See also The Pilot Interstate Water Trading Projectthe pilot | permanent trading | exchange rates | environmental protection | salinity | constraints | two year review | further infoThe Commission's Pilot Interstate Water Trading is a major development that expands the current water market in the southern Murray-Darling Basin and aims to improve the economic and environmental sustainability of the irrigation industry. It will expand the number of traders able to participate in the water trading market place by allowing permanent trade to occur across State boundaries. The Pilot Project is a means of finding solutions to the issues that need to be dealt with when introducing permanent interstate trade. It aims to establish a system for the permanent interstate transfer of water entitlements that has a set of standards, is accountable and does not result in increased levels of salinity, reductions in environmental flows or degradation of the natural environment. The Pilot Project is located in the Mallee Region of South Australia, Victoria and New South Wales. It covers the River Murray between Nyah (downstream of Swan Hill) and the Barrages at the mouth of the Murray. Also included are River Murray licences on the Darling River which are supplied from the weir pool at Lock 10 (just downstream of the junction of the Murray and Darling rivers). One of the reasons for selecting the Mallee Region for the Pilot Project is the similarity of the agricultural activities. These are predominantly horticulture - citrus, stone and other tree fruits, vines for fresh and dried fruit and wine, and numerous types of vegetables, dependent on high security water entitlements (see Irrigation). The Mallee Region is also an area where the price per megalitre of water to private diverters is relatively uniform across the three States. 1. The pilotWho can participate? The Pilot Project is limited to the permanent transfer of high security water entitlements held by private diverters (individual irrigators who pump water directly from the river). High security entitlements are described differently in each state:
These entitlements have similar levels of security in the three States. Such entitlements do not vary from year to year and are fully available in all but the worst drought years. Trading water entitlements with different levels of security would significantly complicate the Pilot Project.
Who cannot participate? The Pilot Project does not involve:
The Pilot Project will help to overcome some of the issues that currently restrict interstate trade. An important aim is the development of consistent trading arrangements that facilitate interstate water trade on a wider scale and help to clarify internal State trading arrangements. Whilst no time limit has been placed on the Pilot Project, it will be reviewed after two years. Following the review, consideration will be given to the gradual extension of interstate trading and the additional issues that this will involve. The Pilot Project is an important step in fulfilling the objectives of the COAG water reforms and of the Murray-Darling Basin Ministerial Council's Irrigation Management Strategy. In brief, these objectives are to:
The Pilot Project therefore seeks to improve productivity and promote economic and environmental sustainability through the interstate transfer of water entitlements. The trading process An interstate water transfer takes place between the seller in the State of origin and the purchaser in the State of destination, and requires the approval of the water licensing authorities in both States. The application and transfer process is outlined below. As the applications must satisfy the requirements of the particular States and agencies that are involved, there will be variations in the details of the process depending on the locations of the individual water traders. Interstate water transfers carried out under the terms of the Pilot Project are not free of constraints. The constraints have been put in place to protect the environment and to ensure that trade has minimal impact on other water users. With the transfer of water from one State to another, adjustments to State allocations and requirements under the Murray-Darling Basin Agreement will be made by the Murray-Darling Basin Commission at the end of each financial year. The Commission will also adjust State Water Caps in accordance with the trade to ensure that there is no overall increase in the diversion of water within the Basin. Monitoring and reporting The terms of the Pilot Project place rigorous reporting requirements on the States and the MDBC, especially in relation to the environmental impact of new or extended irrigation developments, increased salinity levels, reductions in environmental flows, and degradation of the natural environment (issues that are discussed in other Sections). There will be annual reporting of the transfers, including the volumes of water involved and the impacts of the trade. The Commission will keep a Trade Register that records the details of all transfers. Two years after the approval of the Pilot Project by the Murray-Darling Basin Ministerial Council, the Commission will undertake an evaluation of the Project covering both its economic and environmental aspects. The evaluation will be undertaken earlier if trade exceeds a net 10 gigalitres from any one State during the two year period. After the first evaluation, similar evaluations will be undertaken every two years. The evaluations will go to the Murray-Darling Basin Ministerial Council and to the Community Advisory Committee. The Future Depending on the outcomes of the Pilot Project, the Contracting Governments may agree to terminate the Project or extend it to other parts of the Murray-Darling Basin and other types of water allocations. For example, among the extensions that have been proposed are:
Such extensions will raise many issues, environmental, economic, legal and social. They will require further discussion and agreement before there can be any expansion from the Pilot Project. In addition, if the Project is extended then the rules will need to be reconsidered. Any element of the Project may change when consideration is given to larger volumes of water, moving water over greater distances and different kinds of water property rights or entitlements. Central to all interstate water trading will be the issue of consistent prices for water. It is critical that consistent pricing policies exist before widespread trading can be introduced, especially in the irrigation districts. Otherwise, any differences could have an influence on resource allocation and location choices possibly resulting in negative regional and economic effects. This is an issue that will need to be resolved before the interstate trial can be extended into irrigation districts and before trading can become more widespread in the Murray-Darling Basin. 2. Permanent Interstate Water Trading: the steps involved in buying and selling a high-security water entitlementHow to trade Step 1: A private diverter located in the Pilot Project area considers the option to buy or sell a high security water entitlement. Step 2: A potential seller or buyer is sought, either through personal contacts or through an intermediary, such as an estate agent. The seller and especially the buyer must satisfy the particular requirements of the States and agencies involved. Information should be sought from these agencies regarding eligibility to trade before any further steps are taken. Step 3: A contract is agreed between the buyer and the seller, subject to the approval of the relevant licensing authorities. Step 4: The buyer and seller simultaneously lodge applications to transfer water with the licensing authority in the State of destination. The seller uses the State of origin application form; the buyer uses the State of destination form. Both applications must be accompanied by any fees required in both the State of origin and the State of destination. Step 5: Copies of both applications are forwarded by the State of destination licensing authority to the State of origin licensing authority, accompanied by the State of origin fees. Step 6: The State of destination and the State of origin licensing authorities assess the applications based on their requirements with particular reference to:
Step 7: The licensing authority in the State of destination also sends copies of both applications to the MDBC for:
Step 8: The MDBC advises each State whether the water can be delivered and the exchange rates to apply to the transfer. Step 9: On the basis of the States' requirements and the MDBC advice, the application is either approved or rejected. The State of destination will determine what conditions, if any, will apply to the transfer in order to satisfy State and MDBC requirements. Step 10: If the application is approved, the State of origin cancels or reduces the licence of the transferred water allocation of the seller. On confirmation of the cancellation or reduction in the State of origin, the State of destination finalises the approval of the application and issues a new licence to the buyer. In the case of a sale of part of an entitlement, a revised licence is issued to the seller. The buyer and seller are notified accordingly and the transfer is finalised. Step 11: The State of destination advises the MDBC once the transfer has been approved. Step 12: The MDBC records the transfer of the water allocation in the MDBC Trade Register and makes the necessary adjustments to the delivery of the States' water entitlements, the States' Caps, and the States' financial contributions to the Commission's water businesses. The above steps outline the main steps involved in the permanent interstate trade of a water entitlement. In going through these steps, the following points need to be noted:
3. Exchange rates: maintaining supply security for water usersTransferring a water entitlement from one location to another has two important consequences. Firstly, it can change the level of security of supply, both for the buyer of the water entitlement and for other water users. This is because the water may have to come from a different source, such as a different reservoir or river. For example, the further upstream a water entitlement is moved, the less storage options are available to source supplies (reduced security), and conversely, the further downstream a water entitlement is moved, the more storage options become available (increased security). Secondly, when an entitlement is moved to a different location, the transfer can result in transmission gains or losses in the rivers and channels through which the water moves. Exchange rates and the Pilot Project In order to limit the impact that the interstate transfer of a water entitlement may have on supply security - and hence other water users - and the environment, exchange rates have been developed by the Murray-Darling Basin Commission. They are based on a set of principles that are considered to be equitable with regard to all water users. The exchange rates will be applied to all transfers taking place under the Pilot Project. Exchange rates have been determined for interstate transfers to accommodate any losses through changes in the level of security for supplying water and to ensure that the overall security of the system is not compromised, that is, that other users are not adversely affected by the trade. Currently, it appears that the impacts of moving water in the relatively small trial zone are minimal and so a 'security' exchange rate of 1.0 has been determined for transfers between New South Wales and Victoria. Although transferring water allocations from New South Wales or Victoria to South Australia results in an increase in security, the exchange rate has been conservatively set at 1.0. This effectively allocates the increased security