This Bills Digest replaces a preliminary Digest published on 8 September 2023 to assist in early consideration of the Bill.

Glossary

Terms or phrases defined in legislation or legislative instruments are italicised in this Digest.

Purpose of the Bill

The Water Amendment (Restoring Our Rivers) Bill 2023 (the Bill) seeks to amend the Water Act 2007 and the Basin Plan 2012 to implement the ‘Basin Plan in full, including recovering 450 gigalitres (GL) of additional environmental water’.[1] These amendments implement the legislative elements of the Agreement of Murray-Darling Basin Ministers to deliver the Basin Plan in full (the ‘new agreement’) which was agreed by the Commonwealth and Basin States (with the exception of Victoria) on 22 August 2023.

The Bill also seeks to amend the Water Act, Basin Plan, and Competition and Consumer Act 2010 to implement some ‘recommendations from the Water Market Report: Final Roadmap [Final roadmap report] to restore transparency, integrity and confidence in water markets and water management in the Basin’.[2] The Final roadmap report examined and mapped out a ‘phased, practical and cost-effective plan’ for responding to the recommendations of the Australian Competition and Consumer Commission’s (ACCC) Murray-Darling Basin water markets inquiry.[3]

Structure of the Bill

The Bill has 6 Schedules:

• Schedule 1—Water recovery and Basin Plan Delivery has 4 Parts that amend the Water Act:
  • Part 1 amends subsection 253(1) of the Act to postpone a requirement for the Minister to conduct a review of the Water Act by 3 years, to before the end of 2027.
  • Part 2 amends Part 2AA relating to the Water for the Environment Special Account (WESA) to broaden the purposes for which monies in the WESA can be used, provide for management of monies in the Special Account after 31 December 2027, and require a third independent review of the WESA to be conducted.
  • Part 3 repeals Division 5 of Part 2 of the Act, removing the 1500 GL limit on the purchase of water access entitlements by the Commonwealth.
  • Part 4 amends Subdivision F of Division 2 of Part 2 of the Act to require Basin States to provide and report on actions specified in an action plan in cases of non-compliance with the long-term annual diversion limit for the water resources of a water resource plan area (‘reasonable excuse’ claims). It also amends Subdivision A of Division 4 of Part 2 to clarify requirements for the Basin Plan to specify the Commonwealth share of reduction in long‑term average sustainable diversion limits, and to allow the Commonwealth to request certain information from Basin States.
• Schedule 2—Amendment of the Basin Plan 2012 amends 3 Chapters of the Basin Plan:
  • amendments to Chapter 6 clarify that the Inspector-General of Water Compliance (IGWC) is responsible for determining ‘reasonable excuse’ claims brought forward by Basin States, may publish guidance about the preparation of action plans, and may appoint or establish an independent auditor to audit calculations of the Murray-Darling Basin Authority (MDBA) when proposing sustainable diversion limit (SDL) adjustments.
  • amendments to Chapter 7 provide for the MDBA to propose adjustments to the SDLs under section 23A of the Water Act including a new class, being new acquisitions of held environmental water (HEW) that was previously used for consumptive water; require the MDBA to prepare a constraints relaxation implementation roadmap by 31 December 2024; provide for the Minister to specify additional HEW entitlements, and for these additional HEW entitlements to be taken into account in the reconciliation adjustment; postpone the requirement for the MDBA to make a final determination under the Sustainable Diversion Limit Adjustment Mechanism to 31 December 2026.
  • amendments to Schedule 6A to incorporate the new class, being additional HEW entitlements.
• Schedule 3—Water Markets Measures has 4 Parts that amend the Water Act:
  • Part 1 inserts a new Part 5 to establish a framework for a Water Markets Intermediaries Code (Code) to be made by regulations. The Code would be enforced by the ACCC, who are given a range of new compliance and enforcement powers. The new Part 5 would also introduce a statutory trust accounting framework for eligible water market intermediaries.
  • Part 2 inserts a new Part 5A to expand existing obligations relating to water announcements and to prohibit insider trading.
  • Part 3 inserts additional new provisions in new Part 5A to prohibit market manipulation and insider trading relating to non-water announcement information.
  • Part 4 inserts a new Part 7A relating to water markets information. New Part 7A (i) gives the Bureau of Meteorology (Bureau) new powers to collect, hold, manage, interpret and disseminate water market information, and to make Water Markets Data Standards; (ii) gives the IGWC compliance and enforcement powers relating to Water Market Data Standards.
• Schedule 4—Amendment of the Basin Plan 2012 relating to various water markets measures amends the Basin Plan to:
  • remove an existing exemption relating to tagged water entitlements.
  • repeal provisions relating to reporting of water trade prices and water announcements which would be moved to the Water Act by the amendments in Schedule 3.
• Schedule 5—Technical amendments relating to First Ministers’ Council makes minor amendments to the Water Act to replace references to the Council of Australian Governments with the First Ministers’ Council.
• Schedule 6—Consequential amendments has 3 Parts:
  • Part 1 makes consequential amendments to the CC Act and Water Act relating to the Water Markets Intermediaries Code, including providing for a Court to make a relinquishment order in relation to benefit derived or detriment avoided from a water market activity and providing the ACCC with additional information gathering powers relating to water markets.
  • Part 2 makes consequential amendments to the CC Act and Water Act relating to water announcements and water trading.
  • Part 3 makes consequential amendments to the Water Act, including providing for the IGWC to disclose information to the Bureau and ACCC.

Commencement

The commencement of different Schedules and Parts of Schedules is set out in Table 1.[4]

Table 1 Commencement

Background

The Murray-Darling Basin (MDB) covers an area of 1 million km², is home to more than 50 First Nations, and hosts a wider population of 2.3 million people.[5] The MDB has significant environmental values, with more than 30,000 wetlands (including 16 listed under the Convention on Wetlands of International Importance (Ramsar Convention)[6]), and of the hundreds of species found in region, 57 are listed as endangered under Australia’s national environmental law.[7] The MDB is also one of Australia’s ‘food bowls’, producing food and fibre valued at $22 billion each year; irrigated agriculture is the major water user.[8] The Basin also provides tourism services worth $11 billion each year.[9]

The major river systems of the Basin – the River Murray and the Darling (Baaka) – receive little direct rainfall, are long and slow flowing, with high evaporation rates.[10] Only 6 per cent of rainfall is available for consumptive uses.[11] Water quality across the MDB declined across the 20th century due to increased salinisation and increased nutrients in the water, both associated with extraction of water for consumptive uses such as agriculture.[12] The decline in the ecological condition of rivers and wetlands was further exacerbated by increased water diversions during the 1980s and 1990s, raising concerns that diversions were exceeding sustainable levels.[13] For example, the 1995 Audit of water use in the MDB reported:

The current and increasing consumptive use of water in the Basin is having a significant impact on river health and the environment. Rivers have been altered by significant changes in the annual flow, the distribution of flow through the year and the length of low flow periods.[14]

In the ensuing years, the Commonwealth and Basin States initiated measures to improve cross‑border sustainable management of Basin water resources, including introducing a cap on the diversion of water.[15] However, a lack of progress with these initiatives – exacerbated by the Millennium drought from 1997 to 2010 – prompted the then Prime Minister’s National Plan for Water Security, followed by passage of the Water Act 2007, the Intergovernmental Agreement on Murray-Darling Basin Reform (Reform Agreement), and the limited referral of Basin State powers to the Commonwealth.[16]

Brief overview of the Water Act

The Water Act was enacted by the Australian Parliament in 2007 and its operational provisions commenced on 3 March 2008. The objects of the Act expressly include:

• enabling the Commonwealth and Basin States to ‘manage Basin water resource in the national interest’
• giving effect to relevant international agreements (such as the Ramsar Convention) in a way that promotes ‘the use and management of the Basin water resources in a way that optimises economic, social and environmental outcomes’ and
• ensuring ‘the return to environmentally sustainable levels of extraction for water resources that are overallocated or overused’.[17]

The Water Act (as subsequently amended):

• establishes the Murray-Darling Basin Authority and provides for its powers and functions
• provides for Basin-wide planning of Basin water resources through a Basin Plan
• establishes the Commonwealth Environmental Water Holder and the Water for the Environment Special Account
• provides for water charges and water trading
• provides for the Inspector-General of Water Compliance and enforcement more generally
• creates a role for the ACCC in regulating water trading and pricing
• expands the functions of the Bureau of Meteorology in relation to water information and standards.[18]

The Water Act did not take ‘over the routine regulatory roles of the states and territories in the administration of water access rights’ and these continue to be provided for in respective state and territory legislation.[19]

Delivering the Basin Plan

The Basin Plan 2012 is a legislative instrument made under the Water Act. It seeks ‘to reset the balance between environmental and consumptive use of water across the Basin and to establish a long-term sustainable water management system’.[20]

The Basin Plan includes:

• an environmental watering strategy to optimise environmental outcomes for the Basin
• a water quality and salinity management plan
• requirements that Basin state water resource plans must comply with if they are to be accredited
• a mechanism to ensure critical human water needs are met
• water trading rules
• requirements for monitoring and evaluating the effectiveness of the implementation of the Basin Plan.

Most relevant to this Bill, the Basin Plan specifies the surface water and groundwater long-term average sustainable diversion limits (SDL) for the entire Murray-Darling Basin (MDB), as well as for each surface water and groundwater resource unit and water resource plan area. SDLs are essentially the maximum amount of water that can be extracted in a year.

