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Optimal Dynamic Water Allocation: Irrigation Extractions and Environmental Tradeoffs in the Murray River, Australia

Author

Listed:
  • Quentin Grafton
  • Hoang Long Chu
  • Michael Stewardson
  • Tom Kompas

Abstract

A key challenge in managing semi-arid Basins, such as in the Murray-Darling in Australia, is to balance the trade-offs between the net benefits of allocating water for irrigated agriculture, and other uses, versus the costs of reduced surface flows for the environment. Typically, water planners do not have the tools to optimally and dynamically allocate water among competing uses, and water is misallocated. We address this problem by developing a general stochastic, dynamic programming model with four state variables (the drought status, the current weather, weather correlation and current storage) and two controls (environmental release and irrigation allocation) to optimally allocate water between extractions and in-situ uses. The model is calibrated to Australia’s Murray River and shows: (1) ‘pulse’ or artificial flood events are insensitive to parameter values; (2) from 2001-2009 a water reallocation that would have given less to irrigated agriculture and more to environmental flows would have generated between half a billion and over three billion USD in overall economic benefits; and (3) water markets increase optimal environmental releases by reducing the losses associated with reduced water diversions.

Suggested Citation

  • Quentin Grafton & Hoang Long Chu & Michael Stewardson & Tom Kompas, 2010. "Optimal Dynamic Water Allocation: Irrigation Extractions and Environmental Tradeoffs in the Murray River, Australia," Centre for Water Economics, Environment and Policy Papers 1008, Centre for Water Economics, Environment and Policy, Crawford School of Public Policy, The Australian National University.
    • Handle: RePEc:een:cweanu:1008
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    File URL: http://cweep.anu.edu.au/pdf/publications/research_papers/10-08_optimal_water_allocation.pdf
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    References listed on IDEAS

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    1. Brennan, Donna C., 2004. "Price formation on the Northern Victorian water exchange," 2004 Conference (48th), February 11-13, 2004, Melbourne, Australia 58375, Australian Agricultural and Resource Economics Society.
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    Cited by:

    1. Loch, Adam & Adamson, David & Mallawaarachchi, Thilak, 2013. "Hydrology and Economics in Water Management Policy under Increasing uncertainty," Risk and Sustainable Management Group Working Papers 156479, University of Queensland, School of Economics.
    2. Adamson, David & Loch, Adam, 2014. "Possible negative feedbacks from ‘gold-plating’ irrigation infrastructure," Agricultural Water Management, Elsevier, vol. 145(C), pages 134-144.
    3. Adamson, David & Loch, Adam, 2013. "Natural capital and climate change: Possible negative sustainability impacts from 'gold plating' irrigation infrastructure," Risk and Sustainable Management Group Working Papers 156480, University of Queensland, School of Economics.

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      More about this item

      Keywords

      Environmental flows; pulse effect; dynamic programming; Murray-Darling Basin; trade-offs;
      All these keywords.

      JEL classification:

      • C61 - Mathematical and Quantitative Methods - - Mathematical Methods; Programming Models; Mathematical and Simulation Modeling - - - Optimization Techniques; Programming Models; Dynamic Analysis
      • C63 - Mathematical and Quantitative Methods - - Mathematical Methods; Programming Models; Mathematical and Simulation Modeling - - - Computational Techniques
      • Q22 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Renewable Resources and Conservation - - - Fishery
      • Q27 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Renewable Resources and Conservation - - - Issues in International Trade

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