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Water Amendment Bill 2015



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ISSN 1328-8091

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BILLS DIGEST NO. 20, 2015-16 8 SEPTEMBER 2015

Water Amendment Bill 2015 Bill McCormick and Sophie Power Science, Technology, Environment and Resources Section

Contents

Purpose of the Bill ............................................................... 2

Structure of the Bill ............................................................. 2

Background ......................................................................... 2

Government commitments ................................................... 3

Independent review of the Water Act .................................. 3

SDL Adjustment Stocktake .................................................... 3

Committee consideration .................................................... 4

Senate Environment and Communications Legislation Committee ............................................................................... 4

Senate Standing Committee for the Scrutiny of Bills .............. 4

Policy position of non-government parties/independents ..... 4

Position of major interest groups ......................................... 5

Financial implications .......................................................... 8

Statement of Compatibility with Human Rights .................... 8

Parliamentary Joint Committee on Human Rights .................. 9

Key issues and provisions..................................................... 9

1,500 gigalitre limit on water purchases ................................. 9

Operation of the limit .......................................................... 10

Exceptions: water recovery that is not included in the limit...................................................................................... 10

Validity of contracts ............................................................ 12

Adjusting SDLs and off-farm water efficiency ....................... 12

Date introduced: 28 May 2015

House: House of Representatives

Portfolio: Environment

Commencement: The substantive provisions commence on proclamation or six months after Royal Assent, whichever occurs first.

Links: The links to the Bill, its Explanatory Memorandum and second reading speech can be found on the Bill’s home page, or through the Australian Parliament website.

When Bills have been passed and have received Royal Assent, they become Acts, which can be found at the ComLaw website.

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Purpose of the Bill The purpose of the Water Amendment Bill 2015 (the Bill) is to amend:

• the Water Act 2007 (Cth)1 to impose a statutory limit of 1,500 gigalitres (GL) on Commonwealth surface water2 purchases (buybacks) across the Murray-Darling Basin and

• the Murray-Darling Basin Plan 2012 (Basin Plan)3 to provide increased flexibility in the recovery of 450 GL of water through efficiency measures funded under the Water for the Environment Special Account, and in particular by allowing off-farm efficiency projects to qualify as efficiency measures.

Structure of the Bill The Bills contains one schedule with two parts:

• Part 1 amends the Water Act to impose a statutory limit of 1,500 GL on Commonwealth purchases of surface water across the Murray-Darling Basin and

• Part 2 amends the Basin Plan to provide increased flexibility in the recovery of 450 GL of water through efficiency measures funded under the Water for the Environment Special Account.4

Background The Murray-Darling Basin is the catchment for Australia's largest river system, comprising the Murray and Darling rivers and their tributaries. Ranked fifteenth in the world in terms of length (3,780 km) and twentieth for area (covering 1,056,000 km2) it extends across 14 per cent of Australia's landmass.5 Over the years there has been an over-allocation of water entitlements in many areas of the Murray-Darling Basin (MDB). Water resources have not been able to meet the water needed for environmental flows and human requirements.6 In 2007 the Commonwealth intervened to address over-allocation and established the Murray-Darling Basin Authority (MDBA).

The Water Act established the Murray-Darling Basin Authority (MDBA), a statutory authority that, with the Basin state and territory governments, manages the Murray-Darling Basin’s water resources. As required under the Water Act, the MDBA has prepared a Basin Plan, which was adopted in November 2012, to provide for the integrated management of the Murray-Darling Basin’s water resources in a sustainable manner.7

A key element of the Water Act and the achievement of the objectives of the Basin Plan is the requirement to establish sustainable diversion limits (SDLs) across the Basin based on environmental water requirements. SDLs are described in the Water Act as the maximum long-term annual average quantities of water that can be taken on a sustainable basis from the Basin or a part of the Basin.8 The amount of water that can be diverted in each catchment, as set by the state water resource plans, must not exceed the SDL set in the Basin Plan. The Basin-wide long-term average surface water SDL is 10,873 GL per year, which represents a reduction of 2,750 GL a year from the 2009 baseline diversion level (known as the ‘gap’).9 One of the methods to help to achieve this reduction (or ‘bridge the gap’) is by securing water entitlements (‘buybacks’) for environmental use.10

1. Water Act 2007 (Cth), accessed 15 June 2015. 2. Water draining into wetlands, rivers and streams (from rainfall) is known as surface water. Source: Murray-Darling Basin Authority (MDBA), ‘Surface water in the Basin’, MDBA website, accessed 3 September 2015. 3. Murray-Darling Basin Plan 2012 (Basin Plan 2012), accessed 15 June 2015. 4. Basin Plan 2012, accessed 20 August 2015. 5. MDBA, ‘Surface water in the Basin’, op. cit. 6. B McCormick, ‘Murray-Darling Basin water issues’, Briefing Book: key issues for the 43rd Parliament, Parliamentary Library, Canberra,

12 October 2010. 7. Water Act, subsection 19(3). See also section 20 which sets out the purpose of the Basin Plan. For further information on the development of the Basin Plan, see MDBA, ‘Development of the Basin Plan’, MDBA website, accessed 20 August 2015. 8. Water Act, subsection 22(1), table item 6. 9. Department of the Environment, Submission to Senate Standing Committee on Environment and Communications, Inquiry into the Water

Amendment Bill 2015, p. 2, accessed 20 August 2015. Note that there is flexibility for the size of this gap to be reduced under the SDL Adjustment Mechanism, which will be determined in 2016: Basin Plan, Chapter 7. See also Murray-Darling Basin Ministerial Council, The sustainable diversion limit adjustment mechanism, joint government communications booklet, Murray-Darling Basin Ministerial Council, November 2014, accessed 20 August 2015. 10. Department of the Environment, Water recovery strategy for the Murray-Darling Basin, report, Department of the Environment, June 2014,

p. 5, accessed 4 September 2015.