The Basin Plan initially required recovery of 2,750 GL/y (gigalitres per year) of surface water (referred to as the ‘bridging the gap’ target). Amendments to the Basin Plan in 2017 and 2018:

• increased the SDL for the Northern Basin by 70 GL/y, provided Northern Basin Toolkit measures were implemented and
• allowed 605 GL/y of additional water to remain available in the system (reducing the ‘bridging the gap’ target to 2,075 GL/y) provided that a suite of supply and constraints projects nominated by the Basin States were implemented through the Sustainable Diversion Limit Adjustment Mechanism (SDLAM), while still achieving the same or better environmental outcomes.

The 605 GL/y is contingent on the delivery of 450 GL/y of water for enhanced environmental outcomes to be achieved through efficiency measures funded by the Water for the Environment Special Account (WESA).

Numerous assessments, reports and reviews over the last 5 years have raised serious concerns about progress towards the water recovery targets provided for in the Basin Plan. These include:

• the Productivity Commission’s first Five-Year Assessment of the Murray-Darling Basin Plan
• the MDBA’s annual Report Cards, annual Sustainable Diversion Limit Adjustment Mechanism Assurance Reports, Basin Plan Evaluations, and
• the first and second independent reviews of the Water for the Environment Special Account.

Albanese Government’s commitment to delivering the Basin Plan in full

The incoming Albanese Government’s Water for Australia plan, implementing the Australian Labor Party’s plan to future-proof Australia’s water resources, included a 5-point plan to safeguard the MDB, as well as reestablishment of the National Water Commission.[21] The 5-point plan includes:

• delivering on the water recovery targets in the Basin Plan, including the 450 GL of water for enhanced environmental outcomes
• increasing compliance, and improving metering and monitoring
• restoring transparency, integrity and confidence in water markets and water management
• increasing First Nations ownership and involvement in decision-making
• updating the science underpinning the Basin Plan.

Consultation on ideas to deliver the Basin Plan in full

On 29 May 2023, the Department of Climate Change, Energy, the Environment and Water (DCCEEW) launched a consultation inviting the community to contribute ideas for ‘delivering the Basin Plan’s 450GL water recovery target and to supplement estimated shortfalls in gap bridging water efficiency projects’. On 10 August 2023, the Minister released a summary of community ideas received during the consultation period. According to the Minister’s media release:

...more than 130 submissions were received, contributing innovative ideas on how to deliver the Murray-Darling Basin Plan in full. Submissions considered things like ways to protect native fish, improve river operations, invest in infrastructure projects, use new technologies, and work in partnership with landholders.[22]

According to the Department, ‘viable submissions will be further considered by the Minister and for future program and policy development’. Submissions are available on the consultation homepage.

Advice of the Murray-Darling Basin Authority to the Minister

On 4 July 2023, the Minister for the Environment and Water, Tanya Plibersek, asked the Murray-Darling Basin Authority (MDBA) for ‘advice on Basin Plan implementation progress to date and the prospects of meeting water recovery targets by 30 June 2024’.[23]

On 25 July 2023, the MDBA advised the Minister that ‘full implementation of the Basin Plan will not be possible by 30 June 2024 under the current settings’. The Authority stated:

There are many reasons why implementation has been slower and even more challenging than originally anticipated, and why both the Commonwealth and Basin States have found it difficult to meet timeframes and milestones. This an extremely complex reform agenda, requiring deep and enduring change across Basin jurisdictions.[24]

The advice indicated:

• there will be a shortfall of between 190 to 315 GL/y (and likely towards the upper end) of the 605 GL/y required to be delivered by SDLAM projects, with 16 notified projects unlikely to be or will not be operational by 30 June 2024
• there is a shortfall of 424 GL/y in the recovery of 450 GL/y of water for enhanced environmental outcomes
• 15 of NSW’s water resource plans are yet to be accredited by the MDBA, meaning the SDLs for those catchments cannot be enforced by the Inspector-General of Water Compliance (IGWC)
• 2 of the Northern Basin toolkit measures will not be in place by 30 June 2024.

A new agreement

On 22 August 2023, the Commonwealth and Basin States (with the exception of Victoria) reached ‘an historic agreement’ to ensure that the Basin Plan was delivered in full.[25] The Minister announced:

The new agreement sets out some important changes to make sure the Murray-Darling Basin Plan is delivered in full:

• More time to deliver the remaining water, based on expert advice. This includes the recovery of the 450GL of water for the environment by 31 December 2027, and the delivery of water infrastructure projects by 31 December 2026.
• More options to deliver the remaining water, including water efficiency infrastructure projects and voluntary water purchases.
• More funding to deliver the remaining water, and to support communities where voluntary water purchasing has flow-on impacts.
• More accountability for all Murray-Darling Basin governments including the Federal government to deliver on their obligations.[26]

The main components of the 12-point Agreement of Murray-Darling Basin Ministers to deliver the Basin Plan in full involve:

• the Commonwealth using its best endeavours to amend to the Water Act to:
  • extend the time to deliver SDLAM supply and constraints projects to 31 December 2026
  • allow Basin states to nominate new supply projects, provided the projects can be achieved by 31 December 2026
  • postpone the reconciliation of SDLAM project outcomes to 31 December 2026
  • ensure recovery of the 450 GL of water for enhanced environmental outcomes
• an extension of funding to Basin States, coupled with additional assurances and accountabilities of Basin States for delivery of projects
• delivery of a package of ‘no regrets’ constraints relaxation projects by the Basin States to support floodplain outcomes by 31 December 2026
• an extension of time to achieve the 450 GL of water for enhanced environmental outcomes to 31 December 2027
• a Commonwealth support package to minimise any negative social and economic impacts associated with delivering the environmental outcomes intended to be delivered by the Basin Plan
• an extension of time to deliver Northern Basin Toolkit projects to 31 December 2026.

Victoria

While Victoria did not agree to sign the New Agreement,[27] the proposed amendments to the Water Act, Basin Plan and Competition and Consumer Act would apply equally to Victoria. However, it appears the Commonwealth will not make available to the Victorian Government new Commonwealth funding to support the implementation of existing nominated measures under the SDLAM or for new (and alternative) nominated measures, or as transitional assistance for Basin communities impacted by the purchase of water access entitlements by the Commonwealth.[28] Minister Plibersek is reported to have said:

Those states that have agreed will get more time to deliver the water saving projects, they’ll get more money to deliver those projects and if there are social and economic impacts in their communities, those state governments will have funding to support those communities.[29]

Further, the Minister has said ‘if Victoria is not interested in updating its funding arrangements, then that’s a matter for them’.[30]

In addition, the failure to implement notified measures under the SDLAM by the required time may result in amendments to the adjustment to the SDLs in Victorian water resource units, leaving a residual requirement for water recovery in Victoria.

Water markets reform

Over the last 30 years, trade in water allocations and water entitlements has increased dramatically. Water markets first emerged in irrigation systems in the southern MDB, where the market now accounts for 80–90 per cent of all water trading activity across Australia.[31] Water markets in the MDB ‘have an annual average value of more than $1.8 billion per year and rising, against an underlying value of entitlements estimated at around $30 billion and rising’.[32]

Water trading is put forward as ‘one of the major successes of national water reform’.[33] It is argued to have delivered large benefits to rural and regional communities, by allowing water to move to higher value uses, creating incentives for efficient water use, and enabling irrigators and other water users to better manage drought and other risks.[34]

However, over the last decade, several inquiries and reviews have assessed various aspects of water markets, with a focus on the MDB. For example, the Productivity Commission noted ‘there have been concerns about the conduct of some service providers over the years’, including ‘potential fraud, lack of professional indemnity insurance, conflicts of interest and inadequate arrangements for protecting client’s deposits’.[35] Concerns have also been raised about foreign ownership of water entitlements and about whether speculative trading by ‘water barons’ and foreign investors is affecting water markets.[36] Other analysis suggests however that these impacts are not substantial.[37]

Between August 2019 to March 2021, the Australian Competition and Consumer Commission (ACCC) conducted an ‘inquiry into markets for tradeable water rights relating to water in the Murray-Darling Basin’.[38] The terms of reference limited the scope of the inquiry to:

tradeable water rights; and

services facilitating the trade of tradeable water rights, including those offered by water market intermediaries; and

infrastructure services in relation to tradeable water rights.[39]

The ACCC released its Final report, together with a Guide to the Final Report on 26 March 2021. The Final report made 29 recommendations centred around four themes: governance of Basin water markets, market integrity and conduct, trade processing and water market information, and market architecture.

A joint media release issued by the then Treasurer Josh Frydenberg and then Minister for Water, Keith Pitt, stated:

The recommendations are wide ranging and with around 90 per cent involving coordination with Basin States, it will require unified action from all levels of government to consider and implement the recommendations.

With the finalisation of the Inquiry, the Australian Government will now engage with Basin jurisdictions and key stakeholders to ensure that the response supports water users and communities and that the reforms are feasible, cost effective and achieve greater harmonisation across state borders.[40]

The Morrison Government subsequently appointed Daryl Quinlivan AO as Principal Adviser to examine the ACCC’s recommendations and ‘develop a water market reform roadmap to improve the governance, structure, and operation of Murray-Darling Basin water markets’.[41]

The final report of the examination, the Water market reform: final roadmap report, set out a ‘phased, practical and cost-effective plan for water market reform’ in response to the ACCC’s water market inquiry.[42] The Final roadmap report made 23 recommendations, including dividing water market functions among the proposed new National Water Commission (in the interim, DCCEEW), ACCC, IGWC, and the Bureau of Meteorology.

