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Benefits of buybacks for environmental water recovery

Earlier this year, the Australian Government announced a new round of voluntary water buybacks in the Murray-Darling Basin, with the aim of recovering 49 GL of environmental water – the amount needed by June 2024 if the revised 2075 GL target is to be met.

Legislated under the Murray-Darling Basin Plan (MDBP), the original 2750 GL target is the amount of environmental water that needs to be recovered to sustain natural ecosystems according to sustainable diversion limits. 

This original target was revised downwards in the 2018 Basin Plan amendment, reducing both recovery in the Northern Basin and allowing for environmental projects to offset actual water recovery.

The government has currently called for offers to sell water entitlements from voluntary sellers in parts of New South Wales and Queensland to recover the remaining 49 GL, with the new buybacks the first to be announced via public tender in almost a decade.

University of Adelaide Professor in Water Economics Sarah Wheeler said the Federal Government’s decision to restart voluntary water buybacks is a good one, given that buybacks have a track record for being cost effective and fast.

“Under the revised MDBP, there’s 2075 GL in water entitlements to be recovered. Historically, there have been two main methods for water recovery implemented – buybacks of water entitlements and the subsidisation of irrigation infrastructure,” she said.

“Buyback was implemented very strongly from 2008 onwards. Recovery via irrigation infrastructure programs took a while to get going, as setting up programs takes time. It’s much quicker, cheaper and easier to put a rolling tender in place so that irrigators can offer up some of their water at a price.

“Buybacks recovered water a lot faster than through the irrigation efficiency programs.”

While buybacks took off quickly following the Millennium Drought, Wheeler said they hit their peak in 2012 before changes in government impacted the scheme and were eventually capped in 2015.

“The focus on environmental water recovery just wasn't there after the government changed. Buybacks pretty much stopped from then onwards, but irrigation efficiency programs ran for a while longer,” she said.

“We have been stuck at the same level of physical water recovery for a while. Everything has stalled. But Minister Plibersek has bitten the bullet and the government is heading back to voluntary buybacks for environmental water recovery.”

Buyback benefits

Aside from the reality that most of the water recovered to date has been through buybacks, there are other aspects of buyback that are particularly beneficial in comparison to irrigation efficiency programs, Wheeler said.

“We know that irrigators often have surplus water and that buybacks give them complete flexibility in regards to how they use funds after selling their water entitlements. They can apply that money to reduce debt, or for succession asset management, or to reinvest in other ways, either on or off farm,” she said.

“Although often portrayed by irrigator groups as a negative in the context of the buyback strategy, reducing debt can be a very positive outcome for farms, increasing their flexibility and reducing risk of bankruptcy”.

“In comparison, irrigation efficiency programs lock irrigators into a certain way of using the water entitlement funding, as well as a certain way of using water on their farm. And when you encourage farms to upgrade their irrigation efficiency, it can completely change what can be done on the farm.

“More efficient technology might change the amount of land used or the type of crops. As a result, these upgrades can actually end up leading to farms using more water in the long run. From a basin point of view, we are trying to incentivise irrigators to use less water overall, but then implementing programs that encourage the opposite.

“If we are going to implement more irrigation efficiency programs in the future, they should be modelled on incentivising lower water consumption for the benefit of the environment. They also should increase flexibility of choice of investment on-farm.

Given that irrigation efficiency programs have proven to produce more negative environmental externality impacts than buybacks, Wheeler said it doesn’t make much sense to pay more for an approach that is less effective.

“But, not all irrigation efficiency programs are the same. There are some good examples of programs, but they still cost more than implementing buybacks,” she said.

“The difference in costs to date has been $2100 per ML recovered via buybacks, and $6500 per ML recovered from irrigation efficiency programs. And these irrigation efficiency and supply costs are only increasing. That’s a lot to pay for programs that have a whole range of external environmental impacts and problems.”

Doing buybacks better

Wheeler said buybacks are the better option, when talking about resilience from a community and environmental point of view, but that the mechanism could be developed further to help meet targets and environmental aims.

“Focusing on voluntary buyback is one of the best options. But I have also argued in the past that we could rely more on buying temporary water, not just buying permanent water,” she said.

“This extension could be quite effective, and potentially more acceptable for irrigators and communities.”

However, despite some strategic tweaks that could be made to buybacks in future, Wheeler said there is still much work to be done in restructuring irrigation regions in light of climate change.

“The reality is that we are not going to be able to irrigate the same current area of land going forward into a climate changed future. We have to deal with change, transformation and reduction,” she said.

“We still have to have conversations about restructuring irrigation regions, how to do it best, and how to invest in communities, knowing that we are taking water away from them that is reducing productive capacity.

“That structural adjustment is something we have done badly in the past and we need to improve it. Improving structural adjustment and how we make the transition to a climate change future, including a reduction in water’s productive capacity, is essential.”

While the structural adjustment of irrigation regions in the Murray-Darling Basin is a much larger issue than recovering water for the environment via buybacks, the reintroduction of the mechanism is a step in the right direction, Wheeler said.

“We need to start by applying the best methods we have to recover the environmental water we need, and then work through structural adjustments and how to make communities stronger with other programs,” she said.