Chapter 1


Chapter 1

Background

Conduct of the inquiry

1.1        On 20 August 2009 the Senate referred the following matters to the Environment, Communications and the Arts References Committee for inquiry and report:

The ability of the Commonwealth, across state borders, to sustainably manage water resources in the national interest, with particular reference to:

a) the issuing, and sustainability of water licences under any government draft resource plans and water resource plans;

b) the effect of relevant agreements and Commonwealth environmental legislation on the issuing of water licences, trading rights or further extraction of water from river systems;

c) the collection, collation and analysis and dissemination of information about Australia's water resources, and the use of such information in the granting of water rights;

d) the issuing of water rights by the states in light of Commonwealth purchases of water rights; and

e) any other related matters.

1.2        The Committee advertised the inquiry in The Australian and on its website, and wrote to many peak organisations inviting submissions. The Committee received 32 submissions (see Appendix 1) and held 3 public hearings (see Appendix 2). The Committee thanks submitters and witnesses for their contribution.

1.3        Submissions were mostly from farmers' and irrigators' interest groups, environmental groups, and interested academic experts. Although the terms of reference are expressed broadly, almost all submissions were about water management in the Murray-Darling Basin, which is the location of the main environmental concerns about water use, and the focus of current interest in the Basin Plan now being developed by the Murray-Darling Basin Authority. Accordingly, this is the focus of the report.

1.4        The submissions and evidence of this inquiry date from late 2009 to mid‑2010. The committee was unable to complete the inquiry before the general election called on 17 July 2010 and held on 21 August. On 30 September 2010 the Senate re-referred the inquiry to the committee. In the new parliament the committee's name has been changed to Environment and Communications References Committee.

1.5        In new administrative arrangements following the election, the Department of Environment, Water, Heritage and the Arts (DEWHA) was renamed Department of Sustainability, Environment, Water, Population and Communities. For clarity this report uses the old name in line with the submissions and evidence.

Structure of the report

1.6        The rest of this chapter gives background on recent water reforms.

1.7        Chapter 2 reports general views on the direction of water reform, and discusses issues to do with the issue of new entitlements and treatment of existing rights.

1.8        Chapter 3 considers the right balance between water buybacks and infrastructure investment; the regional impacts of buybacks and trade out; and the need for a more efficient and transparent water market.

1.9        Chapter 4 discusses issues relating to water for the environment, including the need for better knowledge of environmental requirements, and the need to use water recovered for the environment as efficiently as possible.

Background to current water policy in the Murray-Darling Basin

1.10      There have been various intergovernmental agreements relating to Murray‑Darling water resources dating back to 1914. The immediate ancestor of the current Murray-Darling Basin Agreement was made in 1992. It established the Murray‑Darling Basin Ministerial Council and the Murray-Darling Basin Commission as an inter-governmental body to promote cooperative management of the Murray‑Darling Basin (MDB).

The Murray-Darling Cap and the Living Murray 'First Step'

1.11      In 1995 an audit of water use showed that diversions from the Murray-Darling rivers had increased by 8 per cent over the previous six years, and were averaging 10 800 gigalitres per year by 1994.[1] This was a significant proportion of the natural inflow (which averages 21 200 gigalitres per year).[2] Water diversions had greatly reduced flow in the lower Murray and had a significant impact on river health.

1.12      In December 1996 the Murray-Darling Basin Ministerial Council agreed to cap diversions at the volume of water that would have been diverted under 1993–4 levels of development. There were special conditions for South Australia, and a cap for Queensland was set for future decision.[3]

1.13      In 2003 the Murray-Darling Basin Ministerial Council concluded that additional environmental flows were needed to ensure an environmentally sustainable Murray-Darling river system. In August 2003 the Council of Australian Governments (COAG) committed $500 million over five years to address over-allocation of water (the Living Murray Program).[4] This was formalised in the Intergovernmental Agreement on Addressing Water Overallocation and Achieving Environmental Objectives in the Murray-Darling Basin of 25 June 2004.

