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'buybacks' and their use to secure environmental flows - National ...

'buybacks' and their use to secure environmental flows - National ...

5.4.4 Entitlement

5.4.4 Entitlement purchase with carryover provisions As described in Box 3, both general security irrigation entitlements and some environmental allocations are subject to carry-over provisions. The Barmah-Millewa Forest environmental allocation is made up of 100GL of high security entitlement, with an additional 50 GL of general security entitlement provided in 80 out of 100 years (MDBC 2005). However up to 700GL is able to be carried over in storage - for example, 150 GL allocated in the current year and 550 GL in storage) 13 . Arrangements like that for the Barmah-Millewa Forest allocation allow much larger quantities of water to be built up in storage which suit environmental sites where there are high peaks in demand. This scenario considers the implications for our case study of allowing unused allocations to be carried over to the following year with the same rules that apply to the Barmah-Millewa Forest environmental allocation. That is, up to four and a half times the environmental entitlement is able to be held in storage and carried forward to the following year. Having access to these carryover provisions significantly reduces the entitlements and cost required to meet environmental demands. For example, for the case where environmental demands are met 80% of the time, the volumes that need to be held are reduced by around 75% and the purchase cost falls from $129m to $31m. However, carryover provisions also result in third party impacts on irrigation allocations. Whereas unused allocations under environmental entitlement holdings (scenario 1) are effectively carried forward and shared by all users in the following year, unused allocations within an environmental carryover arrangement (scenario 4) are carried over exclusively for environmental use. And because the carryover limit is greater than the annual allocation, carryovers serve to reduce storage capacity available to other users. 13 Additional arrangements include conditions attached to when Hume Reservoir spills and also to amounts that can be overdrawn by the environment. These are not considered in this analysis. Natural resource ‘buybacks’ and their use to secure environmental flows BDA Group 44

Box 3: Carryover provisions Both general security irrigation entitlements in NSW and some environmental allocations are subject to carryover provisions. For example, in the Murray irrigation area since 1997/98 30% of licensed general security entitlement on average was able to be carried over each year 14 . In 2004-05 unused allocations could be carried over up to 50% of entitlements. However the extent to which carryovers can be accessed in following years depends upon announced allocation levels, with full access not possible once allocations exceed 100% 15 . Under the Victorian “Goulburn Murray Water Recovery Package” the new lower reliability entitlement transferred to the environment will be able to be used over an extended period up to the end of December in the following water year. This is a limited form of carryover. Different carryover provisions are provided for the Barmah-Millewa Forest environmental allocation (MDBC 2005b). The Barmah allocation is a ‘rules based’ allocation specific only to Barmah and cannot be traded. The carryover provisions for the existing Barmah-Millewa Forest environmental allocation (MDBC 2005b) allow up to 3.5 times the allocation to be carried over in storage for example 16 . This allows several years’ allocation to be built up in storage which can then be released at one time to piggy-back a natural flood event. Carryover provisions provide significant benefits to the environmental manager. However, if large proportions of environmental water entitlements are able to be carried over this will affect the reliability of entitlements for other users, particularly general security entitlement holders. However, in the case of Barmah-Millewa, a system of ‘borrowing’ has been introduced with irrigators that effectively reduce the potential for impacts on reliability of allocations. That is, NSW water users can borrow when their general security allocations are less than 30%, and from that point onwards, the water that has been borrowed needs to be returned 17 . Carryover provisions vary by irrigation area in NSW and there are no individual carryover provisions for irrigation entitlements in Victoria (although Victoria has a policy of allocating water right in the current year, then water right in the next year – effectively a system carryover – and then sales water in the current year). If carryover provisions are introduced for environmental entitlements, and trade was permitted in these entitlements, the issue of how the differences in carryover provisions are treated would need to be resolved Figure 15 shows estimated impacts on irrigation allocations of the 4.5 times carryover where entitlements are purchased to meet environmental demands 80% of the time. The impact on irrigation allocations in the NSW Murray has been estimated at up to 6 per cent and slightly more in the Victorian Murray at about 7 percent. An ‘order-of-magnitude’ estimate of the opportunity cost of reducing storage capacity available to irrigators is some $30 million (in net present value terms) 18 . 14 The data used to obtain the average carryover quantity was recovered from DIPNR, personal communication, November 2005. 15 DIPNR 2004, Water Allocation Plan for the Murray and Lower Darling River Valleys for 2004-05. 16 Additional arrangements include conditions attached to when Hume Reservoir spills and also to amounts that can be overdrawn by the environment. These are not considered in this analysis. 17 Personal communication, MDBC, February 2006. 18 This estimate is based on simple rules about carryover, and assumes that the impact on allocations is equally shared between NSW and Victoria. In reality, it is likely that this would not be the case given differences in allocation and storage policies by these states. In addition, the analysis does not take into account that in some years the environmental account may exceed 4.5 times and therefore provide a positive carryover to irrigators. As such, the indicated cost should only be interpreted as broadly indicative of potential impacts. Natural resource ‘buybacks’ and their use to secure environmental flows BDA Group 45

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