to the river environment rather than to the buyer (see below). However, a transfer from South Australia to New South Wales or Victoria will attract a 'security' exchange rate of 0.9 because of the reduced security of supply upstream of the Darling River and Lake Victoria. This is based on the fact that the median flow of the Murray at Euston is 0.9 of the combined median flows of the Murray and Darling rivers. What do these exchange rates mean for the actual transfer of high security allocations? Transfers between New South Wales and Victoria attract the Pilot Project exchange rate of 1.0. Thus a sale of 10 ML from New South Wales would mean the receipt by an irrigator in Victoria of 10 ML. Similarly, a sale of 10 ML from Victoria would mean the receipt by an irrigator in New South Wales of 10 ML. In other words, water transfers between New South Wales and Victoria are not affected by the exchange rates. Transfers from New South Wales or Victoria to South Australia also attract the Pilot Project exchange rate of 1.0. Thus a sale of 10 ML from New South Wales or Victoria would mean the receipt by an irrigator in South Australia of 10 ML. Again, water transfers are not affected by the exchange rates. Transfers from South Australia to New South Wales or Victoria attract a Pilot Project exchange rate of 0.9 or a reduction of 10 per cent (because of the reduced security of supply). Thus a sale of 10 ML from South Australia would mean the receipt by an irrigator in New South Wales or Victoria of 9 ML. Within the Pilot Project area, transmission gains or losses resulting from transfers have been calculated to be insignificant. So, for this aspect of the Project, no additional exchange rates based on transmission losses have been developed. However, the principle of exchange rates to compensate for such losses or gains has been incorporated into the rules and procedures to allow for any future extensions to the Project where transfers over greater river distances might be involved. In addition to the Pilot Project exchange rates, all interstate transfers of high security allocations are subject to the Cap exchange rate of 0.9. This is based on the principle that, on average, high security allocation irrigators use only 90 per cent of their annual allocations. The Cap exchange rate is applied after the security exchange rate. It is not applied to the particular interstate transfer between two irrigators but rather to the entitlements of the States involved. Thus an individual irrigator wishing to buy or sell water does not have to be concerned with the Cap exchange rate. The application of the Cap exchange rate to a transfer of 10 ML from New South Wales to Victoria would mean that New South Wales' Cap is reduced by 9 ML and Victoria's is increased by 9 ML. In the case of a transfer of 10 ML from South Australia to either New South Wales or Victoria, the Pilot Project exchange rate would mean a purchase of 9 ML. The 9 ML would then attract the Cap exchange rate of 0.9, reducing the quantity by a further 10 per cent or 0.9 ML to 8.1 ML. South Australia's Cap is then reduced by 9 ML and the upper State's Cap is increased by 8.1 ML. The overall reduction of the Basin Cap by 0.9 ML protects the security of water users and provides some compensation to the environment for the reduction in flow into South Australia. The necessary adjustments are made and registered by the MDBC. State exchange rates The States may apply their own exchange rates, either before an entitlement is transferred interstate or afterwards, before the new licence is issued to the buyer. For example, Victoria is looking at the option of introducing a volumetric levy of 10 per cent on all permanent transfers of water entitlements within and out of the State. Where the States apply their own exchange rates, they must provide annual reports on their use to the MDBC. State agencies should be contacted to obtained the specific details regarding their exchange rates. Improving the environment A basic principle of the Pilot Project is that interstate trade must have no net disadvantage to the environment. If anything, the application of the exchange rates will result in a benefit to the environment, as gains identified through application of the exchange rates to traded entitlements will accrue to the riverine environment. Transfers downstream will result in the water remaining in the river longer which should have a positive environmental impact. Transfers upstream will reduce the total Cap for the Basin resulting in greater end of system flows. This will compensate, to some extent, for reduced dilution flows in some reaches. An environmental account will be maintained by the MDBC and any gains that result from the application of the exchange rates will go into this account. 4. Protecting the environment: environmental clearance processesA fundamental principle of the Pilot Project is that the interstate transfer of water entitlements is accountable and does not result in increased levels of salinity, reductions in environmental flows or degradation of the natural environment. Further, no transfer should result in an acceleration of environmental degradation resulting from the use or management of the transferred water. Water transfers must also be consistent with the Murray-Darling Basin Ministerial Council's policies on environmental flow management (see below) and the Salinity and Drainage Strategy (see also Section 5). The Pilot Project may be suspended or restricted if any Government considers that interstate trading has resulted in an increase in or acceleration of environmental degradation. Environmental protection and clearances are issues of State responsibility. As a result, different requirements and standards apply to water transfers and new irrigation developments in each of the States. Consistent standards are desirable and, as part of the Pilot Project, the States will be reviewing their requirements and