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Government commitments In November 2012, then Leader of the Opposition, Tony Abbott, made a commitment in a letter to the NSW Irrigators’ Council that ‘if elected, the Coalition will amend the Water Recovery Strategy to apply a cap on buybacks of 1500 GL’.11 The Water Recovery Strategy for the Murray-Darling Basin was published in June 2014 and confirmed that there would be a 1,500 GL limit or ‘cap’ on surface water buybacks.12

On 10 March 2015 the Government further announced that it would also honour this promise by legislating to cap buybacks in the Murray-Darling Basin at 1,500 GL.13 This Bill implements that commitment. In his second reading speech, the Parliamentary Secretary to the Minister for the Environment explained that the ‘remaining water recovery task is focused on infrastructure upgrades, efficiency projects and environmental works and measures’.14

Independent review of the Water Act An independent review of the Water Act was conducted in 2014, with the final report published in November 2014. In relation to the issue of a cap on water buybacks, the report notes that:

A number of submissions raised the commitment made by the Australian Government in the 2014-15 budget to limit water purchases to 1,500 GL and suggested that this limit should be legislated in the Act. Other submissions indicated a concern that the 1,500 GL cap could impede the Australian Government’s ability to bridge the gap. The Panel notes that it is a decision for the Australian Government as to whether this commitment should be legislated.

15

The Department of the Environment website indicates that the Government is still considering its response to the recommendations of the review.16 Further legislation to amend the Water Act in accordance with the government response to the review is on the list of legislation proposed for introduction in the 2015 Spring parliamentary sittings.17

SDL Adjustment Stocktake More recently, in August 2015, the MDBA released an SDL Adjustment Stocktake Report in relation to SDL measures.18 The report examined the potential effectiveness of measures being considered by the Basin state governments towards adjusting the Sustainable Diversion Limit. This includes reporting on progress in developing potential supply, efficiency and constraints measures; and the prospects of any additional proposals that could add to the supply contribution.19

On the release of the report, the Minister for the Environment stated that the report ‘showed projects were on track to deliver the environmental outcomes outlined under the Basin Plan’ and that ‘over 500 gigalitres less water is needed to meet the environmental targets in the Plan and that states are on track to deliver the required projects’.20 As such, the Government suggested there is a reduced need for water recovery under the Basin Plan. The Government also reiterated its commitment to focus water recovery on infrastructure efficiencies rather than water buybacks.21

11. T Abbott (Leader of the Opposition), ‘Letter to A Gregson (Chief Executive Officer of the NSW Irrigators’ Council)’, NSW Irrigator’s Council website, 29 November 2012, accessed 20 August 2015. 12. Department of the Environment, Water Recovery Strategy, op. cit., p. 18. 13. G Hunt (Minister for the Environment), B Joyce (Minister for Agriculture), B Baldwin (Parliamentary Secretary to the Minister for the

Environment), ‘Coalition to legislate water buyback cap’, joint media release, 10 March 2015, accessed 20 August 2015. 14. B Baldwin, ‘Second reading speech: Water Amendment Bill 2015’, House of Representatives, Debates, 28 May 2015, p. 4982, accessed 4 September 2015. 15. E Moran et al, Report of the Independent Review of the Water Act 2007, report prepared for the Department of the Environment, Department

of the Environment, November 2014, p. 10, accessed 20 August 2015. 16. Department of the Environment, Independent Review of the Water Act 2007, Department of the Environment website, accessed 20 August 2015. 17. Department of Prime Minister and Cabinet, Legislation proposed for introduction in the 2015 Spring Sittings, accessed 20 August 2015. 18. W Martin and G Turner, SDL adjustment stocktake report, report prepared for the MDBA, August 2015, accessed 2 September 2015. 19. Ibid.

20. G Hunt (Minister for the Environment) and B Baldwin (Parliamentary Secretary to the Minister for the Environment), Independent stocktake confirms environmental targets, media release, 27 August 2015. 21. Ibid.; see also S Neales, ‘Water savings drive shifts from farms’, The Australian, 28 August 2015, p. 7, accessed 2 September 2015.

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The Department of the Environment has suggested the Stocktake Report provides ‘assurance that the Basin Plan gap can be bridged without reaching the 1500 gigalitre limit’.22 As a result of the stocktake indicating that over 500 GL less environmental water will be needed to meet the target of the Basin Plan, the South Australian and Victorian governments have decided to join with the NSW and Queensland governments in agreeing to the cap on buybacks.23

Committee consideration Senate Environment and Communications Legislation Committee On 18 June 2015 the provisions of the Bill were referred to the Senate Standing Committee on Environment and Communications for inquiry and report by 8 September 2015. Details of the inquiry are here.24 At the time of writing, the Committee had not yet reported.

Senate Standing Committee for the Scrutiny of Bills The Senate Standing Committee for the Scrutiny of Bills had no comment on the Bill.25

Policy position of non-government parties/independents The key policy issue in relation to this Bill is the introduction of a 1,500 GL cap on water buybacks under the Water Act.

