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Buying Back the Living Murray: At What Price?

Author

Listed:
  • R. Quentin Grafton

    () (Australian National University, Asia Pacific School of Economics and Government)

  • Karen Hussey

    () (Australian National University, National Europe Centre)

Abstract

In June 2004 the Council of Australian Governments approved the Intergovernmental Agreement on Addressing Water Overallocation and Achieving Environmental Objectives in the Murray-Darling Basin (‘IGMDB’). The IGMDB set out arrangements for a ‘Living Murray’ that includes a budget of $500 million to return 500 billion litres of water per year to the Murray River by 2009. Unfortunately, two years later and only 11 billion litres have been returned as environmental flows as a result of the initiative. In response, the Australian Government in April 2006 proposed a new scheme to purchase water entitlements from farmers who undertake water-savings measures. We examine this proposal in relation to the general economic principles for the allocation of scarce water. We contend that the latest initiative, although helpful, suffers from two fundamental problems in terms of water pricing. First, the current market price for water entitlements does not include the value of water ‘in situ’, or the benefits it generates separate from its value in consumption. Second, the constraint imposed that water users undertake infrastructure investments when selling their entitlements unnecessarily raises the cost of returning water to the Murray River. We conclude that the latest scheme to achieve the laudable goals of the ‘Living Murray’ is not cost effective and that the ratio of litres of water returned to dollars spent could be much higher if the pricing policies were changed.

Suggested Citation

  • R. Quentin Grafton & Karen Hussey, 2006. "Buying Back the Living Murray: At What Price?," Economics and Environment Network Working Papers 0606, Australian National University, Economics and Environment Network.
  • Handle: RePEc:anu:eenwps:0606
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    File URL: http://een.anu.edu.au/download_files/een0606.pdf
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    References listed on IDEAS

    as
    1. Anonymous, 2003. "Water Rights Arrangements in Australia and Overseas," Commission Research Papers 31899, Productivity Commission.
    2. Dwyer, Gavan & Douglas, Robert A. & Peterson, Deborah C. & Chong, Joanne & Maddern, Kate, 2006. "Irrigation externalities: pricing and charges," Staff Working Papers 31923, Productivity Commission.
    3. Quiggin, John C., 2001. "Environmental economics and the Murray-Darling river system," Australian Journal of Agricultural and Resource Economics, Australian Agricultural and Resource Economics Society, vol. 45(1), March.
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    Cited by:

    1. R. Quentin Grafton & Clay Landry & Gary D. Libecap & Sam McGlennon & Robert O'Brien, 2010. "An Integrated Assessment of Water Markets: Australia, Chile, China, South Africa and the USA," NBER Working Papers 16203, National Bureau of Economic Research, Inc.
    2. Wheeler, Sarah & Bjornlund, Henning & Zuo, Alec & Shanahan, Martin, 2010. "The changing profile of water traders in the Goulburn-Murray Irrigation District, Australia," Agricultural Water Management, Elsevier, vol. 97(9), pages 1333-1343, September.

    More about this item

    Keywords

    Living Murray; scarce water; water entitlements; water pricing; pricing policies;

    JEL classification:

    • Q00 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - General - - - General

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