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Supply and Demand for Water use by New Forest Plantations: a market to balance increasing upstream water use with downstream community, industry and environmental use?

Author

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  • Nordblom, Tom
  • Finlayson, John D.
  • Hume, Iain H.
  • Kelly, Jason A.

Abstract

This study examines the use of water by existing downstream entitlement holders and their possible market interactions with upstream interests in new forestry plantations in the case of the Macquarie River Catchment, NSW. Demand for offset water to allow upstream plantation establishment is estimated as a function of tree product value and direct and opportunity costs in six sub-catchment areas with different rainfalls and locations with respect to urban and other high security water users (UHS). This upstream demand is aggregated with downstream demand for water. The aggregate supply of downstream water entitlements is posited in terms of marginal values to each of three sectors [stock & domestic (S&D), irrigation (IRR), and wetland (WL) areas] and their current entitlements. Assuming a fixed quantity of water entitlements, equilibrium quantities traded and the distributions of trade and associated surpluses are estimated given each of four stumpage values for tree products. This is done assuming four combinations of scenarios: with or without the policy that water entitlements must be obtained before establishing a tree plantation, and with or without one sub-catchment being very salty, the latter being a hypothetical case. Assuming $70/m3 stumpage value for tree products, without the requirement to purchase offset water, total upstream surpluses due to extensive tree planting are projected to reach $639M and $688M in the FRESH and SALTY cases, respectively; downstream losses, not counting damages to the wetlands, are $233M and $236M (summing the IRR and S&D sectors) given uncompensated losses of 137 and 138 GL of water flow to them; further, uncompensated losses of 154 and 156 GL in annual river flow would be suffered by the wetlands. With the requirement to purchase water for establishing new tree plantations, upstream surpluses are projected to be $192M and $220M in the FRESH and SALTY cases, respectively, while downstream sums of IRR and S&D surpluses are $138M and $151M, given 90 and 97 GL of water traded upstream with no damages to the wetlands. Greater surpluses in the hypothetical SALTY cases are due to subsidies paid by UHS for tree planting to reduce water yields from the very salty sub-catchment, thereby lowering river salinity to acceptable levels for domestic use. Although sale of downstream water entitlements may just balance reductions in river flow due to new tree plantations, water delivery efficiency may be reduced and overhead costs increased for those not selling entitlements. Our analysis has not counted these costs.

Suggested Citation

  • Nordblom, Tom & Finlayson, John D. & Hume, Iain H. & Kelly, Jason A., 2009. "Supply and Demand for Water use by New Forest Plantations: a market to balance increasing upstream water use with downstream community, industry and environmental use?," Research Reports 280785, New South Wales Department of Primary Industries Research Economists.
    • Handle: RePEc:ags:nswprr:280785
    DOI: 10.22004/ag.econ.280785
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    References listed on IDEAS