Mark Butler, Shadow Minister for the Environment, Climate Change and Water, reportedly said in April 2015 that the ALP couldn’t commit to the buyback cap until the views of the various state governments were known.26 However he was later reported as saying that the cap:

…would be opposed if it compromised the “overarching objective” of ensuring the basin plan was achieved. 27

After the release of the stocktake report referred to above, a spokesperson for Mr Butler reportedly said that the Opposition will be reconsidering its position in light of the support for the cap by all the Basin States.28

Senator Lee Rhiannon, Greens Spokesperson for Water and the Murray-Darling Basin, has reportedly criticised the government for putting the Basin Plan at risk by moving away from water buybacks and towards the ‘less reliable and more costly program of infrastructure investment’.29 In response to the release of the SDL Adjustment Stocktake Report (outlined above), Senator Rhiannon expressed concern that the government might use this to ‘justify winding up plans for retrieving water to ensure river health across the Murray-Darling Basin’.30

In his comments in the 2013 Senate Committee report on the Management of the Murray-Darling Basin, Independent Senator Nick Xenophon raised concerns that water buybacks could distort the water market and recommended that:

In absence of any available evidence, the MDBA conduct urgent modelling on the impact the market-based buyback approach will have on those who have not accessed funds under the Federal Government’s $5.8 billion Sustainable Rural Water Use and Infrastructure Program and other similar programs. 31

In April 2015, Independent Senator John Madigan reportedly said that he supported the principle of the buyback cap but wanted to see the details of the legislation.32

22. Department of the Environment, Supplementary Submission to the Senate Standing Committee on Environment and Communications, Inquiry into the Water Amendment Bill 2015, p. 2, accessed 2 September 2015. 23. C Bettles, ‘Vic, SA support buyback cap’, The Australian Dairy Farmer (online edition), 2 September 2015, accessed 3 September 2015. 24. Senate Standing Committee on Environment and Communications, Water Amendment Bill 2015 [Provisions], Australian Parliament website,

accessed 7 September 2015. 25. Senate Standing Committee for the Scrutiny of Bills, Alert digest, 6, 2015, The Senate, Canberra, 17 June 2015, p. 64. 26. C Bettles, ‘Basin states should speak up: Butler’, farmonline (online edition), 4 April 2015, accessed 17 July 2015. 27. P Starick, ‘Fears vital extra water for River Murray at risk’, Adelaide Advertiser, 16 April 2015, p. 1, accessed 17 July 2015. 28. C Bettles, ‘Vic, SA support buyback cap’, op. cit. 29. C Bettles, ‘Buybacks “undermined reform”’, Queensland Country Life (online edition), 4 June 2014, accessed 17 July 2015. 30. L Rhiannon (Greens Spokesperson for Water and the Murray-Darling Basin), Murray Darling Basin - Baldwin plan puts river health,

communities at risk, media release, 28 August 2015, accessed 2 September 2015. 31. Senate Rural and Regional Affairs and Transport References Committee, The management of the Murray-Darling Basin, The Senate, Canberra, 13 March 2013, p. 138, accessed 17 July 2015.

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Position of major interest groups The National Farmers Federation (NFF), NSW Farmers and the Victorian Farmers Federation (VFF) were among the farmer groups that welcomed the commitment by the Government to amend legislation to implement a water buyback cap.

The NFF described a legislated cap on buybacks as ‘of the utmost importance to irrigation communities’. The NFF Water Taskforce Chair, Lee Gordon said:

Water buybacks hurt the rural and regional communities that rely on irrigated agriculture. As such, a legislated cap is an important signal from the Government to these communities that it values their views, understands the impacts, and is prepared to stand up and do something about it.

The NFF will be seeking support from the Labor Party and crossbench to achieve legislative change. Supporting the changes would demonstrate their commitment to a Basin Plan that is capable of achieving good environmental outcomes, while also taking steps to reduce the social and economic impacts of the Plan on affected communities. 33

In its submission to the Senate inquiry into the Bill, the NFF was also concerned about the socio-economic impacts of the Basin Plan and argued that water policy had to be considered in the context of the declining terms of trade for farmers.34 The NFF emphasised the need for the Government ‘to adopt a long-term focus on adaptation rather than short-term crisis management through water buy backs.’35 The NFF relied on studies such as the one by Arche Consulting, which was commissioned by the Department of the Environment and the Murray-Darling Basin Authority in 2011. That study concluded, among other things, that:

Investment in infrastructure projects results in water savings being retained on farm, and contributing to direct employment in agriculture. There are also flow-on impacts in the local economy from the retained agricultural production. 36

The VFF outlined the reasons for its preference for infrastructure investment rather than water buybacks:

Recovering water through infrastructure investment instead of buybacks also has positive impacts on the supply chain. Where farmers are able to maintain their productivity this helps to protect on-farm employment and jobs in milk factories, wineries, fruit and nut processing plants as well as sustaining jobs in transport and marketing. Keeping jobs in small and medium sized towns is critical to the economic and social survival of regional communities. These long term benefits are also supported by a short term boost to local economies as contractors are employed to construct the infrastructure projects.

37

The VFF did not want the 1,500 GL cap to be a target but rather suggested it should be a ceiling with water buybacks only being used as a last resort. It also opposed the Commonwealth government recovering 100 per cent of the water savings derived from on-farm efficiency measures funded by the Water for the Environment Special Account to recover an additional 450 GL of environmental water. This was because it was concerned that the calculations of water savings may not be accurate, potentially leaving participating farmers worse off if the new infrastructure does not deliver the expected level of efficiency.38

The New South Wales Irrigators Council stated that it was crucial that the Bill has bipartisan support and irrigators and communities are provided certainty by limiting the amount of environmental water recovered via

32. C Bettles, ‘Cold water for MDBA critics’, Queensland Country Life, 16 April 2015, p. 15, accessed 17 July 2015. 33. National Farmers Federation (NFF), Farmers stress importance of legislating cap on water buybacks, media release, 10 March 2015, accessed 17 July 2015. 34. National Farmers Federation, Submission to the Senate Standing Committee on Environment and Communications, Inquiry into the Water

Amendment Bill 2015, 31 July 2015, p. 6, accessed 14 August 2015. 35. Ibid., p. 7. 36. Ibid.

37. Victorian Farmers Federation, Submission to the Senate Standing Committee on Environment and Communications, Inquiry into the Water Amendment Bill 2015, July 2015, p. 4, accessed 14 August 2015. 38. Ibid., pp. 7-8.

