That is what you are really asking me to do. I understand exactly where you are coming from. That is a political judgement as to whether or not we favour one over the other.

Senator NASH —No. I am asking you as a professor what your informed opinion would be on the sustainability—not the politics of where that water is going, but the impact on the sustainability of the basin—of taking that much water out. That was the intent of my question. I am sorry, I may not have been very clear.

Prof. Young —The sustainability of regions is compromised by taking water out, unless it is done at a very high price and then that money can be reinvested. There are exceptions. If the price is very high and the regions receive enough money to develop in ways they otherwise would not have had to, then you can have a win-win. Whether or not that is occurring I do not know at this stage.

CHAIR —Senator Xenophon, you were part way through a question before the bells went.

Senator XENOPHON —I seek some clarity from Professor Young in relation to the issue of what would be the best way to develop the basin plan. Given the government’s position will be that there is an IGA and to depart from it would mean going back to the states, so allowing for that constraint to what extent can the basin plan be better developed, in your view, to deal with the crisis of the basin?

Prof. Young —It would be desirable if we could find a way to establish a basin plan that is a core document that can endure forever. Attached to that plan would be some things that are like regulations in parliament that can be alive and adaptive through time. We do not have to have, as the act envisages at the moment, an entire plan that is cast in stone. We need a core plan that is cast in stone and then parts that can adapt and evolve through time. I can see mechanisms and tricks to write a plan that creates the opportunity to do this, but it is a problem in the way it is crafted at the moment.

As I have tried to stress to the committee, I think we should sign off on the legislation as it is, or as proposed with the amendments, possibly making the major ones that I have identified today, and then expect to come back in perhaps a year or a year-and-a-half’s time to facilitate those sorts of changes. It is important for the sake of the communities involved and for the sake of the river itself that we move forward.

CHAIR —Thank you. Senator Fisher.

Senator FISHER —I would like to ask you about the human critical needs provisions in the bill. In that context, what are your views of the categories of users of the Murray-Darling Basin system? Who are they? Are they humans, the environment? How would you rank them in priority when there is not enough water for all of those users? What are the categories? How would you rank them? What are your view as to the effect of the bill on those outcomes?

Prof. Young —We need to be very careful. In the River Murray, which is separate from the Murray-Darling and separate from ground water, in the river system the water we always dream of is floodwater, underneath that there is shared water, and then there is what Jim McColl and I call maintenance water, which is water that includes the water that is needed to be conveyed to the end of the system. The amendments that are proposed provide for conveyance water as far as Wellington, which opens up the possibility that the lower lakes have now been discovered as the basin’s newest dam. What we are using is a mechanism where we can run down the lakes, just like you run down any dam. It is counterintuitive, but it is the other end.

With regard to your question about critical human needs, the framework that is put in there at the moment is some of the maintenance water—what I would call the minimum amount—can be used for critical human needs. That is a judgement. You could craft the basin plan and you could craft the categories either way. You can put critical human needs on top of conveyance water or you can mix it with conveyance water. What they have done at the moment is they have mixed it with conveyance water. It is an academic choice and, depending on the fine print of how you write it, either way would work, because what we have not done is go past concept. The concept at the moment is that when push comes to shove, if there is not enough water for conveyance and for critical needs, then conveyance does not necessarily have priority over critical human needs.

CHAIR —There was a third part to that question. Are you satisfied that Professor Young has answered your three questions, Senator Fisher?

Senator FISHER —Not yet.

CHAIR —We really are tight for time. If it is the same question I will have to pass to your colleagues and if there is any time I will come back to you.

Senator FISHER —Does the bill do that? Does the bill attempt to prioritise human critical needs water and conveyancing water at the top?

Prof. Young —It tries to achieve it all the way down.

Senator FISHER —As the first priority?

Prof. Young —I think the bill attempts to do it, but what it really does is it passes a lot of judgement to the basin plan. There is so much grey area in there that it is really at the next level that the basin plan will determine the answer to your question. That is a matter for the authority to work very carefully through in a lot of detail.

Senator FISHER —Chair, I would like to place these on notice.

CHAIR —I will come back to you at the last minute to put them on notice. Senator Birmingham, I will ask you to be very short with your questions.

Senator BIRMINGHAM —Following on from where Senator Nash was at with the north-south pipeline, you indicated, in a sense, that if you were to give a 75 gigalitre licence to pipe water to Melbourne you would need to take, for example, a 100 gigalitre licence out of the Goulburn catchment area. Is that a first step?

Prof. Young —Conceptually, yes. I have not assessed whether they are the right numbers, and I am not an expert in that. You would expect an adjustment.

Senator BIRMINGHAM —Obviously the Victorian government’s promise is that they are saving more than that from their infrastructure bill from the food bowl modernisation project?

