Water Policy after the Drought

For most of the last decade, water policy in Australia has been dominated by emergency responses to what was, on most measures, the worst drought in our history. Irrigators have received only small fractions of their normal allocations of water, while urban water users have been subject to restrictions of a stringency unparalleled in our recent experience. Debate continues on the extent to which the recent drought was the result of (natural or anthropogenic) climate change, and therefore on whether it can be seen as an exceptional shock or as a foretaste of a hotter and drier climate. At a minimum, it seems clear that the relatively wet conditions of the second half of the 20th century, which formed the basis of most water planning, are unlikely to recur. Despite the breaking of the drought in most regions, therefore, Australian water policy must deal with a fundamentally new environment. The era of abundant water availability, already reaching its limits in the 1980s, is now clearly behind us. When resources are scarce, the price mechanism invariably comes into play, either openly or through various forms of quasi-markets. The central theme of water policy pronouncements over the past two decades has been the need to make water prices and water markets more transparent and efficient. Policy practice, however, has been far less consistent. This paper presents a summary of the development of water policy in Australia, and an assessment of the current state of play. The analyses focuses on the contrast between the policies of the Victorian government, which seek to maintain rationing in various forms, and those embodied in the Commonwealth government’s Water for the Future Plan, which has shown at least some willingness to use prices and market-based policy instruments to achieve a more sustainable and efficient allocation of water resources.