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direct purchase.39 The Council was concerned that the additional 450 GL was established as an absolute target under the Water Act and recommended that Water Act be amended to make the target ‘up to’ 450 GL. The Council suggested this would:

… provide the Federal Government with flexibility to only recover additional 'up water' if enhanced environmental outcomes can be achieved, without unmitigated 3rd party impacts, including further damage to the economic and social fabric of Basin communities. 40

In arguing for the cap on buybacks, the Australian Dairy Industry Council cited its commissioned 2012 research that found buybacks cost around $2,000 per megalitre (ML) but were associated with reduced economic activity of $4,300 per ML. In contrast, farm upgrades, which cost $3,700 per ML for the share of water savings which go to the environment, when used to increase production generated an additional $9,800 per ML of economic activity.41

Murray Irrigation supports the cap but states that, even where water recovery for the environment is through infrastructure projects, there are negative impacts on irrigation districts where the cost of operation and maintenance of the system remains even after the sale of the water to the Commonwealth, resulting in higher effective price per megalitre for the remaining customers.42

Contrary to many other farming organisations, the Sunraysia Branch of the VFF is opposed to a cap on water buybacks because it believes water buybacks are the most efficient means of water recovery and the cap will compromise an effective Basin Plan without improving outcomes for irrigators or their communities:

If the buy-back cap is successfully passed, less water will be bought back than was originally envisaged by the plan, and it is a strong possibility that insufficient water will be recovered to run an effective plan. Water recovery money will be diverted to off farm infrastructure programs which are problematic and which yield less water per dollar spent than buybacks.

43

However the Branch also opposed strategic buyback, which it submitted has:

1) created a two-tier water market and prevented irrigators in pumped districts from obtaining the premium available from selling to the Commonwealth

2) artificially reduced the pool of potential tenderers and inflated the price per mega litre taxpayers have to pay, thereby reducing the amount of water able to bought back within the budget. 44

The Alexandrina Council is concerned that the cap will make the task of recovering environmental water more difficult and expensive. The Council suggested that the Bill’s provisions might also affect the achievement of the Basin Plan’s end-of-system environmental objectives and targets which are critical to the economic, social and environmental wellbeing of the Alexandrina community.45

The Murray Lower Darling Rivers Indigenous Nations (MLDRIN) does not support the Bill in its current form because it ‘impacts on our rights, interests and cultural obligations to enjoy and care for our Country’.46 MLDRIN says that the cap will cause a significant increase in the cost of water recovery, making the Basin Plan implementation more expensive and difficult. It was especially concerned about the impacts of the

39. New South Wales Irrigators’ Council, Submission to the Senate Standing Committee on Environment and Communications, Inquiry into the Water Amendment Bill 2015, 30 July 2015, p. 4, accessed 17 August 2015. 40. Ibid.

41. Australian Dairy Industry Council, Submission to the Senate Standing Committee on Environment and Communications, Inquiry into the Water Amendment Bill 2015, 31 July 2015, p. 6, accessed 17 August 2015. 42. Murray Irrigation, Submission to the Senate Standing Committee on Environment and Communications, Inquiry into the Water Amendment Bill 2015, July 2015, accessed 18 August 2015. 43. Victorian Farmers Federation Sunraysia Branch, Submission to the Senate Standing Committee on Environment and Communications, Inquiry

into the Water Amendment Bill 2015, 31 July 2015, p. 3, accessed 18 August 2015. 44. Ibid., p. 2. 45. Alexandrina Council, Submission to the Senate Standing Committee on Environment and Communications, Inquiry into the Water Amendment

Bill 2015, 31 July 2015, pp. 2-3, accessed 18 August 2015. 46. Murray Lower Darling Rivers Indigenous Nations, Submission to the Senate Standing Committee on Environment and Communications, Inquiry into the Water Amendment Bill 2015, July 2015, p. 2, accessed 18 August 2015.

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infrastructure investment and efficiency upgrades on Aboriginal cultural heritage and important cultural landscapes:

Our members have noted a number of instances of direct impacts on cultural heritage sites as a result of irrigation infrastructure upgrades and developments, including disturbance of burial sites. The large and dense historical Indigenous populations of the Central Murray region in particular, mean that there is a high concentration of heritage sites, often located in close proximity to water-courses. Construction, excavation and earth-moving activities undertaken as part of infrastructure upgrades are highly likely to impact on cultural heritage sites. Experience with the development of environmental works and measures in NSW, for example in the Koondrook/Perricoota forest, has demonstrated the significant time delays and increased costs associated with management of cultural heritage.

The key questions we pose here are: has this potential impact been accounted for in the Bridging the [G]ap program? Have the potential time delays and increased costs associated with cultural heritage surveys and unanticipated site discoveries been factored in to business-cases for infrastructure upgrades? Has there been consideration of the resource and capacity requirements of local Cultural Heritage Officers in dealing with these issues?

47

In commenting on the buyback cap, Australian Conservation Foundation (ACF) spokesman Jonathan La Nauze reportedly said that reductions in water buyback ‘slowed down the pace of water delivery’ and the river needed more water sooner rather than later to undo decades of damage.48 He said that:

The Federal Government’s preference to recover water by subsidising irrigation upgrades makes the task of returning the promised 3,200 billion litres difficult, but if we don’t get this volume of water back in the rivers, environmental jewels like the Coorong will be in trouble.

Capping the amount that can be bought from willing sellers leaves too much to be found through expensive Government subsidies and the government has no plan for how or where it will find this water. 49

The joint submission of the ACF, Environment Victoria and Environmental Justice Australia noted that ‘water purchase from willing sellers has been repeatedly identified as the most cost-effective and efficient means of environmental water recovery’.50 The joint submission further said that the cap on buybacks has the ‘potential to severely compromise the government’s ability to “bridge the gap” to the SDLs’.51 These bodies were concerned that the cap will be in the Water Act itself, so that honouring the cap will take legal precedence over honouring the SDLs in the Basin Plan:

…since the Commonwealth is 100% responsible for achieving the SDLs under the current Basin Plan, if it finds it can’t meet them via infrastructure upgrades or efficiency measures because, for example, they get prohibitively expensive, or they simply do not deliver the amount of water required, it will not be able to use buy backs to bridge the gap. The cap could therefore prevent the SDLs from being achieved.

