title: Environmental Flows in the Murray-Darling Basin : Market Based Governance Public Institutional and Legal Reform
title: Water governance in the Murray-Darling Basin
titleType: AlternativeTitle
Creators: name: Thampapillai, Vinoli
Publisher: name: The Australian National University
Year: 2014

description: The Murray Darling Basin (MDB) is a major irrigated agricultural region known as the food bowl of Australia. Over-allocation of water rights to irrigation in the MDB has mimicked a tragedy of the commons and has led to the degradation of the ecosystem of rivers in the basin. Competition between environment and agriculture is at the heart of the problem. As water in the river systems is semicommon, where private and common rights coexist and interact due to the fluid nature of the resource, employing an exclusion strategy is difficult. Hence governance is central to the management of the river system to ensure ecosystem resilience. The key governance solutions to this problem employed by the Commonwealth government are the use of the water market to reconfigure water from irrigation to the environment, and use of the Federal Water Act 2007 to harmonize water planning across the transboundary river system which extends over four states and one territory. There exists ongoing disappointment in current market based, legal and institutional policy in the Murray Darling Basin articulated by irrigators and State governments. Significant resistance to the government water buyback program has been expressed by irrigators and the upstream state governments. The governments of Queensland and New South Wales waited until February 2014 to sign the agreement for implementation of the MDB Plan which entered into effect in November 2012. Agreement was secured after the Federal government agreed to legislate to cap buybacks at 1500 GL. As of February 2014, 1200 GL (long term average) of the 2750 GL required for the environment has been acquired by government due to resistance by upstream states and irrigators. There is an absence of comprehensive treatment of the water governance problem. Therefore this research examines the limitations of the water market, water law and public institutions to address the identified problem in the MDB. A combination international comparative water law, a qualitative survey of 41 irrigators, conducted across four jurisdictions of the MDB, documentary analysis is employed in the research, viewed through the lens of New Institutional Economics. This dissertation is concerned with two central research questions pertaining to water governance structures for addressing over-allocation and the delivery of environmental flows to build ecosystem resilience in the Murray Darling river system. The research questions are articulated as follows: (i) What are the limits of market based water governance expressed as water buybacks, as a means of reconfiguring private water rights toward environmental flows in the Murray Darling river system for building ecosystem resilience? (ii) Which public institutional and legal reforms are necessary to resolve the conflict between environmental and socio-economic uses of the Murray Darling river system in order to maintain ecosystem resilience? The analysis of the research highlights three central limits to the use of water markets for the reconfiguration and efficient management of environmental flows by the Commonwealth Enviromnental Holder. Through examination of bounded rationality articulated in New Institutional Economics Theory, three interrelated limits were identified namely, the endowment effect, free rider effect, and lack of a transition economy to overcome the contraction of the rural economy caused by reduction of irrigation activity. This dissertation is one of the few to demonstrate the presence of an endowment effect in the real world setting, outside an experimental setting. The endowment effect refers to the initial assignment of property, the effect of which has been shown to place a limitation on trading activity in numerous contexts. This occurs because the willingness to accept (WT A) payment to relinquish property owned, far exceeds the willingness to pay (WTP) to acquire the same property. The endowment effect tied to the free rider effect can be addressed by a sustainable rural economic transition strategy. Lack of viable, alternate economic development has proven to be a problem in rural and regional Australia. This dissertation highlights the importance of investment in training, research and innovation in Information Communication Technology (ICT) in the MDB as a transition strategy attached to water policy. New Institutional Economics theory informs of the importance of institutional linkages for the achievement of transition economy goals between the MDBA and relevant government departments, including Treasury, Finance, Communications, Education, Employment and Training, and AUSTRADE. These institutional linkages have the potential to convert the economy dependent on agriculture to a knowledge economy over a period of two decades. This transition has the potential to reduce the level of youth migration from the rural sector to the urban sector, increasing the possibility of service sector expansion. At every major stage of water reform in the MDB to reduce over-extraction, from the 1994 cap and trade system, to the 2004 National Water Initiative to the Water Act 2007, a sustainable rural economic transition strategy has been repeatedly missed by successive governments. However State governments post-2011 have very belatedly commenced raising the matter of structural adjustment repeatedly in negotiations with the Federal government following vocal protests by irrigators. This dissertation also highlights limitations of water law and public institutions which include the absence of effective conflict resolution rules, mistrust in government management of water, mistrust in government institutional capacity, inadequate information flow and lack of clarity over property rights and compensation rules. Reform proposals therefore concern inclusion of conflict resolution provisions at the daily operational level and the Federal and State level. Daily operation rules adapted for the MDB focus on ongoing cooperation between heterogeneous users at the regional level to minimize conflict. At the Federal and State level the reform model proposes modification of the "no significant harm rule" articulated in international law, to include cost-benefit analysis rules and compensation rules. This dissertation proposes inclusion of the substantially modified "no-significant harm" rule as an amendment to the Water Act 2007. The aim of the no significant harm rule is to ensure all parties consider the impact of their actions upon other stakeholders and to promote respectful dialogue between parties. The model proposed sought to address key concerns pertaining to institutional bias, valuation methods and mechanisms to address harm to the rural economy. Inclusion of the modified "no significant harm rule" holds the potential to improve cooperative negotiations between State and Federal governments to optimize environmental, social and economic outcomes, as required by Article 3 of the Water Act 2007.