In October 2022, the Australian Government and the MDB Ministerial Council agreed in principle to implement all of the Roadmap’s recommendations. The Minister for Water said:

The Australian Government will introduce legislation and a mandatory code of conduct to deliver integrity safeguards, and lift conduct standards, comparable with other markets ... Under the Government’s reforms, market conduct will be regulated by the ACCC, building on their expertise and experience with water markets.[43]

A cost benefit analysis prepared in support of the Final roadmap report found the Roadmap’s recommendations could be implemented at lower cost, albeit with lower benefit, than proceeding with the full set of ACCC recommendations.[44]

Upcoming statutory reviews

The Water Act includes several statutory review processes which are or will soon (as the Act currently provides) be underway. These include:

• an independent review of the operation of the Water Act and the extent to which the Act’s objects have been achieved, to be conducted before the end of 2024.[45] This review is yet to be initiated by the Minister.[46]
• a review of the Basin Plan in 2026 by the MDBA (if not requested beforehand).[47] In June 2023, the MDBA began preparations for this review, outlining its approach to the review in the Roadmap to the 2026 Basin Plan Review.
• a review of the implementation of the Basin Plan and water resource plans by the Productivity Commission by the end of 2023.[48] The Productivity Commission issued a call for submissions on 17 May 2023. The Commission plans to release an interim report in late October 2023, before providing a final report to the Minister by 19 December 2023.

Committee consideration

Senate Environment and Communications Committee

The Bill has been referred to the Senate Environment and Communications Legislation Committee for inquiry and report by 8 November 2023. Details of the inquiry are at Inquiry homepage.

Senate Standing Committee for the Scrutiny of Bills

At the time of writing, the Senate Standing Committee for the Scrutiny of Bills is yet to consider the Bill.

Policy position of non-government parties/independents

Australian Greens

The Australian Greens support delivery of the Basin Plan in full.[49] However, Senator Sarah Hanson‑Young (SA) expressed doubts about the New Agreement:

After a decade of broken promises there is still nothing to guarantee the delivery of 450 gigalitres of water promised to South Australia and the environment. If Minister Plibersek wants this to pass the Senate, we need environmental flows guaranteed and water flowing to SA before the next election.[50]

On 5 September 2023, Senator Hanson-Young said ‘the Greens cannot support the Government’s proposed changes to the Murray Darling Basin Plan in their current form’.[51]

Liberal-National Coalition

The Liberal-National Coalition strongly opposes water buybacks and introduced the 1,500 GL limit on buybacks in 2015.[52] In 2021, the Nationals attempted to move amendments that would have reduced that limit so no further buybacks were possible (excluding the existing exemptions) and would have amended the Basin Plan to embed the socio-economic criteria agreed by the MDB Ministerial Council in December 2018.[53]

Nationals David Littleproud MP (Leader), Senator Perin Davey (Shadow Minister for Water), Michael McCormack MP, and Dr Anne Webster MP have all raised concern about the impacts of buybacks on rural communities.[54] For example, while Senator Davey ‘cautiously welcomed’ the extended timeframes, she expressed a view that ‘buybacks hurt Basin communities and have flow on impacts that will cost every Australian in the long run’.[55] Senator Davey also noted that ‘questions remain around funding, especially given not all States have signed up’.

On 9 September 2023, the Nationals Federal Conference endorsed a motion to bring forward the statutory review of the Basin Plan to ‘return the focus of the plan to management and outcomes rather than water recovery’.[56]

Senator Anne Ruston (Liberal, South Australia) raised concerns about the lack of detail in the Minister’s announcement, including impacts on water markets and the cost of buybacks.[57] Senator Ruston also confirmed she does not support buybacks and suggests states should be looking at urban and industrial water management to lessen reliance on river water.

Following the introduction of the Bill, Senator Davey claimed the amendments would change ‘the objectives of the funding for the oft referenced 450GL as well as weakening social and economic protections for Basin communities’.[58] She also stated that consultation with affected communities had been inadequate.

On 12 September 2023, it was reported that the Coalition party room would oppose the passage of the Bill in the House of Representatives and would ‘seek an amendment to retain the requirement that water buybacks must have a neutral effect on basin communities’.[59] However, South Australian Liberal MPs James Stevens and Andrew McLachlan have reportedly argued that ‘buybacks that do not harm regional communities must be on the table and that 450 gigalitres of environmental water should be delivered to protect the health of the river system’.[60]

Second reading speeches

The Bill was debated in the House of Representatives on 12 to 14 September. Several members indicated they would be proposing amendments to the Bill; however, no substantive amendments had been tabled at the time of publishing.

Position of major interest groups

Basin States

The ACT Minister for Water, Shane Rattenbury, indicated the ACT Government’s strong support for delivering the Basin Plan. He said:

I strongly believe there must be increasing accountability and transparency as the Plan is implemented, through enhanced auditing, reporting and independent oversight.[61]

NSW Water Minister Rose Jackson has confirmed that the NSW Government supports delivery of the Basin Plan in full. Minister Jackson said:

we recognise that we have a shared responsibility to ensure that the environmental health of our river system is protected, while enabling our regional communities to thrive into the future.[62]

However, in a media release of August 2023 the Minister said that the NSW government ‘does not support water buybacks’ and wants to ‘see the Australian Government prioritise investment in recovering water through other ways’.[63] Minister Jackson said ‘the agreement that has been reached allows more time and flexibility for water infrastructure projects to be delivered, minimising the risk of future water buybacks in NSW by the Australian Government’.

Responding to a Question on Notice in the NSW Parliament in August 2023, the NSW Premier, Chris Minns said:

By signing up to the agreement we get $700 million worth of funding from the Commonwealth to support the sustainable diversion limit programs, which we believe will return 52 gigalitres of water to the environment, with no material effect on industry, particularly primary industries on the Murray and the Darling river systems.[64] [emphasis added]

Harriet Shing, Victoria’s Water Minister, reportedly stated ‘Victoria ha[s] contributed more than any other state to the 450 GL and [does] not support the new deal’.[65] The Minister said ‘Victoria has a long-standing opposition to buy-backs, and nothing we have seen in this deal has changed that position’.[66]

Glenn Butcher, Queensland Minister for Water, ‘welcomed the extension of time’ and affirmed the State’s commitment to delivering the Basin Plan in full.[67]

The South Australian Government released a full response to the SA Royal Commission on the Murray-Darling Basin on 15 September 2023. The SA Deputy Premier and Minister for Water, Susan Close, said ‘the Malinauskas Government will not accept anything less than a Basin Plan that delivers on all of its original commitments, including environmental outcomes equivalent to the recovery of 3200 gigalitres of water’.[68] Minister Close had earlier expressed support for the New Agreement, welcoming ‘the stronger safeguards and legislative changes required to allow for voluntary buy backs’, noting that ‘about $20 million has been set aside for South Australian communities to deliver a community adjustment assistance program, the biggest investment of its kind in our state’.[69]

Farming and irrigation groups

Farming and irrigation groups expressed concern about the new agreement, particularly in regard to the potential for voluntary buybacks, impacts on farming and irrigation communities including job losses, increased prices for agricultural produce, and changes to the socio-economic neutrality test.[70] They also criticised an apparent failure to consider options put forward by stakeholders during the recent consultation process.[71]

The National Farmers’ Federation (NFF) President, Fiona Simson, ‘called on the Opposition and members of the crossbench to hold the Government to account ... when legislation comes before the Parliament’, arguing ‘there are too many unanswered questions to wave any legislation through’.[72] Chair of the NFF’s Water Committee, Malcolm Holm, suggested the Federal government would acquire at least a third of outstanding water recovery through buybacks, and said launching ‘headlong into buybacks of that scale would be devastating’.[73]

The Chair of the Victorian Farmers’ Federation (VFF) Water Council, Andrew Leahy, accused the Albanese Government of ‘effectively trying to blackmail the Victorian Government into agreeing to water buybacks from farmers in exchange for more time and funds to complete water efficiency projects’.[74]

In July 2023, the National Irrigators’ Council (NIC) had welcomed the Minister’s announcement of an extension to the timeline for finalisation of water recovery efforts.[75] However, the Council is strongly opposed to buybacks which it considers cause ‘absolute devastation’ in Basin communities. It urged the MDB Ministerial Council ‘to hold true to its commitment to regional communities of socio-economic neutrality for the Efficiency Measures program’.[76]

Cotton Australia argues that the government should reconsider its focus on ‘completing the Basin Plan according to the numbers’.[77] It argues that rather than water recovery, the government should invest in ‘complementary measures’, including ‘measures to mitigate cold water pollution, assist with fish passage, restore riparian vegetation, remove feral species and reduce fish entrainment’.[78]

Environment groups

Responding to the federal Minister’s announcement of a new deal for the Murray-Darling Basin, a collection of peak environment groups:

... warned that the agreement ... represents the ‘bare minimum’, and [called] on the Commonwealth to ensure sufficient water is available for wetlands and wildlife during the next drought to avoid severe ecological consequences.[79]

Those groups were also critical of the Victorian government’s decision not to sign the new agreement. Environment Victoria stated ‘we’re concerned Victoria will miss out on some benefits … including significant federal funding for regional communities’.[80]

Following the introduction of the Bill, environment groups expressed ‘concerns about significant delays proposed and allowing new water ‘offsets’ into the mix’.[81] They also observed that the amendments to the Water Act ‘don’t begin to address the impacts of climate change, or water justice for First Nations’.