52

However, in relation to this concern, the Department of the Environment emphasised that the amendments in the Bill would not override the Basin Plan, and in particular that the ‘legislated 1500 gigalitre limit deals with how the gap will be bridged, not whether the gap will be bridged’.53

The ACF, Environment Victoria and Environmental Justice Australia further questioned whether there is any evidence that there are enough cost-efficient and effective water efficiency opportunities, on-farm and off, to

47. Ibid., p. 5. 48. T Shepherd, ‘Water change could send Coorong back to bad times’, Adelaide Advertiser (online edition), 2 June 2014, accessed 17 July 2015. 49. J Meadows, ‘Good things take time’, Habitat, 43(2), July 2015, p. 8, accessed 13 August 2015. 50. Australian Conservation Foundation, Environment Victoria and Environmental Justice Australia, Submission to the Senate Standing Committee

on Environment and Communications, Inquiry into the Water Amendment Bill 2015, 21 July 2015, p. 1, accessed 13 August 2015. 51. Ibid.

52. Ibid.

53. Department of the Environment, Supplementary Submission to the Senate Standing Committee on Environment and Communications, Inquiry into the Water Amendment Bill 2015, p. 1, accessed 2 September 2015.

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provide water savings to recover the 450 GL of additional water for the environment without buybacks.54 The SDL Adjustment stocktake report found that there is considerable risk that the 450 GL aim will not be met.55

The Inland Rivers Network and the River Lakes and Coorong Action Group were both concerned that the cap on buybacks may prevent the watering of key environmental assets across the MDB resulting in the compromising of the Commonwealth’s obligations under the Ramsar Convention and migratory bird treaties.56

The Environmental Defenders Offices (EDOs) of Australia do not support the cap and suggest that if the Bill is enacted it may give rise to inconsistencies between the Basin Plan and the Water Act.57 While the SDLs in the Basin Plan apply from 1 July 2019, the adjustment measures that are approved by 30 June 2016 only have to become operational by 30 June 2024. The EDOs of Australia argue that this means that the Commonwealth will have to hold sufficient held environmental water to meet the SDLs until all the supply measures are operational by 30 June 2024.58 However, the EDOs of Australia point out that:

…the proposed cap (which will remain in place until 2022) may prevent the Commonwealth from purchasing enough water to reduce Basin-wide diversions by the required amount by mid-2019. This would result in an inconsistency between the Act and the Plan, ultimately frustrating the purpose of the latter. 59

However, the EDOs also pointed to research by the Productivity Commission and others which indicates that buying water access licences is the ‘most cost-effective means of returning water to the environment’.60 The EDOs noted that:

Of further significance is the fact that ‘supply measures’ are unproven and costly. For example, of the 27 supply measure projects for which a business case has been made, the potential SDL adjustment contribution for 17 is formally classified as ‘unknown’, while the remaining 10 are listed as contributing ‘potentially more than 20 GL a year.’ In other words, there is currently no publically available, concrete evidence indicating whether these projects will succeed and what their contribution will finally be.

61

The EDOs further noted that licence holders are under no obligation to sell their entitlement and that the Water Act explicitly prohibits the compulsory acquisition of water access licences.62

Financial implications The Explanatory Memorandum states that the Bill will have ‘no immediate or direct impact’, explaining that:

This 1500 gigalitre limit proposal legislates an already announced budget measure. The 450 gigalitre amendments provide greater flexibility in the recovery of the 450 gigalitres of additional water for the environment, within existing funding available under the Water for the Environment Special Account. 63

Statement of Compatibility with Human Rights As required under Part 3 of the Human Rights (Parliamentary Scrutiny) Act 2011 (Cth), the Government has assessed the Bill’s compatibility with the human rights and freedoms recognised or declared in the international instruments listed in section 3 of that Act. The Government considers that the Bill is compatible.64

54. Australian Conservation Foundation, Environment Victoria and Environmental Justice Australia, op. cit., p. 3. 55. W Martin and G Turner, SDL Adjustment Stocktake Report, op. cit., p. 2. 56. Convention on Wetlands of International Importance especially as Waterfowl Habitat (Ramsar Convention), opened for signature 2 February 1974, ATS [1975] No. 48 (entered into force 21 December 1975); Inland Rivers Network, Submission to the Senate Standing Committee on

Environment and Communications, Inquiry into the Water Amendment Bill 2015, 30 July 2015; River Lakes and Coorong Action Group Inc, Submission to the Senate Standing Committee on Environment and Communications, Inquiry into the Water Amendment Bill 2015, 31 July 2015, all accessed 18 August 2015. 57. EDOs of Australia, Submission to the Senate Standing Committee on Environment and Communications, Inquiry into the Water Amendment Bill 2015, 31 July 2015, pp. 1-2, accessed 18 August 2015. 58. Ibid., p. 2. 59. Ibid., p. 2. 60. Ibid., p. 5. 61. Ibid., p. 2. 62. Ibid., p. 4. See also Water Act, section 255. 63. Explanatory Memorandum, Water Amendment Bill 2015, p. 3. 64. The Statement of Compatibility with Human Rights can be found at page 4 of the Explanatory Memorandum to the Bill.

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Parliamentary Joint Committee on Human Rights The Parliamentary Joint Committee on Human Rights had no comment on the Bill.65

Key issues and provisions 1,500 gigalitre limit on water purchases As noted earlier in this Digest, the main purpose of this Bill is to impose a statutory limit of 1,500 GL on Commonwealth surface water purchases across the Murray-Darling Basin. This is achieved by the amendments in Part 1 of Schedule 1 of the Bill.