Prof. Young —The acid test is: are they prepared to reduce Goulburn-Murray Water’s licence by that amount?

Senator BIRMINGHAM —Your contention would be that in a sustainable management approach they should reduce that licence before they start to pipe any water? In a sense, they should transfer the licence.

Prof. Young —There would have to be a legal mechanism in place that ensured that the adjustment of the licence would occur. If the pipeline took five years to build, I could see an arrangement where they could go on using the water until such time as they switched on the pipeline, but you would expect the adjustment to be made before the pumps were switched on.

Senator BIRMINGHAM —At present it looks like the pipeline will be built before the modernisation project is completed. Would that be the wrong way around?

Prof. Young —I have not inspected the contracts, so I do not know the answer to that. I presume that they have been signed and it is all watertight.

CHAIR —Senator Heffernan.

Senator HEFFERNAN —According to my calculations, if we spend this $10 billion in the way it is proposed to be spent, and if the science is 50 per cent right on the future of the median flow of the system, we could find ourselves after spending the money still with a zero allocation generally for low-security licences. Do you agree with that?

Prof. Young —If it remains very dry, yes. The reality is that we have a system that has very large evaporative losses from top to bottom and, if we try to maintain that, it does not work as a system. This is why I recommended previously to this committee that now is the time to review the structure of the entire system to work out how you would operate it if it remains dry.

Senator HEFFERNAN —Take the Murray, which has 600,000 to 700,000 gigalitres, 50 are median, and 5,700 licences. We got in 1,200 gigalitres last year, and we took out 4,100 gigalitres. We are obviously depleting the reserves. Does that mean that, if we do not do that and we reconfigure the whole of the run-off against some actuarial assumption of the future, we could waste a lot of money? Given that entitlements these days are a percentage of the water that is available, and that most people do not understand the gross versus the net run-off—even with forestry interception where those fires in the Snowy are going to take about 1,000 gigalitres for nine years of the regrowth life gross and about 600 gigalitres net because some of it is going to return—if we do not reconfigure the whole thing against the science, are we not just, as they say, blowing in the wind?

Prof. Young —You are right; there is a real risk that we could spend on infrastructure that proves to be redundant. It is a very difficult time. The National Water Initiative, which all governments agreed to comply with, requires a level playing field. What is happening at the moment is that we are finding bits of the system that are inefficient and we are upgrading them. That breaches the National Water Initiative. There is a real risk this could come at a cost to the nation. While investment goes into the core bits of infrastructure, which you would expect to survive no matter what happens, there is no problem. If we go one step further than that, my strong advice as an economist dealing with issues like this is that we reset the system in terms of the overall plan, first, which includes looking at the structure of the river, because there is natural infrastructure, and then there is built infrastructure for supplying water. We are upgrading the built infrastructure, but we have not yet looked at the natural infrastructure, the river itself, and that must also be a priority.

Senator HEFFERNAN —I would like to take you to the water act regarding the final veto power of the states not on the act but on the water. Are you across this? I think there is a flaw in this act, if we do not do something about the final veto power of the states. Have you any comments to make about that?

Prof. Young —My earlier work recommended a different structure. As I stressed to the committee at the start, all governments should be congratulated on coming to an agreement. For the sake of the irrigators who are really careful, for the sake of communities and for the sake of the river, it is better to go forward than to have another two, three or four years arguing over what is the best way to do this. We must go forward as a nation for the sake of our own international reputation, people, our climate and river.

Senator HEFFERNAN —At the end of the day an individual state does have a final veto on the water under the water act; is that right or wrong?

Prof. Young —It has a near final veto. There are some ways of doing things that would make it not a final veto.

Senator HEFFERNAN —That is something that this committee ought to turn its mind to.

CHAIR —Senator Siewert.

Senator SIEWERT —The original submissions on the bill last year raised a number of needs for amendments. Peter Cullen was very strong on what he thought we should be doing, particularly around the environmental health issues. Do you still believe that those amendments are appropriate to the bill? Should they still be included in the bill? The Greens took them up—and they are not exactly how they were put to the committee—but are they still relevant?

Prof. Young —Yes, I think they are. If you compare the document that I tabled today with the document I submitted, it is almost the same. I have dropped out two recommendations. One was a recommendation for a basin register. Under the new arrangements we have sort of agreed to do that. The second one is a recommendation to include a power for compulsory acquisition. I have heard time and time again from the community their concern about how that might be abused. I think it is better, at this stage, to leave it out.

Senator SIEWERT —I would like to discuss the issue around the independence of the authority. I appreciate the situation between last time and this time is different. Do you think the authority has the appropriate level of independence now?