Water and environment academics

Professor Jamie Pittock, of the ANU’s Fenner School of Environment & Society and a member of the Wentworth Group of Concerned Scientists, has written that ‘the new agreement is welcome in doubling down on the original plan to recover 3,200 billion litres a year of additional water essential to maintain the health of the rivers and the people who rely on them’.[82] He commented,

...the past decade of stalling by the federal, NSW and Victorian governments means the 2023-24 Basin Plan deadlines must be extended by two to three years if key projects are to be completed.

Much greater public assurance with transparency and accountability measures is needed if the new targets are to be met. The federal government needs to find more effective carrots and sticks to engender state compliance. This time it would be wise to withhold payments to the states until they deliver the promised action.[83] [hyperlinks removed]

Professor Pittock described the government’s intention to redouble efforts to ‘relax constraints’ as crucial. He raised doubts about the SDLAM, noting that ‘these ecologically dubious projects’ raise questions about the use of offsets projects under the SDLAM and argued it is ‘inconceivable that new [SDLAM] projects could be identified and delivered by 2026’.[84]

The Wentworth Group of Concerned Scientists applauded ‘the Federal Government for taking decisive steps to …deliver their obligations under national and international agreements’.[85] The Wentworth Group:

...encourage[s] all Basin governments to work together to develop a broad well-structured portfolio of genuine water recovery measures to deliver the remaining water, including opportunities for improved connectivity in the Northern Basin to contribute to water recovery targets and improve the health of the Darling-Baarka (sic) system.[86]

The Wentworth Group also pointed to the urgent need for Basin States to redouble efforts to ‘relax constraints’ on floodplains. They expressed concern about a proposal to allow more water offsets projects (‘SDLAM projects’) given the ‘poor results and project failures to date’. They also called for ‘stronger transparency and accountability measures and legislative changes ... to hold the governments to account on their commitments and guarantee outcomes for the Basin’.

Grant Rigney and colleagues have observed that there is no mention of First Nations in the new agreement.[87] In an article tracing recent water policy as it relates to First Nations cultural water and the Aboriginal Water Entitlements Program, they argue that the Water Act needs to be ‘strengthened to enshrine Basin Nations’ authority and ensure [First Nations’] voices are heard’. Rigney recommended that governments ‘urgently commit adequate funding for First Nations in the basin to secure water that meets [their] needs, before future generations are priced out of the market forever’.

Financial implications

The Explanatory Memorandum outlines the following financial implications:

An undisclosed sum, which cannot be publicly released due to commercial sensitivities, was secured in October 2022 and May 2023 to deliver the Basin Plan.

A budget of $64.3 million was announced in November 2022 and May 2023 to restore confidence in Murray–Darling Basin water markets. This included $30.5 million over four years for the ACCC, the Inspector-General of Water Compliance and the Department of Climate Change, Energy, the Environment and Water, and $32.7 million for the Bureau.[88]

The second review of the Water for the Environment Special Account (WESA) estimated that the cost to recover the full 450 GL of water for enhanced environmental outcomes through efficiency measures would be between $3.4 billion and $10.8 billion.[89]

Statement of Compatibility with Human Rights

As required under Part 3 of the Human Rights (Parliamentary Scrutiny) Act 2011 (Cth), the Government has assessed the Bill’s compatibility with the human rights and freedoms recognised or declared in the international instruments listed in section 3 of that Act. The Government considers that the Bill is compatible.[90]

Parliamentary Joint Committee on Human Rights

At the time of writing, the Parliamentary Joint Committee on Human Rights had not considered the Bill.

Key issues and provisions

The Water Amendment Bill contains a large number of provisions. This part of the Digest considers key issues only.

Changes to the Water for the Environment Special Account

The Water for the Environment Special Account (WESA; the Account) was established by an amendment to the Water Act in 2013.[91] It was established to provide ‘funding for the acquisition of an additional 450GL of water and the removal of physical constraints’.[92] The recovery of water was intended to occur without causing negative social or economic impacts on Basin communities.

The Commonwealth Government allocated $1.775 billion, over 10 years, to the Account with:

• $1.575 billion allocated to recovering 450 GL through efficiency measures
• $200 million allocated to easing or removing constraints through constraints measures.[93]

The Minister has indicated $1.3 billion remains in the Account.[94]

Relevant provisions

Amendments to the operation of the WESA are proposed in Schedule 1, Part 2 of the Bill.

Existing provisions for the WESA are in Part 2AA of the Water Act. That Part sets out the objectives to be achieved by the Water for the Environment Special Account. It lists specific environmental outcomes to be achieved,[95] the purposes for which monies in the Account may be used and provides for an annual report and 2 independent reviews.

Amendments are proposed to allow for more flexibility in spending WESA funds. Existing section 86AD sets out the purposes for which monies may be withdrawn. Items 2 and 3 amend subsection 86AD(2) to broaden the purposes for which monies may be used – that is, the type of projects and arrangements that could be funded. Item 7 repeals subsection 86AD(4) to remove the requirement that monies in the WESA are used only for a project or purchase that is related to an adjustment of a long-term average sustainable diversion limit under section 23A of the Water Act. Section 23A provides for the Basin Plan to include a process that allows for amendments to the SDLs to be proposed by the MDBA (see ‘Adjustments to the sustainable diversion limit adjustment mechanism’).

The Explanatory Memorandum gives an example of how greater flexibility in funding approaches could remove barriers to water projects progressing [96] It states:

For example, under the existing WESA framework, if the Commonwealth was investing in channel lining to prevent seepage losses to achieve a water saving, the full share of the water savings must be transferred to the Commonwealth. This removes flexibility to negotiate commercial-style arrangements that would allow for shared water savings to be achieved on an agreed basis. The proposed amendments would enable commercial-style arrangements to be entered into which may also have an associated socio-economic benefit’.[97]

The Bill does not amend section 86AG which sets out the schedule of payments to the WESA; the Bill therefore does not provide for additional monies to be deposited into the Account. However, Items 8 and 9 would insert new sections 86AH and 86ADA to clarify that the Minister may authorise the withdrawal of monies from the Special Account after 31 December 2027 and to confirm that other sources of money could be used to deliver projects.

The Bill also provides for an additional (or third) independent review the WESA.[98] The review would be provided to the Minister by 30 September 2025, with the Minister then required to table the Government’s response to the review before the delivery of the 2026–27 budget.

Comment

Achieving delivery of the 450 GL of water for enhanced environmental outcomes is a key aspect of the New Agreement. The delivery of this water was at the core of South Australia agreeing in 2012 to the reforms envisaged by the National Plan for Water Security.[99] Under the New Agreement, the Commonwealth commits to using its best endeavours to extend the timeframe for recovery of the water to 31 December 2027 and to ‘work with communities on the design and delivery of water recovery programs ... with all options on the table, including water purchase’.[100] The Agreement states:

The Commonwealth’s approach to achieving the 450 GL of additional environmental water is based on an overall assessment of value for money informed by the following principles:

minimising the socio-economic impact on communities;

environmental utility; and

water market price.[101]

The New Agreement states the Commonwealth supports minimising negative social and economic impacts associated with the purchase of water towards the 450 GL of water for enhanced environmental outcomes by providing funding for community adjustment assistance. At the Murray-Darling Basin Ministerial Council meeting on 24 February 2023, ‘Ministers tasked officials to develop a package, including accountability measures and work programs to deliver the Basin Plan in full, and to report to Ministers at the next meeting’.[102] No further information has been provided in relation to potential projects or work programs.

Repeal of the limit on Commonwealth purchase of water entitlements

The Water Act was amended in 2015 to place a limit on Commonwealth purchase of water access entitlements of 1,500 GL (generally referred to as ‘buybacks’).[103] This reflected a commitment of Tony Abbott (at that time, Leader of the Opposition) to the NSW Irrigator’s Council in November 2012.[104] The statutory limit on buybacks is subject to a range of exceptions, including the purchase of water access entitlements with monies from the WESA.[105] The limit will self-repeal on the delivery of the first review of the Basin Plan, due in 2026.[106]

Relevant provisions

The Bill proposes to repeal in its entirety the limit on Commonwealth purchase of water access entitlements, and all associated provisions.[107]

Comment

By 31 May 2023, the Government had purchased 1,228.4 GL of water access entitlements under the limit.[108] In March 2023, it commenced a strategic water purchasing process to acquire much of the remaining surface water and groundwater (44.3 GL/y) required to meet the ‘bridging the gap’ targets.[109] This process is confined to 6 catchments across NSW and Southern Queensland.

In her second reading speech, the Minister said that while ‘voluntary water purchases are not the government’s first choice, but they need to be on the table, if we’re serious about meeting these Murray-Darling Basin Plan targets’.[110]

Given that the purchase of water access entitlements under the WESA is already exempt from the application of the limit, the repeal of the limit would enable the Commonwealth to purchase water access entitlements using monies outside the WESA and to meet the projected shortfall under the SDLAM. That shortfall will be determined following the MDBA’s reconciliation in accordance with section 7.21 of the Basin Plan (also to be amended by the Bill; see ‘Adjustments to sustainable diversion limit adjustment mechanism’ (below)). Notably, the amendments will offer Basin States more time to notify the Commonwealth of, and deliver, new supply measures under the SDLAM. Thus, the final volume of water that might need to be recovered via Commonwealth purchase is unclear.