The main substantive amendment is at item 2, which adds a new Division 5 into Part 2 of the Water Act entitled ‘1,500 gigalitre limit on water purchases’. In particular, new section 85C is the key provision relating to this limit.

New subsection 85C(1) will provide that the Commonwealth must not enter into a water purchase contract if doing so would exceed a limit of 1,500 GL. This limit is calculated by adding:

• the long-term annual average quantity of water that can be accessed under the water access entitlement purchased under the contract and

• the total of the long-term annual average quantities of water that can be accessed under water access entitlements purchased under water purchase contracts entered into before that time.

New subsection 85C(3) provides that a contract is a water purchase contract for the purposes of this section if it was entered into by or on behalf of the Commonwealth for the purchase of a water access entitlement66 which relates to surface water resources67 in the Basin. The contract must have been entered into between 2 February 2008 and 23 November 2012;68 or after 24 November 201269 to achieve the Commonwealth’s share of a reduction in the long-term average sustainable diversion limit for the water resources (or part thereof) of a water resource plan area.

Definition of long-term annual average water quantities In relation to proposed subsection 85C(1), the ACF, Environment Victoria, Environmental Justice Australia and the EDOs of Australia were concerned that there is no definition of ‘long-term annual average quantities of water’ in the Bill or in the Water Act. The submission from ACF and others explained that the definition might have an impact on:

…the remaining opportunities to purchase water for the environment in a strategic and cost effective manner. If the definition is broadened to include water that is currently not considered ‘bought’ it might mean that the cap has already been reached, or will shortly be reached and that no further buy backs can occur. 70

The EDOs of Australia were also critical of using a long-term annual average and suggested the inclusion of a clear definition of long-term annual average ‘that provides the best possible outcome for the environment’.71 These organisations suggested that clarification is required, particularly of the methodology used to calculate the long-term annual average in order to avoid uncertainty.72

However, the Department of the Environment responded to these concerns with a statement that:

65. Parliamentary Joint Committee on Human Rights, Twenty-third report of the 44th Parliament, 18 June 2015, p. 2. 66. Water access entitlement is defined in section 4 of the Water Act to mean a perpetual or ongoing entitlement, by or under a law of a State, to exclusive access to a share of the water resources of a water resource plan area. 67. Note that surface water, water resource and Basin water resources are all defined in section 4 of the Water Act. 68. The Explanatory Memorandum does not explain the reason for these dates, other than they were ‘prior to the commencement of the Basin

Plan’ (which commenced on 24 November 2012): Explanatory Memorandum, op. cit., p. 7. 69. The Basin Plan commenced on 24 November 2012. 70. Australian Conservation Foundation, Environment Victoria and Environmental Justice Australia, Submission to the Senate Standing Committee

on Environment and Communications, Inquiry into the Water Amendment Bill 2015, op. cit., p. 3. 71. EDOs of Australia, Submission to the Senate Standing Committee on Environment and Communications, Inquiry into the Water Amendment Bill 2015, op. cit., pp. 3-4. 72. Ibid.; Australian Conservation Foundation, Environment Victoria and Environmental Justice Australia, op. cit.

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The Water Act already includes the plain English concept of the long term annual average of water taken or accessed under an entitlement, for example, see section 22. The Department considers it is unnecessary to add complexity to the Water Act by introducing a technical term that has the same meaning. 73

It is true that the Bill does not introduce a definition of the term long-term annual average water quantities and this concept does already appear in other existing sections of the Water Act. However, this does not mean that the meaning is clear and unambiguous and needs no further clarification.

Operation of the limit Section 50 of the Water Act requires the MDBA to prepare reviews of the Basin Plan every 10 years.74 A report of the review must be given to the Minister under subsection 50(5). New subsection 85C(2) provides that the 1,500 GL limit on surface water purchases operates until the report on the first ten year review of the Basin Plan is received by the Minister.

In his second reading speech, the Parliamentary Secretary to the Minister for the Environment said:

This will provide confidence to the Basin irrigation industry and communities that the cap will be in place for the term of the Basin Plan, delivering certainty that is very much needed by the communities of the Basin and also ensures that the benefits from ongoing investment in infrastructure-based water recovery are continued and realised.

75

However, the NSW Irrigators’ Council disagreed that this provided certainty and recommended that this ‘sunset clause’ in subsection 85C(2) be removed, expressing concern that ‘the cap on surface water purchases only spans a time period until the review of the Basin Plan’:

… such a sunset clause does not provide the certainty and assurance to irrigators and Basin communities that this limit will be a hard cap which will permanently be enshrined into the Water Act 2007 (Cth) and the Basin Plan … The risk of a potential reversal to this commitment after the Basin Plan is reviewed in 2024 is a real risk for irrigators and Basin communities, in particular since the recent climate predictions that point towards the onset of an El Nino event.

76

The joint submission from the ACF, Environment Victoria and Environmental Justice Australia suggested that the Bill be amended to ensure that ‘if the cap is reached, the Commonwealth is not relieved of its obligation to bridge the gap to the SDLs by other means’.77

However, in response to this concern the Department of the Environment expressed confidence that ‘the Commonwealth will be able to fully bridge the gap without engaging the 1500 gigalitre limit’, noting the recent Independent Stocktake Report (discussed earlier).78

Exceptions: water recovery that is not included in the limit New subsection 85C(4) sets out a number of exceptions so that certain water purchase contracts will not be counted towards the new 1,500 GL limit. That is, contracts:

• associated with agreements where the Commonwealth has provided financial assistance for the rationalisation or reconfiguration of an irrigation network (entered into after the commencement of the new section 85C) (paragraph 85C(4)(a))

73. Department of the Environment, Supplementary Submission to the Senate Standing Committee on Environment and Communications, Inquiry into the Water Amendment Bill 2015, op. cit., p. 5. 74. Note that the Minister or all Basin States can request a review in certain circumstances. 75. B Baldwin (Parliamentary Secretary to the Minister for the Environment), ‘Second reading speech: Water Amendment Bill 2015’, House of

Representatives, Debates, 28 May 2015, p. 4985, accessed 24 August 2015. 76. New South Wales Irrigators’ Council, Submission to the Senate Standing Committee on Environment and Communications, Inquiry into the Water Amendment Bill 2015, op. cit., p. 3. 77. Australian Conservation Foundation, Environment Victoria and Environmental Justice Australia, Submission to the Senate Standing Committee

on Environment and Communications, op. cit., p. 2. 78. Department of the Environment, Supplementary Submission to the Senate Standing Committee on Environment and Communications, Inquiry into the Water Amendment Bill 2015, p. 2, accessed 2 September 2015.