working towards consistency in the standards and clearance processes. Currently, all new and expanded irrigation developments resulting from the transfer of water entitlements are subject to rigorous environmental protection and clearance standards and processes developed by each of the States. Whilst the details may vary, the States have very similar requirements in terms of the issues that have to be addressed and the information that has to be provided by applicants for the transfer of water entitlements and new irrigation developments. The requirements cover such matters as land use change and development, the movement of water between high and low impact zones, soil surveys, the clearance of native vegetation, endangered species of plants and animals, wetlands protection, heritage issues, on-farm irrigation design and management standards, surface drainage, and the disposal of groundwater. The environmental clearance processes ensure that water will only move to suitable sites and to irrigation enterprises that are properly managed. In turn, this ensures that no environmental degradation will occur as a result of interstate water transfers in the Mallee Region. Given the existence of the clearances, trade may, in fact, result in an overall improvement in the environment and natural resource base, especially in those cases where the water is sold from a site that is not suitable for irrigation. State requirements Diverters wishing to take part in water trading should contact the relevant State agencies for detailed information regarding their specific development standards and environmental clearance processes. In general, the same standards and processes that apply to intrastate water transfers also apply to interstate transfers. Only a brief introduction to the requirements can be given here. New South Wales The transfer of water entitlements and new irrigation developments require the preparation of an environmental impact assessment and a Farm Water Management Plan. The environmental impact assessment or review of environmental factors ensures that issues of water supply, water quality, land capability and suitability, environmental and nature conservation, and cultural and heritage significance are considered before any proposal is approved. In addition, a Farm Water Management Plan has to be prepared for all new irrigation developments. The aim of both documents is to show how best management principles will be applied to the property with respect to matching irrigation systems to soil water holding capabilities, crop type and irrigation scheduling devices. The plan must also document how any drainage and salinity impacts will be confined to the property by the use of suitably sited and designed drainage disposal schemes and such other measures as woodlots. Victoria All new irrigation developments within the Pilot Project area require the preparation of a comprehensive plan. The purpose of the plan is to ensure that the development involves no net conservation loss, no increase in river salinity, no loss of wetland values, and no net loss of native vegetation. A particular concern in Victoria is salinity management. Between Nyah and the South Australian border, land has been designated as low salinity impact zone (LIZ) or high salinity impact zone (HIZ). In the HIZ, water can only be transferred from elsewhere within the HIZ or out of the HIZ. No additional water can be brought into the HIZ. There are no restrictions on the movement of water into or out of the LIZ, although a levy has to be paid when moving water into the LIZ from outside the area between Nyah and the South Australian border, and normal development requirements apply. The first step for any Victorian diverter should be to determine if his or her land is designated LIZ or HIZ. South Australia Before any new irrigation development can be started, an Irrigation and Drainage Management Plan (IDMP) has to be approved. If the development is an extension of existing irrigation activity, the IDMP has to cover the entire operation. The IDMP is part of the transfer process to ensure that each transfer is at least salinity neutral to the river, that is, water transfers must not result in any increase in river salinity levels (zero salinity impact). The IDMP includes a description of the planned on-farm irrigation system, demonstrates that the land is suitable for irrigation, that the water to be transferred is actually required for irrigation, and that the irrigation techniques will not result in unacceptable external impacts on the environment or neighbouring land use. For large-scale developments, buyers are required to make a commitment to be responsible for future deep drainage groundwater accessions that result from the development. This is part of the 'zero salinity impact' obligation and requires the developers to set aside funds for future site works. Water Trade and River Flow Concerns have been expressed about the effects of water trade on river flows, especially their environmental implications. This is an important issue for the Pilot Project. The Ministerial Council has a clear policy 'to maintain and, where appropriate, improve flow regimes in the waterways of the Murray-Darling Basin to protect and enhance the riverine environment'. When assessing applications for the transfer of entitlements, the licensing authorities must ensure that the transfers are consistent with this policy. Transferred water entitlements must be able to be delivered without net detriment to the riverine environment. Building on earlier studies, including the work of an expert panel, the Murray-Darling Basin Commission is currently developing a Flow Management Plan for the River Murray that will set environmental river flow and water quality objectives and provide limits within which consumptive water use and trading can occur. Reporting The suitability of the current environmental clearances is being monitored and will be reviewed after the first year of the Pilot Project's operation, with the results reported to the Commission. Every two years, the States will prepare a report to the Commission detailing the measures taken to manage the environmental impacts resulting from the interstate transfer of water entitlements. Each year, the Commission will also prepare a comprehensive evaluation of the Pilot Project looking at its various environmental and economic aspects. 