There is strong opposition to buybacks by the Liberal-National Coalition, the NSW and Victorian governments, and farming and irrigation groups (see: ‘Position of major interest groups’).

However, a number of reviews and studies indicate that the direct purchase of water access entitlements is the simplest and most cost effective method of recovering water for the environment.[111] Some studies also indicate that the socio-economic costs of the voluntary purchase of water access entitlements are overstated, pointing to the broad suite of socio-economic factors also impacting these communities.[112] These factors include ‘an aging population, commodity prices, climate change, population shift to cities and regional centres, a steady decline in agricultural employment, ongoing farm consolidation and corporatisation, changes in water management... and water recovery as part of the Basin Plan’.[113] Other studies have recommended the repeal of the limit on buybacks.[114]

Delayed review of the Water Act

Extending timeframe for review of the Water Act

The Water Act presently requires the Minister to review the operation of the Water Act and achievement of its objects before the end of 2024. Item 1 (Part 1, Schedule 1) amends subsection 253(1) to extend this to the end of 2027.

Amendment of the Basin Plan

Numerous amendments of the Plan are proposed.

A new constraints relaxation implementation roadmap

‘Constraints are river management practices and structures that govern the volume and timing of regulated water delivery through the river system’.[115] Relaxing or removing constraints (such as through the removal of bridges or road) can increase the ability of river managers to deliver water for the environment in a way that maximises environmental outcomes, including those specified in Part 2AA of the Water Act.[116]

Section 7.08 of the Basin Plan required the MDBA to prepare a constraints management strategy within 12 months of the commencement of the Basin Plan and to report annually on progress. The current strategy is the Constraints Management Strategy 2013 to 2024.

Basin States nominated 6 constraints relaxation measures as part of the SDLAM, 5 of which were expected to make a ‘high level, system-scale contribution to the SDL adjustment’.[117] However, only 1 constraints measure is likely to be operational by 30 June 2024.

Item 21 of Schedule 2 inserts new section 7.08A into the Basin Plan requiring the MBDA to prepare a constraints relaxation implementation roadmap by 31 December 2024, to assist the Commonwealth and Basin States to identify measures to relax constraints, and develop and implement them in a way that maximises the benefits of the constraints measures to deliver environmental outcomes.

The Explanatory Memorandum states:

The constraints roadmap would build on the work of the constraints management strategy with a view to supporting the collective resolution of cross-jurisdictional matters. It would be prepared to maximise the benefits of constraints measures to deliver environmental outcomes, in a consistent and prioritised way.

The constraints roadmap would seek to establish a common approach on a range of issues, including reporting, transparency, implementation and governance, and identifying opportunities for acceleration of measures towards program implementation by 31 December 2026.[118]

Item 20 of Schedule 2 repeals subsection 7.08(3), removing the requirement for annual reporting against the initial constraints management strategy. Instead, new subsection 7.08A(3) provides for the constraints relaxation implementation roadmap to be amended (in consultation with Basin States, Commonwealth and the public), but does not include a requirement for annual reporting.

Action plans where water resource plans are delayed

Division 2 of Part 2 of the Water Act provides for Basin States to prepare, and the Minister to accredit (on the recommendation of the Authority), water resource plans for each of the 33 water resource plan areas.[119] Water resource plans, which must be consistent with the Basin Plan, set out ‘the rules for how water is used at a local or catchment level’, including limits on consumptive use, the availability of water for the environment, and water quality standards.

Basin States were required to give the MDBA proposed water resource plans by 28 February 2019, with amendments to the Water Regulations 2008 subsequently providing for extensions to 31 December 2019.[120] The Water Act provides that, where a Basin State has not provided a water resource plan to the Authority as required, the Minister may ask the Authority to prepare the water resource plan and the Minister may accredit such a plan.[121] Procedures for the exercise of this ‘step-in power’ are provided in Division 3 of Part 2 of the Water Act, however, this option has not been exercised in respect of the outstanding water resource plans from NSW.[122]

Existing section 71 of the Water Act requires Basin States to provide the MDBA with an annual report on water use within a water resource plan area, including an assessment of compliance with the long-term annual diversion limit for the water resources in that area or part thereof.[123] This information is used to construct a register of take.[124] Existing paragraph 71(1)(h) requires a Basin State – if there has been non-compliance with the long-term annual diversion limit for the water resources in that area or part thereof – to include in its report ‘the actions the Basin State proposes to take to ensure that the limit is complied with in the future’.

The Basin Plan sets out a process for determining whether a Basin State has complied with the long-term annual diversion limit for a water resource plan area.[125] Existing subsection 6.12(1) provides that a Basin State will be non-compliant with a long-term annual diversion limit for a surface water SDL resource unit in a water accounting period if the cumulative balance for the SDL resource unit is a debit amount equal to or greater than 20% of the long-term annual diversion limit for the SDL resource unit, and the Basin State does not have a reasonable excuse for the excess. A Basin State is taken to have a ‘reasonable excuse’ if the excess arises as a result of the operation of the water resource plan for the SDL resource unit, or due to circumstances beyond the Basin State’s control.[126]

The Bill proposes to amend section 71 of the Water Act to instead require that the Basin State propose a set of actions (to be known as an action plan) and provide details of progress towards those actions.[127] Additional amendments to the Water Act provide for the Basin Plan to specify the requirements for an action plan and the details to be provided in the report,[128] while corresponding amendments to the Basin Plan allow the IGWC to issue guidelines to which Basin States must have regard. The amendments also provide that the Basin State may only rely on a ‘reasonable excuse claim’ if the claim has been accepted by the IGWC.[129]

Comment

The IGWC’s Sustainable Diversion Limit Compliance Statement for ­2022, released in September 2023, reported that the registers of take in the water resource plan areas assessed (ACT, South Australia, QLD, and Victoria) were all compliant (that is, there were no exceedances of water take).[130] At the time of writing, 13 water resource plans covering water resource plan areas in NSW are yet to be accredited.[131] The IGWC has observed that the continued failure of NSW to achieve accreditation means it ‘is subject to a lower level of accountability under the Basin Plan than the other four Basin States’.[132] It is unclear how – until such time as those water resource plans are accredited - the new actions plans will achieve anything substantial.

Amendments to sustainable diversion limit adjustment mechanism (SDLAM)

Current provisions

The Water Act was amended in 2012 at the behest of the Basin States and with the concurrence of the MDBA to include a mechanism to allow the sustainable diversion limit for Basin water resources to be adjusted without invoking the formal Basin Plan amendment process.[133] The mechanism is referred to as the Sustainable Diversion Limit Adjustment Mechanism (SDLAM).

Section 23A of the Water Act provides that the Basin Plan may provide for the Authority to propose an adjustment to the long-term average SDL for the water resources of a particular water resource plan area (or part thereof) by an amount determined by the Authority and to make a corresponding adjustment to the long-term average SDL for the Basin water resources. The adjustment must reflect an environmentally sustainable level of take. Amendments are adopted in accordance with existing section 23B.

Chapter 7 of the Basin Plan provides the mechanism by which the Authority may propose adjustments. Schedule 6A of the Basin Plan sets out how to calculate the SDL adjustment amount of each surface water SDL resource unit for each water accounting period.

In 2017, the Basin Officials Committee nominated a suite of 36 supply measures or efficiency measures (notified measures) that the Authority determined ‘would achieve equivalent or improved environmental outcomes to those being sought by the Basin Plan with 605 GL/y of water to remain in the consumptive pool’.[134] A corresponding amendment was made to the Basin Plan, apportioning the adjustment in the SDLs across relevant surface water SDL resource units in the southern Basin.[135]

Under current arrangements, Basin States and the Commonwealth may nominate additional efficiency measures before 31 December 2023.[136] All measures are required to be operational by 30 June 2024 or need to be amended or withdrawn by 31 December 2023.[137]

If the Authority considers that a new determination, as at 30 June 2024, of the appropriate adjustment amounts resulting from the notified measures and additional efficiency measures would produce a result different from the initial determination, the Authority must undertake a reconciliation process and propose an amendment to the Basin Plan in accordance with section 23A of the Water Act.[138] This would effectively re-apportion required water recovery across southern Basin water resource plan areas.

As noted above (‘Background’), the 2023 assurance report determined that 16 of these projects will not or are unlikely to be operational by 30 June 2024, leaving a substantial shortfall and triggering a reconciliation.[139]

Relevant provisions

Schedule 2 of the Bill proposes a range of amendments to the Basin Plan 2012 regarding the SDLAM. The Bill amends Chapter 7 and Schedule 6A of the Basin Plan to allow the Authority to propose adjustments to surface water SDLs to take account of additional supply measures and efficiency measures notified by the Basin States that will come into operation by 31 December 2026.