Prof. Young —I have recommended one minor change, which is that the authority is given a responsibility for pursuing the objectives of the act. I am comfortable with that in there. I understand the nervousness that as yet the members of the authority have not been chosen. When push comes to shove, authorities earn respect. I have a vision that we will all wake up in two years time and be very proud as a nation that we chose the right people, in that they have produced a basin plan that has celebrated a tremendous step forward and everybody has confidence in them. They will earn their independence through competence.

Senator SIEWERT —I am going to put you on the spot. If you had to pick what were the most important changes or amendments that we should or could be arguing for to the current bill, what would you suggest they be?

Prof. Young —The four I have put forward are the most important. I have put a lot of time and thought into that. The first one is a link to the objects of the act. The second one is about removing averages, because I really stress that an average in Victoria is not the same as an average up at Cubbie Station. If you think Victoria is the same as Cubbie Station, then I would love to spend several hours with the committee explaining the difference. I am sure that is not necessary. Thirdly, we need to open up the opportunity to say we might include shares. The first step that an authority can do, which is really important, is go out to the community and say, ‘Let’s now talk about the best way to put a cap together.’

CHAIR —Sorry to cut in on you. You made it very clear that the whole four are very important. There are still questions and we are running out of time. Senator Siewert.

Senator SIEWERT —I would like to know the fourth one.

Prof. Young —The fourth one is about understanding tradeoffs between different parts of the basin. As phrased at the moment there is no clear instruction that requires the basin to be looked at as a whole. The opening words are: ‘We have to set up the environmental objectives.’ I would have thought the parliament of Australia could go as far as to set up a requirement for the authority to start by looking at the basin as a whole and understand the nature of trade-offs between different parts of the basin, particularly if it becomes drier. It is clear we cannot keep it all going and somebody is going to have to make some very difficult choices about which bits get developed and which bits lose out.

Senator SIEWERT —Thank you.

CHAIR —You can ask another question because Professor Young did give that as part of his opening statement.

Senator SIEWERT —I apologise; I was stuck in the chamber.

CHAIR —That happens to all of us. Do you have any question before we go to the questions on notice?

Senator SIEWERT —I did have, but I cannot locate them.

CHAIR —I will go to Senator Williams, who has one very quick question.

Senator WILLIAMS —Do you see the priority of the environment in the Murray basin as being the biggest issue by far? I heard the words just a minute ago about the environmental priority of the whole basin. The point I am getting at is whether that consideration for the little economies, the production of food and so on, the balanced way for this whole scheme?

Prof. Young —It must be in a balanced way. My greatest concern is that we put in place a regime that works and can cope with change.

Senator WILLIAMS —When you say that works, how do you define ‘works’?

Prof. Young —It can deal with long, dry periods, as we are going through now; it can deal with floods; and it can deal with total changes in technology and in the way water is used. I am very aware of the fact that the last time we had an overbank flow was back in 1998. That was at Euston. It is now 10 years since we have had an overbank flow. There is a very important issue now about the environment in how long we can go without giving those important parts of the Murray-Darling Basin system a drink because we got the management wrong much earlier. What we need is a new system, and that is why I am so enthusiastic that we move forward to a new authority, a new plan and a new management regime as quickly as possible. This is also important for the irrigation communities. I am continuously being phoned by irrigators who are very concerned because they do not know what the future is and they cannot predict it. They want certainty; everybody needs certainty; and we could decide now to give them that certainty.

CHAIR —Good. We are on the right track. Senator Fisher.

Senator FISHER —I have some questions on notice. You can provide answers to these in writing subsequently. In respect of section 86A of the bill, what is your understanding of the meaning of communities who are dependent on basin water resources?

What is your understanding of the meaning of highest priority water use, in terms of critical human needs water and first priority water use in respect of conveyance water?

Secondly, in respect of 86A(2), what is your understanding of the meaning of ‘minimum water that can only reasonably be provided from basin water resources’? What is your understanding of the meaning of ‘core human consumption requirements’, what is your understanding of the meaning of ‘non-human consumption requirements’, and what is your understanding of the meaning of the subsequent reference in 86A(2)(b) to high social economic or national security costs?

Finally, you indicated earlier that effectively the Water Amendment Bill will cause the lower lakes to be a dam. Can you confirm whether that is a result of the lack of provision for conveyance water to go from the lower lakes to anywhere else, and does that effectively cut off the Coorong?

CHAIR —There is a lot there that are on notice. We will get that to you in writing.

Prof. Young —Thank you very much. I would like to add that it would be wiser if the committee does not try to play with those sections of the bill because it relates to the referral of powers. If you chose to change those words then we would have to go back to all the parliaments of Australia again, or all of the basin states, and the cost to the basin of doing that would be enormous.

—Thank you. It is a pleasure to see you in such high spirits. We do thank you for your time. I am sorry that we messed you around with the division half way through.

[4.20 pm]