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

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

Appendix 1 Irrigation

Appendix 1 Irrigation allocations and temporary water prices for NSW Murray Individual temporary trades in allocation for the MIL were obtained from the Productivity Commission (personal communication, January 2006). 671 individual transactions were used over the 1999/00 to 2002/03 irrigation seasons. Irrigation allocations for each year were obtained from MSM-BigMod and rainfall data obtained from the Bureau of Meteorology. A price was then estimated and multiplied by the quantity required to derive an opportunity cost per year. Given that in most years the environmental water is required in August, irrigation allocations at August were generally used to estimate prices. Figure A1 graphs the prices and the allocation at the point of sale for the 1999/00 to 2002/03 irrigation seasons. The graph shows a large range in price, from $100/ML to $350/ML when allocations are 10%. While allocations don’t explain this difference, the variation in rainfall has a significant influence on the difference in price, as shown in Figures A2 and A3. Figure A1: Average price and allocation at the time of the transaction, MIL 1999/00 to 2002/03 Scatter plot of allocation versus price, MIL data 1999 to 2003 Price ($/ML) $400.00 $350.00 $300.00 $250.00 $200.00 $150.00 $100.00 $50.00 $0.00 0% 20% 40% 60% 80% 100% 120% Irrigation allocation Natural resource ‘buybacks’ and their use to secure environmental flows BDA Group 64

Figure A2: Prices, allocation and rainfall over time, MIL Prices for temp trades 1999/00 to 2002/03 MIL $400.00 $350.00 $300.00 $/ML $250.00 $200.00 $150.00 $100.00 $50.00 $0.00 28/ 08/ 1999 15/ 03/ 2000 1/ 10/ 2000 19/ 04/ 2001 5/ 11/ 2001 24/ 05/ 2002 10/ 12/ 2002 28/ 06/ 2003 Date Figure A3: Monthly rainfall for Leeton, 1999/00 to 2002/03 Cummulative rainfall, Leeton 1999 to 2003 Rainfall (mm) 600 500 400 300 200 100 0 1 43 85 127 169 211 253 295 337 379 421 463 505 547 589 631 Month Using this data, water prices were regressed against irrigation allocations using ordinary least squares. A variety of functional forms were tested and the following proved to be the best fit, based on a range of diagnostic tests. Ln(P) = 6.382251 – 1.75147(A) – 0.00408(R) Where: P - A - R - is the price per ML for that transaction; is the irrigation allocation, expressed as a percentage of entitlement, in the month when the transaction occurred, is the irrigation season rainfall (August to May) in millimetres for Leeton (Bent’s Hill used in the regression). Natural resource ‘buybacks’ and their use to secure environmental flows BDA Group 65

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