The Bill would also allow the Authority to take account of ‘additional HEW [held environmental water] entitlements’ that are acquired and notified by the Minister.[140] ‘Held environmental water’ refers to water access entitlements that are specifically set aside and managed for environmental purposes. HEW entitlements are predominantly held by the Commonwealth Environmental Water Holder and state equivalents. HEW are defined as water available under a water access right, a water delivery right, or an irrigation right, for the purposes of achieving environmental outcomes.[141]

Item 12, amending the note to Chapter 7, provides:

An ‘additional HEW entitlement’ is a water access entitlement that was previously used for consumptive purposes, but will now be used for environmental purposes. An adjustment made because of an additional HEW entitlement will decrease the SDL (increase the reduction amount).

The Explanatory Memorandum states that ‘additional HEW entitlements would be comprised of entitlements acquired independently from any notified efficiency measures or additional efficiency measures’ and that ‘additional HEW entitlements will also form part of the Commonwealth program to deliver 450 GL of additional environmental water’.[142]

Item 21 inserts new section 7.08B into the Basin Plan allowing the Minister to ‘specify in a written instrument given to the Authority that a water access entitlement, for a surface water SDL resource unit, is an additional HEW entitlement’.[143] The instrument would be an administrative instrument, as opposed to a legislative instrument, and would be subject to judicial review.

The Minister would only be able to declare that a water access entitlement is an additional HEW entitlement if satisfied that it:

decreases the amount of water taken for consumptive use relative to the benchmark conditions of development; and

increases the volume of Basin water resources that is available for environmental use; and

   will contribute to enhancing environmental outcomes as mentioned in subsection 86AA(1) of the Act, including the outcomes set out in Schedule 5 of the Basin Plan.[144]

New subsection 7.08B(2) provides that the water access entitlement must:

be sourced from the [water resource] unit; and

be held environmental water; and

if specified after 31 December 2027—have become, or been contracted to become, held environmental water before that date; and

not have become held environmental water as a result of notified efficiency measures or additional efficiency measures, except as provided in subsection (4).[145]

New subsections 7.08B(4) and 7.08B(5) together provide an exception for entitlements specified after 31 December 2026 and not included in a determination under new paragraph 7.21(2)(a) (see below). Efficiency entitlements or additional efficiency entitlements specified after 31 December 2026 could be specified as additional HEW entitlements.

Items 25 and 26 amend section 7.11 of the Basin Plan, extending the time for making the final determination and reconciliation by the MDBA by 18 months to 31 December 2026.[146] The final determination would take into account notified measures, additional supply measures, additional efficiency measures and additional HEW entitlements.[147]

An amendment to section 7.12(2) would allow the Basin States or Commonwealth to nominate additional efficiency measures by 30 June 2025 (extending the deadline by 18 months from 31 December 2023). New subsection 7.12(2A) would allow the Basin Officials Committee to notify additional supply measures on or before 30 June 2025.[148]

Additional amendments would provide for measures to be notified only if they will enter into operation by 31 December 2026 (extending the time by 2.5 years from 30 June 2024), to provide for notifications to be amended by 30 June 2026 if any pertinent details change, and to require that notifications are amended before 30 June 2026 if the measure is to be withdrawn because it will not enter into operation by 31 December 2016.[149]

Division 4 of Part 2 of Chapter 7 sets out the steps the Authority must take to determine the amounts of adjustments to SDLs that it will propose in relation to measures. Item 40 inserts new section 7.16A which sets out how the contribution from additional HEW entitlements will be made.

Item 48 repeals and replaces section 7.21 which concerns the final determination amounts in 2026.

The Bill then makes numerous amendments associated with the provision for additional supply measures (new subsection 7.12(2A)) and additional HEW entitlements (new section 7.08B). These include amendment to:

• provisions relating to the register of take and the determination of amounts of adjustments[150]
• Schedule 6A of the Basin Plan, relating to the calculation of SDL adjustment amounts for the purposes of Chapter 7.[151]

Comment

The Explanatory Memorandum states ‘Schedule 2 would introduce a new mechanism for accounting for water access entitlements that contribute to the delivery of 450 GL of additional environmental water’.[152] The Explanatory Memorandum notes that held environmental water may include water access rights; these in turn may include stock and domestic rights and riparian rights.[153] At the time of writing, no further information or commentary on the type of water access entitlements that may be specified by the Minister as additional held environmental water was available.

Interestingly, under the Implementing Water Reform in the Murray-Darling Basin funding agreement first agreed by the Commonwealth and Basin State Ministers in April 2022, NSW received funding to ‘change stock and domestic water entitlements (as required) so they can be used for water recovery by the Commonwealth’ [emphasis added]. The NSW Government was to ‘submit a project plan outlining the necessary mechanisms and steps relevant to the transformation of stock and domestic entitlements to enable water recovery and transfer of licences as required’. On 21 August 2023, WaterNSW launched a review of domestic and stock rights under the NSW Water Management Act 2000.[154] Domestic and stock rights are bundled with parcels of land that adjoin rivers or other water ways. The volume of water taken is currently unregulated.

Water policy experts raise a range of issues in regard to the acquisition or delivery of water for enhanced environmental outcomes. These include the failure to account adequately for the impacts of climate change in the calculation of an environmentally sustainable level of take and sustainable diversion limits, the continuing failure of NSW to submit water resource plans and fully account for water harvested from floodplains, challenges in the effective and efficient delivery of environmental water to meet environmental outcomes (for example, the magnitude, duration and extent of flows to meet the ecological requirements of water-dependent ecosystems), the management of risks in the acquisition of low versus high security water access entitlements, and the lack of scientific rigour in the current SDLAM evaluation methodology.[155]

In addition, it is unclear when the Basin Officials Committee will provide additional information about additional supply measures and additional efficiency measures under the extended timeframes.

Measures to strengthen integrity and transparency of water markets

New measures concerning integrity and transparency in water markets are proposed in Schedules 3 and 4 of the Bill, amending the Water Act and Basin Plan respectively.

Current provisions

The Water Act requires the Basin Plan to include rules for the trading or transfer of tradeable water rights (water trading rules) in relation to Basin water resources.[156] Section 26 sets out the matters that the water trading rules may deal with. The rules are required to contribute to achieving the Basin water market and trading objectives and principles set out in Schedule 3 of the Act. The water trading rules are provided in Chapter 12 of the Basin Plan. An overview of the rules is provided in Appendix 1.

Part 4 of the Water Act provides for the Minister to make water market rules – relating to the acts of irrigation infrastructure operators (IIOs) – that apply in Basin States and the ACT.[157]

The water market rules apply to irrigation infrastructure operators that hold ‘group’ water access entitlements under which the member irrigators have a right to a share of water (an irrigation right) against the operator. The water market rules ensure that an operator cannot prevent or unreasonably delay the transformation of entitlements to water under irrigation rights to separately held water access entitlements.[158]

Part 4A of the Water Act provides for the water market rules to have extended operation in other parts of States or the Northern Territory.

The Water Market Rules 2009 commenced on 23 June 2009 and were last amended in October 2012. The Minister is required to obtain and have regard to the advice of the ACCC in making such rules. The ACCC is required to monitor transformation arrangements and compliance with the water market rules.[159] The ACCC is the appropriate enforcement agency for the purposes of enforcing contraventions of Part 4 and Part 4A, regulations made for the purposes of those parts, and the water market rules.[160]

A new object

The Bill adds a new object to the Water Act, being ‘to ensure that the governance of water markets and trading arrangements relating to Basin water resources is appropriate, and that governance measures promote integrity and transparency in water markets’.[161]

ACCC as appropriate enforcement agency for new water measures

As outlined in the next parts of this Digest, the Bill adds new Parts 5 and 5A to the Water Act. The ACCC would become the appropriate enforcement agency for these Parts,[162] with new compliance and enforcement powers provided via amendments to the Water Act and the Competition and Consumer Act, or via consequential amendments to existing compliance and enforcement provisions in those Acts.

Most notably, amendments to the Water Act would empower:

• a Court to make a relinquishment order, requiring a person to pay to the Commonwealth an amount equal to the benefit derived and detriment avoided because of a contravention of a new Part 5, regulations made under that Part or the Water Markets Intermediaries Code (new section 164A)[163]
• the ACCC to require a person to give it information that relates to a potential contravention of new Part 5, regulations under new Part 5, the Water Markets Intermediaries Code, an undertaking under section 163, or is relevant to the performance of the ACCC’s functions and powers under the Act, regulations, or Code (new Part 10AC).[164]

A new Water Markets Intermediaries Code and statutory trust accounting framework

Part 1 of Schedule 3 of the Bill amends the Water Act by inserting a new Part 5 to:

• provide for a Water Market Intermediaries Code (the Code) to be made by regulation and enforced by the ACCC
• establish a statutory trust accounting framework that applies to eligible water markets intermediaries
• provide the ACCC with compliance and enforcement powers.

The Bill would add new definitions for key terms, including for eligible water market intermediary and eligible tradeable water right, by amendments to subsection 4(1) and in new section 6A.[165] These confine the application of the new measures to the trade of water in Basin water resources, or other water resources prescribed by the regulations. New subsection 6A(2) clarifies that an eligible tradable water right does not include a right that is a financial product within the meaning of the Corporations Act 2001.[166]

New Part 5 relies on the corporations, trade and commerce and territories powers of the Constitution.[167] The application of the new Part 5 is extended to partnerships, unincorporated associations and trusts.[168] It would commence on the earlier of a day to be fixed by Proclamation or on 1 July 2025.