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• for the purchase of a water access entitlement from a Basin State (entered into after the commencement of the new section 85C) (paragraph 85C(4)(b))

• where the Commonwealth has provided financial assistance for activities relating to water infrastructure (the Explanatory Memorandum gives the example of contracts entered into under the Sustainable Rural Water Use and Infrastructure Program)79 (paragraph 85C(4)(c))

• entered into in accordance with Part 6 of the Water Act80—that is purchases by the Commonwealth Environmental Water Holder (CEWH).81 The Explanatory Memorandum states that these purchases do not count towards the 1,500 GL limit because CEWH water trade is ‘a key tool available to the CEWH to adjust the Commonwealth environmental water holdings to maximise the environmental outcomes that can be achieved from within its existing water portfolio’82 (paragraph 85C(4)(d)) and

• for water access entitlements purchased using the Water for the Environment Special Account, which is established under Part 2AA of the Water Act.83 According to the Explanatory Memorandum, the Commonwealth will not recover additional water under this Part through open market water purchases. Instead, water access rights may only be obtained in conjunction with projects to improve water use efficiency or alternative arrangements proposed by a Basin State.84 (paragraph 85C(4)(e))

The joint submission from the ACF, Environment Victoria and Environmental Justice Australia notes paragraph 85C(4)(a) will only apply from the commencement of the new section and that ‘this means that all buyback associated with rationalisation and reconfiguration before the commencement’ will count towards the cap. They question how much water this would involve and whether it is included in the figures of water purchased to date provided by the Department of the Environment. They are similarly concerned that, under new paragraph 85C(4)(b), an entitlement bought from a state government after commencement will not contribute to the cap. They query whether the Commonwealth has bought any entitlements from Basin states in the past that will contribute towards the cap.85

The NSW Irrigators’ Council is concerned that paragraph 85C(4)(b) could enable further recovery of water beyond the 1,500 GL cap through pressure on the Basin States to purchase water on behalf of the Commonwealth. The Council suggests that Basin States ‘might be tempted to either create further licences … or might enter the permanent entitlement market to recover water to offset any shortfalls’.86

However, the Explanatory Memorandum states that paragraph 85C(4)(b) will ‘provide flexibility to the Commonwealth in working with the states to consolidate water holdings to meet Basin Plan requirements to bridge the gap to SDLs’ and that ‘purchases by the Commonwealth from States are excluded from the 1500 GL cap because these are not open market transactions’.87

79. Explanatory Memorandum, op. cit., p. 7. 80. Part 6 of the Water Act establishes the Commonwealth Environmental Water Holder (CEWH). Section 105 sets out the CEWH’s functions, which are to manage the Commonwealth environmental water holdings (as defined in section 108) and to administer the Environmental Water Holdings Special Account (established under section 111).

81. Further information about the Commonwealth Environmental Water Holder is available at Department of the Environment, The role of the Commonwealth Environmental Water Holder, Department of the Environment website, accessed 16 June 2015. 82. Explanatory Memorandum, op. cit., p. 8. 83. The Water for the Environment Special Account was established by the Water Amendment (Water for the Environment Special Account) Act

2013, which inserted a new Part 2AA into the Water Act. The Account was designed to support the SDL Adjustment Mechanism. That Act made a special appropriation of $1.77 billion for a ten-year period from 2014-15 financial year for (1) efficiency measure projects to deliver 450 GL (billion litres) of additional environmental water. The additional water can only be recovered in ways that ensure social and economic outcomes for Basin communities are maintained or improved; (2) easing or removing constraints on the ability to deliver environmental water to the environmental assets of the Murray-Darling Basin. This includes up to $5 million for Basin states to develop business cases for prospective constraints measure projects. The purposes of the Water for the Environment Special Account are set out in section 86AD of the Water Act, while the objects of Part 2AA are set out in section 86AA of the Water Act. 84. Explanatory Memorandum, op. cit., p. 8. 85. Australian Conservation Foundation, Environment Victoria and Environmental Justice Australia, Submission to the Senate Standing Committee

on Environment and Communications, op. cit., p. 4. 86. New South Wales Irrigators’ Council, Submission to the Senate Standing Committee on Environment and Communications, Inquiry into the Water Amendment Bill 2015, op. cit., p. 5. 87. Explanatory Memorandum, op. cit., p. 7.