5. Reducing Salinity: the Salinity and Drainage Strategy and its relevance to water tradingThe transfer of water entitlements to different locations and new irrigation developments have the potential to affect salinity levels in the River Murray. In view of this, the potential impacts of water trading must be accounted for under the Salinity and Drainage Strategy. An essential condition of the Pilot Water Trade Project is that it must not lead to significant effects through increased levels of salinity. However, the transfer of a water entitlement from one location to another has the potential to affect salinity levels in the River Murray in two ways. Firstly, transferring water entitlements changes the volume of water in the river at different locations. This affects the river's dilution capacity and so changes the salinity level of the water. Secondly, new or expanded irrigation developments have the potential to increase or decrease the amounts of saline drainage water that enter the river. Any impacts on River Murray salinity that result from an entitlement being transferred from one State to another must be accountable under the SDS. The impacts earn salinity credits or debits:
The States are in the process of determining how they will internally manage the salinity impacts of individual transfers of entitlements. In Victoria, for example, it may be necessary for an individual to pay a salinity levy prior to receiving approval to trade. Details of interstate transfers of entitlements will be recorded by the MDBC and the appropriate salinity credit and debit adjustments made to the salinity register. 6. Physical constraints to trading water within the Pilot ProjectMore than a willing seller and buyer are necessary for a water trade to take place. It has to be physically possible to deliver the water entitlement to the buyer's location. Reticulation systems, such as river channels and irrigation canals and pipelines, have limited carrying capacities. The most significant river channel constraints on the River Murray are the 'Barmah Choke', downstream of Tocumwal in the Barmah-Millewa Forest, and the section between Hume Dam and Yarrawonga Weir (see the River Murray system). These particular constraints are not directly relevant to the Pilot Project but indicate the kinds of constraints that can be encountered when transferring water entitlements. Such constraints must be taken into account when planning the water supply needs of the Murray Valley. The delivery of traded water may place additional demands on river flows at certain points in the river system. As a result, it may not always be possible to supply the additional demand without affecting supplies to existing water users and meet minimum river flow requirements. Consequently, in planning the operation of the River Murray system, the Commission must consider the magnitude and location of proposed water transfers and their effect on river operation. If the proposed water transfers are manageable in terms of river operations, they will be endorsed by the Commission. Taking account of the maximum volumes of water transfers that are permitted under the Pilot Project, and given the Project's location at the lower end of the Murray system where it essentially involves only one river channel, it is not expected that there will be any difficulties in supplying traded water to new users. For the kinds of reasons indicated above, all proposed transfers will be thoroughly considered (in terms of origin, destination and volume of water transfer) by the MDBC and its Water Market Reform Working Group, in terms of policy agreed to by the States. It is also why periodic reviews will be undertaken by the Commission and the States. Of particular concern will be the cumulative net effects of transfers. Before any increased trade can occur beyond the current limits of the Pilot Project, the Commission would need to determine if the increased volumes can be delivered on a permanent seasonal basis without adverse effect on river operations and the environment.
7.Review Report of Pilot Interstate Water TradingThe Murray-Darling Basin Ministerial Council is committed to water trading as an important component of the future economic and environmental sustainability of the Basin. The Council has adopted a vision statement for water trading (as at March 2001) of: "water trading as a foundation in maximising the profitable and sustainable use of water, while protecting the environment and catering for social needs". Under Schedule E of the MDBC Agreement requires that a review be conducted every two years on the economic and environmental impacts of the pilot project for permanent interstate water trading. The first review was completed in December 2000, and the Ministerial Council agreed to public release of the report at its meeting in March 2001 Two Year Review8. Further informationMore information about the interstate water trading project is available from the individual State agencies. If you are seeking an application form or require answers to particular questions or further information of any nature relating to water trading, you may contact the following people. For general information about the Pilot Water Trading Project Manager Pilot Water Trading Project For information about the requirements of each State New South Wales Peter Winton Victoria Owen Russel South Australia Jodie Smith For MDBC approval of trades Andy Close Content correct as of : 4/06/2004 |
NATURAL RESOURCE MANAGEMENT