New section 100G provides for regulations to prescribe a Water Markets Intermediaries Code ‘for the purposes of regulating the conduct of eligible water markets intermediaries towards participants and potential participants in the water market’.[169] New subsection 100G(2) provides that the Code may include provisions relating to:

• imposing an obligation to act in the best interests of clients
• providing information to clients, including conflicts of interest
• providing for the keeping and retention of records, including relating to trust accounting
• holding clients’ eligible tradeable water right
• holding professional indemnity insurance
• keeping client records.

The Code would also be able to confer functions and powers on one or more bodies in relation to monitoring compliance with the Code (which could be, for example, the Minister or the ACCC), dealing with disputes or complaints, conducting investigations, providing exemptions from the Code, and review or reporting on the operation of the Code.[170] The Code would specify whether conferred functions and powers would be exercisable by legislative instrument or another instrument, such as a notifiable instrument. If the Code gives the Minister or ACCC the function or power to provide an exemption from the Code or specified provisions thereof, the exemption must be made by legislative instrument if it applies generally, or by notifiable instrument if it relates to a particular entity.[171]

An eligible water markets intermediary must not contravene the Code.[172] The Code could prescribe that specified provisions are civil penalty provisions and could prescribe a pecuniary penalty not exceeding 600 penalty units for a contravention of a civil penalty provision ($187,800).[173] The Explanatory Memorandum states that ‘the scope of the maximum pecuniary penalty is directed at preventing certain conduct and encouraging compliance with the Code. The proposed penalty amount is considered necessary and appropriate, to avoid industry factoring in penalties as a cost of doing business’.[174]

New Division 5 of Part 5 would establish a statutory trust accounting framework for eligible water markets intermediaries.[175] New Division 5 would require an eligible water markets intermediary to:

• maintain one or more trust accounts (new section 100R)
• notify the ACCC of the account and appoint an auditor (new section 100S)
• pay and withdraw monies from the trust account only in accordance with the provision of water markets intermediary services (sections 100T and 100U)
• prepare an annual trust account statement and obtain a trust account audit report (section 100V)
• provide the annual trust account statement, trust account audit report, and other relevant information to the ACCC if required to do so by written notice by the ACCC, and in accordance with the specified timeframe (section 100W and 100X).

New Divisions 6, 7 and 8 of Part 5 provide additional investigation and compliance powers to the ACCC relating to suspected contraventions of the new Part 5 provisions. These would enable the ACCC to:

• issue public warning notices (new section 100ZA)
• apply to a court for an order to redress loss or damage suffered by a person as a result of a contravention of Division 4 or 5 of new Part 5, or the Water Market Intermediaries Code (new sections 100ZB and 100ZC)
• require an eligible water market intermediary to provide the ACCC with information (or produce documents to it) that the eligible water market intermediary is required to keep, generate or publish under the Water Market Intermediaries Code (new sections 100ZD and 100ZE).[176]

New sections 100ZF and 100ZG establish civil penalties for failing to comply with notices or providing false or misleading information to the ACCC.

New civil penalty provisions relating to water markets decisions and insider trading

Part 2 of Schedule 3 amends the Water Act by inserting a new Part 5A to provide for the announcement of water markets decisions and prohibit insider trading. Additional provisions relating to insider trading are added by Part 3 of Schedule 3. These amendments elevate to the Act, broaden the application of, and strengthen matters that are currently provided for in a more limited manner by existing provisions in the Basin Plan.[177] Those existing provisions would be repealed by the Bill.[178]

New Part 5A relies on the corporations, trade and commerce, territories, and postal, telegraphic, telephonic and other like services powers under the Constitution.[179] The application of the new Part 5A is extended to partnerships, unincorporated associations and trusts.[180] The Part would commence on the earlier of a day to be fixed by Proclamation or on 1 July 2026.

New definitions of benefit derived and detriment avoided, generally available, material effect and water markets decision would be added by amendments to subsection 4(1).[181] In particular, a water markets decision would be defined as:

A decision that relates to actions that an agency of the Commonwealth or of a Basin State, or an irrigation infrastructure operator, is undertaking, or may or will undertake, that is prescribed by the regulations or is included in a class prescribed by the regulations. [emphasis added]

The Explanatory Memorandum states:

...the list of water markets decisions would be an exhaustive list to provide certainty and would include decisions which could reasonably be expected, if announced, to have a material effect on the price or value of eligible tradeable water rights.[182]

New section 101B would require a person who makes a water markets decision to provide information relating to that decision to the Bureau of Meteorology (the Bureau) for the purposes of publication, or to announce the decision in the manner prescribed by the regulations. New section 101C requires a person who makes a water markets decision to keep records of that decision, including the information prescribed by the regulations. The records must be kept for at least 5 years. Failing to comply with new sections 101B and 101C would incur a maximum civil penalty of 120 penalty units ($37,560).

New sections 101D and 101E provide that the ACCC may, by written notice, require a person to provide it information required to be kept by new section 101C. New sections 101F and 101G establish offence provisions for failing to comply with a notice under section 101D and giving false and misleading information to the ACCC in relation to a notice.

New section 101H establishes a new civil penalty for insider trading relating to water announcement information. Subsection 101H(1) prohibits a person (the insider) who is aware of water announcement information – being a water markets decision that is yet to be announced in accordance with subsection 101B(1) or is information that has not been generally available for a reasonable period and relates to a water market decision that should have been announced in accordance with subsection 101B(1) – from taking actions specified in subsection 101H(2) (such as entering into a contract or agreement to trade or transfer an eligible tradeable water right).

Subsection 101H(1) is a civil penalty provision, with an individual liable to a maximum pecuniary penalty of 2,000 penalty units ($626,000) and a body corporate liable to the tiered penalties set out in new section 101K (up to a maximum of $782.5 million). The Explanatory Memorandum notes that the application of tiered penalties for bodies corporate is consistent with Industry Codes and insider trading rules and ‘recognise[s] that market misconduct can lead to large commercial gains, and the penalties need to be commensurately high to provide an effective deterrent’.[183] New section 101J provides exceptions for irrigation infrastructure operators and agencies in certain circumstances.

New sections 101JA to 101JF (provided in Part 3 of Schedule 3) establish a new civil penalty for insider trading relating to non-water announcement information and provide exceptions. Subsection 101JA(1) prohibits a person (the insider) who is aware, or ought to be aware, of non-water announcement information that could reasonably be expected to have a material effect on the price or value of an eligible water trading right if the information was generally available and that information has not been generally available for a reasonable period – from taking actions specified in subsection 101JA(2) (such as entering into a contract or agreement to trade or transfer an eligible tradeable water right).

Subsection 101JA(1) is a civil penalty provision, with an individual liable to a maximum pecuniary penalty of 2,000 penalty units ($626,000) and a body corporate liable to the tiered penalties set out in new section 101K (up to a maximum of $782.5 million). New sections 101JB to 101JF provide a range of exceptions, including for irrigation infrastructure operators acting on the instructions of a member or customer, or an eligible water markets intermediary acting on the instructions of a client.

New civil penalty provisions relating to market manipulation

Part 3 of Schedule 3 of the Bill amends the Water Act by inserting a new Division 4A to new Part 5A relating to market manipulation. Market manipulation is not currently prohibited in Basin water markets.[184]

As noted above, new Part 5A relies on the corporations, trade and commerce, territories, and postal, telegraphic, telephonic and other like services powers under the Constitution and its application is extended to partnerships, unincorporated associations and trusts. The amendments in Part 3 of Schedule 3 would commence on the earlier of a day to be fixed by Proclamation or on 1 July 2026, noting that if they commence on the same day as the amendments in Part 2 of Schedule 3, they commence immediately after those amendments.

Item 7 inserts new sections 101JG to 101JK, creating new civil penalties relating to:

• carrying out a trade or transfer of an eligible tradeable water right that has, or is likely to have the effect of creating or maintaining an artificial price for eligible tradeable water rights (new section 110JG)
• engaging in conduct that has the effect of creating a false or misleading appearance of active trading in, or with respect to, the market for eligible tradeable water rights (new section 101JH)
• making a fictitious or artificial offer, or entering into a fictitious or artificial trade or transfer, for an eligible water trading right if that offer, trade or transfer would affect the trading price (new section 101JJ)
• circulating or disseminating information about illegal offers, trades and transfers (that is, conduct that would fall within the above provisions) where the person would receive a benefit (new section 101JK).

Each of these sections is a civil penalty provision, with an individual liable to a maximum pecuniary penalty of 2,000 penalty units ($626,000) and a body corporate liable to the tiered penalties set out in new section 101K (up to a maximum of $782.5 million).