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Validity of contracts New section 85D provides that a contravention of 85C does not affect the validity of a contract. This provision is designed to provide sellers of water access entitlements who have contracted with the Commonwealth in good faith with certainty that the validity of those contracts cannot be challenged in the event that there has been a breach of the cap.88 The Explanatory Memorandum notes:

… the Department [of the Environment] will be accountable for compliance with the cap through the Public Governance, Performance and Accountability Act 2013 and the Public Service Act 1999. It is appropriate that the Department, rather than sellers of water access entitlements, should be accountable for compliance with the cap. 89

Adjusting SDLs and off-farm water efficiency Part 2 of Schedule 1 of the Bill contains an amendment to the Basin Plan 2012. The Basin Plan is a legislative instrument made under the Water Act.90

As noted in the Background section of this Digest, the Basin Plan sets long-term average SDLs that reflect an environmentally sustainable level of water use (or 'take'). An environmentally sustainable level of take (ESLT) is the amount of water that can be taken for town water supplies, industry, agriculture and other human or 'consumptive' uses, while ensuring there is enough water to achieve healthy river and groundwater systems. The Basin Plan sets a sustainable diversion limit for each catchment and aquifer in the Basin, as well as an overall limit for the Basin as a whole. The SDLs are like a ‘cap’ on water use. They regulate the amount of water that can be used for consumptive purposes in the Basin.91

Chapter 7 of the Basin Plan provides a mechanism for the MDBA to propose adjustments to the long-term average sustainable diversion limit (SDLs) under section 23A of the Water Act. Division 4 of Part 2 of Chapter 7 of the Basin Plan sets out the steps the MDBA must take to determine the amounts of adjustments to SDLs.92 In particular, section 7.17 of the Basin Plan contains criteria which the MDBA needs to be satisfied before a determination can be made of the amounts of adjustments to SDLs. The criteria include at paragraph 7.17(2)(b):

The efficiency contributions to the proposed adjustments achieve neutral or improved socio-economic outcomes compared with the outcomes under benchmark conditions of development as evidenced by:

(i) the participation of consumptive water users in projects that recover water through works to improve irrigation water use efficiency on their farms; or

(ii) alternative arrangements proposed by a Basin State, assessed by that State as achieving water recovery with neutral or improved socio-economic outcomes.

Part 2 of Schedule 1 proposes to amend the Basin Plan 2012 to insert a new subparagraph 7.17(2)(b)(ia), which adds the criteria of ‘the participation of consumptive water users in projects that recover water through works to improve water use efficiency off-farm’. The Explanatory Memorandum explains that this amendment:

…will operate in conjunction with Part 2AA of the Water Act 2007 to afford greater flexibility in the recovery of 450 gigalitres of water for the environment through efficiency measures funded under the Water for the Environment Special Account. 93

The Explanatory Memorandum gives some examples of ‘off-farm’ efficiency projects that would qualify as efficiency measures under this amendment, such as:

• reshaping and lining water delivery channels to reduce water losses through infiltration

• replacement of water delivery channels with gravity pipeline systems and

88. Explanatory Memorandum, op. cit., p. 8. 89. Ibid.

90. Water Act, section 33. Note section 20 of the Water Act sets out the purpose of the Basin Plan. 91. MDBA, ‘Sustainable diversion limits’, MDBA website, accessed 15 June 2015. 92. Murray-Darling Basin Plan 2012 (Basin Plan 2012), accessed 15 June 2015. 93. Explanatory Memorandum, op. cit., p. 8.

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• installation of improved irrigation management system and associated telemetry.94

Subclause 3(2) in the Bill provides that the amendment of the Basin Plan under the Bill does not prevent the MDBA from preparing an amendment of the Basin Plan, as so amended, under section 23B or 45 of the Water Act.

Issues

In his second reading speech, the Parliamentary Secretary to the Minister for the Environment stated that this amendment ‘provides for the participation of consumptive water users in projects that recovery water through works to improve water use efficiency off-farm’ and that ‘there is strong support within industry for further investment in such measures’.95

Several submissions to the Senate inquiry into the Bill were supportive of this aspect of the Bill. For example, the joint submission from the ACF, Environment Victoria and Environmental Justice Australia supported increasing the flexibility of measures allowed to be funded under the Water for the Environment Special Account. However these organisations were concerned that this amendment ‘is driven by awareness that the focus on SDL adjustment mechanisms will absorb cost-efficient water efficiency investment opportunities and make them increasingly difficult to realise within the current budget’.96

No explanation is given in the Explanatory Memorandum as to why the government has chosen to use this Bill to amend the Basin Plan directly, rather than using existing statutory processes in the Water Act for amending the Basin Plan.97 However, the Department of the Environment’s submission states that ‘direct amendment to the Basin Plan is appropriate in this instance for three reasons’:

…the amendment relates directly to the Department’s role under the Water Act in administering the Water for the Environment Special Account through the delivery of efficiency measures programmes; the timely roll out of these efficiency measures programmes will enhance the prospects of meeting the additional water recovery expectations of Basin State governments under the Sustainable Diversion Limit Adjustment Mechanism; and the opportunity for further off-farm efficiencies, combined with an integrated approach to off and on-farm water efficiency initiatives promises better social and economic outcomes than may otherwise be the case.

98

Alternatively, for minor, non-substantive amendments of the Basin Plan, section 49 of the Water Act provides for regulations to be made allowing the MDBA to make a specified kind of minor, or non-substantive, amendment of the Basin Plan under a process in the regulations. However, at the time of writing, no regulations appear to have been made to allow the MDBA to make such minor, non-substantive amendments. This issue was identified in the Report of the Independent Review of the Water Act 2007, which recommended that regulations be made to provide a simplified process for making minor or non-substantive amendments of the Basin Plan, consistent with section 49 of the Water Act.99

94. Explanatory Memorandum, op. cit., p. 9. 95. B Baldwin (Parliamentary Secretary to the Minister for the Environment), ‘Second reading speech: Water Amendment Bill 2015’, House of Representatives, Debates, 28 May 2015, p. 4985, accessed 24 August 2015. 96. Australian Conservation Foundation, Environment Victoria and Environmental Justice Australia, Submission to the Senate Standing Committee

on Environment and Communications, op. cit., p. 2. 97. Sections 45 to 49 of the Water Act provide a statutory process for amendments to the Basin Plan, whereby the MDBA prepares an amendment for adoption by the Minister. The proposed amendment is prepared in consultation with Basin States and is also released for

public comment. 98. Department of the Environment, Submission to the Senate Standing Committee on Environment and Communications, Inquiry into the Water Amendment Bill 2015, op. cit., p. 6. 99. Independent Review of the Water Act, op. cit., p. 29.

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