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    1. Finlayson, John & Bathgate, Andrew & Nordblom, Tom & Theiveyanathan, Tivi & Farquharson, Bob & Crosbie, Russell & Mitchell, David & Hoque, Ziaul, 2010. "Balancing land use to manage river volume and salinity: Economic and hydrological consequences for the Little River catchment in Central West, New South Wales, Australia," Agricultural Systems, Elsevier, vol. 103(3), pages 161-170, March.
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    5. Adamson, David & Mallawaarachchi, Thilak & Quiggin, John C., 2007. "Water use and salinity in the Murray–Darling Basin: A state-contingent model," Australian Journal of Agricultural and Resource Economics, Australian Agricultural and Resource Economics Society, vol. 51(3), pages 1-19.
    6. Tom Nordblom & Iain Hume & Andrew Bathgate & Michael Reynolds, 2006. "Mathematical optimisation of drainage and economic land use for target water and salt yields ," Australian Journal of Agricultural and Resource Economics, Australian Agricultural and Resource Economics Society, vol. 50(3), pages 381-402, September.
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    10. Nordblom, Thomas L. & Hume, Iain H. & Cresswell, Hamish & Glover, Mark & Hean, Robyn L. & Finlayson, John D. & Wang, Enli, 2007. "Minimising costs of environmental service provision: water-yield, salt-load and biodiversity targets with new tree planting in Simmons Creek Catchment, NSW, a dryland farming/grazing area," 2007 Conference (51st), February 13-16, 2007, Queenstown, New Zealand 10357, Australian Agricultural and Resource Economics Society.
    11. Nordblom, T.L. & Christy, B.P. & Finlayson, J.D. & Roberts, A.M. & Kelly, J.A., 2010. "Least cost land-use changes for targeted catchment salt load and water yield impacts in south eastern Australia," Agricultural Water Management, Elsevier, vol. 97(6), pages 811-823, June.
    12. Heaney, Anna & Beare, Stephen & Bell, Rosalyn, 2001. "Evaluating improvements in water use efficiency as a salinity mitigation option in the South Australian Mallee areas," 2001 Conference (45th), January 23-25, 2001, Adelaide, Australia 125652, Australian Agricultural and Resource Economics Society.
    13. Nordblom, Thomas L. & Reeson, Andrew & Finlayson, John D. & Hume, Iain H. & Whitten, Stuart M. & Kelly, Jason A., 2009. "Experiments with regulations & markets linking upstream tree plantations with downstream water users," 2009 Conference (53rd), February 11-13, 2009, Cairns, Australia 47945, Australian Agricultural and Resource Economics Society.
    14. Nordblom, Thomas L. & Hume, Iain H. & Finlayson, John D. & Kelly, Jason A. & Welsh, Rob & Hean, Robyn L., 2007. "Downstream benefits vs upstream costs of land use change for water-yield and salt-load targets in the Macquarie Catchment, NSW," 2007 Conference (51st), February 13-16, 2007, Queenstown, New Zealand 10355, Australian Agricultural and Resource Economics Society.
    15. Finlayson, John D. & Bathgate, Andrew D. & Hoque, Ziaul & Nordblom, Thomas L. & Theiveyanathan, Tivi & Crosbie, Russell & Mitchell, David, 2007. "Farm and catchment scale effects of managing dry-land salinity with pastoral and woody perennials," 2007 Conference (51st), February 13-16, 2007, Queenstown, New Zealand 10409, Australian Agricultural and Resource Economics Society.
    16. Nordblom, Thomas L. & Hume, Iain H. & Bathgate, Andrew D. & Reynolds, Michael, 2006. "Mathematical optimisation of drainage and economic land use for target water and salt yields," Australian Journal of Agricultural and Resource Economics, Australian Agricultural and Resource Economics Society, vol. 50(3), pages 1-22, September.
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    1. Nordblom, Thomas L. & Hume, I.H. & Finlayson, J.D. & Pannell, David J. & Holland, J., 2013. "Upstream-downstream benefit analysis of policy on water use by upstream tree plantations," 2013 Conference (57th), February 5-8, 2013, Sydney, Australia 152173, Australian Agricultural and Resource Economics Society.
    2. Finlayson, John & Bathgate, Andrew & Nordblom, Tom & Theiveyanathan, Tivi & Farquharson, Bob & Crosbie, Russell & Mitchell, David & Hoque, Ziaul, 2010. "Balancing land use to manage river volume and salinity: Economic and hydrological consequences for the Little River catchment in Central West, New South Wales, Australia," Agricultural Systems, Elsevier, vol. 103(3), pages 161-170, March.
    3. Nordblom, T.L. & Hume, I.H. & Finlayson, J.D. & Pannell, D.J. & Holland, J.E. & McClintock, A.J., 2015. "Distributional consequences of upstream tree plantations on downstream water users in a Public–Private Benefit Framework," Agricultural Systems, Elsevier, vol. 139(C), pages 271-281.
    4. Nordblom, Thomas L. & Finlayson, John D. & Hume, Iain H., 2012. "Upstream demand for water use by new tree plantations imposes externalities on downstream irrigated agriculture and wetlands," Australian Journal of Agricultural and Resource Economics, Australian Agricultural and Resource Economics Society, vol. 56(4), pages 1-20, December.

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