Comment

The introduction of measures to strengthen the integrity and transparency of water markets are generally consistent with the recommendations of the ACCC’s Water markets inquiry and the Quinlivan Water Market Reform: Final roadmap report.[185] For example, the ACCC found:

there is a lack of quality, timely and accessible information for water market participants

there are scant rules governing the conduct of market participants, and no particular body to oversee trading activities, undermining confidence in fair and efficient markets. In particular, water market intermediaries such as brokers and exchange platforms currently operate in a mostly unregulated environment, resulting in a lack of clarity regarding the role brokers play and permitting undisclosed conflicts of interest to arise

trading behaviours that can undermine the integrity of markets, such as market manipulation, are not prohibited, insider trading prohibitions are insufficient, and information gaps make these types of detrimental conduct difficult to detect….[186]

The Final roadmap report stated:

There is widespread support for an enforceable mandatory code for water market intermediaries that would apply to all tradeable water rights, at least across the Basin. Water market intermediaries have expressed strong support for measures that would promote the professionalisation of their industry and more trust and confidence in their conduct.[187]

The amendments to strengthen the integrity and transparency of water markets in the Bill largely model existing provisions in comparable regulatory schemes. For example:

• the framework for the Water Markets Intermediaries Code ‘is similar to the Industry Codes framework prescribed under Part IVB of the [Competition and Consumer Act]’[188] and the maximum pecuniary penalties are also comparable with relevant provisions of the CC Act.[189]
• the new investigation and compliance powers in Divisions 6, 7 and 8 of Part 5 and in section 101D to 101G and Division 6 of Part 5A are modelled on provisions in the CC Act relating to Industry Codes.[190]
• the statutory trust accounting requirements reflect existing provisions of the National Consumer Credit Protection Act 2009, which apply to credit service licensees[191] (although, those provisions include significantly higher civil penalties, as well as the potential for imprisonment of up to 5 years).[192] Similar statutory trust accounting requirements also exist in other sectors.[193]
• the insider trading and market manipulation provisions are modelled on existing insider trading and market manipulation provisions relating to financial products in the Corporations Act 2001.[194] Those provisions are administered by the Australian Securities and Investments Corporation (ASIC).

The Final roadmap report diverged from the recommendation of the ACCC’s Water markets inquiry to establish ‘an independent Basin-wide Water Markets Agency to consolidate and carry out new and existing trade-related roles and functions’.[195] The Inquiry recommended that a Water Markets Agency ‘be established through a cooperative legislative scheme between Australian and Basin State governments’, with responsibility for market regulation and surveillance functions, market information and market evaluation functions.[196]

However, despite noting the highly fragmented nature of governance of MDB water markets, the Final roadmap report reported that ‘there was little support across the Basin states or other stakeholder groups for this reform proposal because of the potential that it would add to an already very complex set of organisational arrangements and systems’.[197] The Roadmap rather proposed ‘using and building on existing arrangements and supporting ongoing collaborative efforts across existing regulatory and policy agencies’.[198]

Measures to strengthen transparency of water market information

Existing Part 7 of the Water Act provides the Bureau of Meteorology (the Bureau) with functions relating to (i) collecting, holding, managing, interpreting and disseminating water information, (ii) compiling and maintaining water National Water Accounts; (iii) issuing National Water Information Standards.[199]

New water markets information functions and new Water Markets Data Standards

The Bill inserts new Part 7A to provide the Bureau with new functions relating to water markets information and Water Markets Data Standards.[200]

New Part 7A relies on the corporations, trade and commerce, postal, telegraphic, telephonic and other like services, and territories powers under the Constitution.[201] It would commence on 1 July 2024.

Water markets information is defined as:

any raw data, or any value added information product (including information that is generated), that relates to:

the pre‑trade, trade or transfer of any type of eligible tradeable water right; or

the allowance, approval or registration of a trade or transfer of any type of eligible tradeable water right; or

accounts relating to eligible tradeable water rights; or

the ownership of eligible tradeable water rights and other entitlements on issue relating to Basin water resources;

any metadata or contextual information relating to information of a kind referred to in paragraph (a);

such other information (if any) as is prescribed by the regulations.[202]

The Explanatory Memorandum explains that ‘water markets information is a subset of the current definition of water information in Part 7’, however, the new definition of water markets information deals ‘specifically with information relevant to Basin water markets and other information relevant to the enforcement of the new integrity and conduct measures’.[203]

New section 135D provides that the Director of Meteorology may publish water markets information. The Bureau would be able to collect or require persons, or a class of persons specified in the regulations, to give the Bureau a copy of water markets information specified in the regulations and in accordance with any applicable Water Markets Data Standard.[204] The regulations (made under the existing regulation making power in section 256) would be able to specify that a person, or a class of persons so specified, must collect, generate or record water markets information specified in the regulations.[205]

A failure to comply with requirements to collect and provide water market information, or providing false and misleading water markets information, would be a breach of a civil penalty provision, liable to a maximum pecuniary penalty of 100 and 120 penalty units ($31,300 and $37,560) respectively.[206]

New section 135J would provide for the Director of Meteorology to, by legislative instrument, issue Water Markets Data Standards relating to water markets information. The Director may provide for the Standard to incorporate by application, adoption or incorporation another standard that relates to water markets information.[207] Provisions allowing the adoption or incorporation of materials generally raise scrutiny concerns.[208] The Director would be required to consult with the Basin States, the ACCC and the IGWC in preparing Water Markets Data Standards, and may consult more widely.[209]

The Bill imposes an obligation on a person (including the owner of an eligible tradeable water right, a person acquiring an eligible tradeable water right, and an eligible water markets intermediary) who is engaging in the trade or transfer of an eligible tradeable water right via a water markets authority to provide all of the information required by the water markets authority and by the regulations.[210] A failure to provide that information, or providing false and misleading information would be breach of a civil penalty provision, liable to a maximum pecuniary penalty of 100 and 120 penalty units ($31,300 and $37,560) respectively.[211]

A person would also be required to keep certain records in relation to that trade or transfer for a period of 5 years.[212]

Finally, the Bill provides the IGWC with 2 additional compliance mechanisms relating to water markets information:

• power to issue a compliance notice requiring a person who has contravened the Water Markets Data Standard to rectify the contravention (new section 135Q)
• power to conduct, or appoint or establish a person or body (an auditor) to conduct periodic audits to assess performance under Part 7A; the finalised audit report would need to be published on the IGWC’s website (new section 135R).

Comment

The water markets information measures implement recommendations of the ACCC’s Water markets inquiry and the Final roadmap report.[213] For example, the ACCC recommended ‘the introduction of mandatory Water Market Data Standards to provide a consistent framework underpinning the collection, storage, transmission and publication of water market data and related information’.[214] The Final roadmap report stated ‘market participants agree that trade processes and water market information must be modernised for the market to operate efficiently and effectively and for users to have confidence in it’.[215]

The Final roadmap report however takes ‘a more incremental approach to data and systems than the ACCC’ which, among other things, ‘involves less change and disruption and will result in lower regulatory burden for market participants over the medium to long term’.[216] Noting the ACCC’s recommendation to establish a Basin-wide Water Markets Agency, the Final roadmap report considered that ‘building on the Bureau’s institutional expertise and existing data collection arrangements [would] minimise duplication and the regulatory burden of these reforms for market participants’.[217]

In her second reading speech, the Minister said the water markets information would be collected by the Bureau of Meteorology, which would ‘make it publicly available on a Water Data Hub, with live market updates on a new water markets website’.[218] The Bureau’s website states:

As part of the Australian Government’s Water Markets Reform Roadmap the Bureau is implementing a water markets data and systems framework….

The framework will give water users access to the water market information they need, including:

A new Water Data Hub – a digital platform for national water data management

A new Water Markets website – allowing farmers to access live water markets updates for the first time

A new Water Markets Data Standard – enabling transparency and enforceability of data being provided to the Bureau.

These reforms are being implemented over a four-year period from July 2023 to June 2027.[219]

Concluding comments

The Water Amendment Bill seeks to implement the New Agreement of August 2023 between the Commonwealth and Basin States (with the exception of Victoria). That agreement extends the timeframe for, and provides an unquantified sum of Commonwealth funding to support, the delivery of the legislated water recovery targets under the Basin Plan. This includes the delivery of supply and efficiency projects and the lifting of constraints in accordance with the Northern Basin Review and the Sustainable Diversion Limit Adjustment Mechanism.

Water policy experts and the South Australian MDB Royal Commission have stated that the Basin Plan is not based on the best available science and does not adequately take into account climate change and its impact on the availability of water.[220] Put bluntly, the environmentally sustainable level of take and SDLs underpinning the Basin Plan were the result of ‘a political compromise’.[221] Dr Colloff and Professor Pittock have concluded that ‘SDLAM and efficiency projects have demonstrated their inherent weakness through the failure of co-operative federalism on water reform’.[222]

The Bill also seeks to implement some of the water markets reforms put forward by the Final roadmap report and agreed to by the Murray-Darling Basin Ministerial Council. The Bill does not implement the Roadmap’s recommendations to establish a National Water Commission (NWC) to play a ‘leadership role as the water markets expert and roadmap implementation monitor’.[223] Numerous aspects of the water markets reforms rely on the making of regulations (for example, prescriptions relating to eligible tradeable water rights and water markets decision), legislative instruments, and the Water Markets Intermediaries Code. The timeframe for the making of these delegated instruments is unclear, with commencement provisions indicating that some key aspects of the reforms may not commence until 1 July 2026, unless there is prior Proclamation.

It remains to be seen whether an extension of time and additional funding (particularly in the absence of Victoria’s participation) will contribute to meaningful progress or, with another El Niño declared, will merely delay difficult decisions for future Commonwealth and Basin State governments.

Appendix 1

Box 1 Overview of the Basin Plan Water Trading Rules

Source: ACCC, Murray-Darling Basin: water markets inquiry, Final Report (Canberra: ACCC, February 2021), Box 2.4, 70. Updated to reflect the role of the Inspector-General of Water Compliance.

Box 2 Overview of the Water Market Rules

Source: ACCC, Murray-Darling Basin: water markets inquiry, 634.

Acknowledgements: with thanks to Dr Martin Smith for research assistance and discussions, and Dr James Prest for his peer review of this digest.