1.14      Under the Living Murray Program water would be recovered by a range of measures including infrastructure improvements to increase water use efficiency; buying entitlements from irrigators; and regulatory measures such as changing the way water was allocated among users. It was estimated that this would translate into approximately 500 gigalitres per year on average of additional environmental flows, which would be used to water six key sites.[5] Measures taken from June 2004 to late 2009 are expected to recover about 465 gigalitres of water per year on average: 45 per cent from market based measures, 30 per cent from infrastructure measures and 25 per cent from regulatory measures.[6]

The National Water Initiative 2004

1.15      In August 2003, COAG agreed a National Water Initiative to refresh its 1994 water reform agenda. The objectives were to:

  • improve the security of water access entitlements;
  • ensure ecosystem health;
  • ensure water is put to best use by encouraging the expansion of water markets and trading; and
  • encourage water conservation in cities.[7]

1.16      This was further detailed in the Intergovernmental Agreement on a National Water Initiative (NWI), which COAG agreed on 25 June 2004.[8] The key elements of the NWI are:

  • water access entitlements to generally be defined as open-ended or perpetual access to a share of the water resource that is available for consumption as specified in a water plan;
  • improved specification of the environmental outcomes to be achieved;
  • overallocated water systems to be returned to sustainable levels of use in order to meet environmental outcomes, with substantial progress by 2010;
  • a framework that assigns the risk of future reductions in water availability;
  • more efficient administrative arrangements to facilitate water trade in connected systems;
  • removal of institutional barriers to trade in water, including a phased removal of barriers to permanent trade out of water irrigation areas in the southern Murray-Darling Basin;
  • regional assessments of the level of water intercepted by land use change activities;
  • continued implementation of full-cost recovery pricing for water in both urban and rural sectors;
  • national standards for water accounting, reporting and metering; and
  • actions to better manage the demand for water in urban areas.[9]

Australian Government Water Fund 2004

1.17      On 13 September 2004 the then Prime Minister, the Hon. J. Howard MP, announced a $2 billion 'Australian Water Fund' (later known as Australian Government Water Fund) to support implementation of the National Water Initiative.[10] Its elements were:

  • Water Smart Program: $1.6 billion over five years for competitive grants for projects to improve water use efficiency;[11]
  • Raising National Water Standards Program: $200 million over five years to improve water accounting, groundwater assessment, and water efficiency labelling;[12] and
  • Water Wise Communities (later known as Community Water Grants): $200 million over five years for smaller community water saving projects.[13]

National Water Commission 2005

1.18      As agreed in the 2004 NWI intergovernmental agreement, the National Water Commission (NWC) was established in 2005 to help with the implementation of the agreement and to advise COAG on water issues.[14]

1.19      The NWC also administered the Water Smart Program and the Raising National Water Standards Program.[15]

National Water Commission's first biennial review, 2007

1.20      The National Water Commission published its first biennial assessment of progress in implementing the National Water Initiative in August 2007, with an update in February 2008. It found that:

  • overallocation of water continues to be a challenge;
  • the quality of science underpinning water plans 'needs sustained attention and resources';
  • progress in rolling out NWI consistent water plans continues to be difficult for governments;
  • the connection between surface water and ground water needs to be better known and managed;
  • there has been good progress in expanding water trading among the southern Murray-Darling states;
  • action to include water intercepting activities such as large scale forestry and farm dams has been neither concerted nor systematic;
  • independent audits of environmental outcomes are not yet occurring; and
  • there has been good progress on water metering and accounting.[16]

National Plan for Water Security 2007

1.21      On 25 January 2007 the then Prime Minister, the Hon. J. Howard MP, announced a National Plan for Water Security in response to the protracted drought and the prospect of long-term climate change. The Commonwealth announced its intention to invest $10 billion over ten years, with a special focus on the Murray Darling Basin. The Plan included:

  • a nationwide investment in Australia’s irrigation infrastructure to line and pipe major delivery channels;
  • a nationwide programme to improve on-farm irrigation technology and metering;
  • the sharing of water savings on a 50:50 basis between irrigators and the Commonwealth government to ensure greater water security and increased environmental flows;
  • addressing water over-allocation in the Murray-Darling Basin, including by buying back entitlements;
  • a new set of governance arrangements for the Murray-Darling Basin;
  • a sustainable cap on surface and groundwater use in the Murray-Darling Basin;
  • major engineering works at key sites in the Murray-Darling Basin;
  • expanding the role of the Bureau of Meteorology to provide the water data necessary for improved decision making by governments and industry;
  • a Taskforce to explore future land and water development in northern Australia; and
  • completion of the restoration of the Great Artesian Basin.[17]

The Water Act 2007 and the Basin Plan

1.22      The new governance arrangements envisaged by the National Plan for Water Security involved the Murray-Darling Basin Commission setting a sustainable cap on diversions and accrediting state/territory water plans to ensure they complied with the cap. This would depend on the states/territories referring powers to the Commonwealth under section 51(xxxvii) of the Constitution. New South Wales, Queensland and South Australia agreed to refer powers, but Victoria did not.[18]

1.23      The Water Act 2007 gave effect to key elements of the National Plan for Water Security, relying only on Commonwealth constitutional powers as Victoria had not agreed to refer powers. Key provisions were:

  • to establish the Murray-Darling Basin Authority as a statutory authority reporting to a Commonwealth minister;[19]
  • to establish Basin-wide planning through a Basin Plan to be made by the authority;
  • to give a role to the Australian Competition and Consumer Commission (ACCC) in water trading and pricing;
  • to give an expanded role to the Bureau of Meteorology in relation to water information and standards; and
  • to establish a Commonwealth Environmental Water Holder to manage Commonwealth environmental water holdings.[20]

1.24      Key elements of the Basin Plan will include:

  • sustainable diversion limits (SDLs) to the quantities of surface water and ground water that can be taken from the Basin's water resources. The MDBA has advised that it is likely that the SDLs will be set at a level below the current level of use;
  • an environmental watering plan;
  • a water quality and salinity management plan;
  • water trading rules;
  • an assessment of the socio-economic implications of the sustainable diversion limits.[21]

Water Amendment Act 2008

1.25      At a COAG meeting on 3 July 2008 the Commonwealth and the basin states agreed a new Intergovernmental Agreement on Murray-Darling Basin Reform. The Water Amendment Act 2008 gave effect to the agreement. It relies on referral of powers by the states. It provided for:

  • transfer of the functions of the Murray-Darling Basin Commission to the new Murray-Darling Basin Authority (the Murray-Darling Basin Commission was abolished);
  • increasing the role of the ACCC in advising on water charge and market rules; and
  • enabling the Basin Plan to provide for critical human water needs.[22]

Water for the Future Program 2008

1.26      On 29 April 2008 the Rudd government (elected in November 2007) announced Water for the Future. This is a 10-year, $12.9 billion program with a number of subprograms including:

  • Sustainable Rural Water Use and Infrastructure Program: $5.8 billion for infrastructure improvements to improve water use efficiency;
  • Restoring the Balance in the Murray-Darling Basin Program: $3.1 billion for purchase of water entitlements for the environment; and
  • a number of smaller programs.[23]

1.27      According to the Productivity Commission, from the start of the program in 2008 to 31 January 2010 the Commonwealth bought 797 gigalitres of entitlements of varying reliabilities at a cost of about $1.3 billion.[24] According to DEWHA, from the start of the program in 2008 to 28 February 2010 expenditure under Water for the Future on water infrastructure for irrigation and other primary industry purposes totalled $465 million, and expenditure on purchase of water entitlements was $1079 million.[25]

National Water Commission's second biennial review, 2009

1.28      The NWC's second biennial assessment of progress in implementing the NWI was released on 9 October 2009. The NWC found that water trading has been successful and buybacks for the environment are commendable; however:

  • overallocation has still not been dealt with;
  • 40 per cent of promised water plans are still outstanding;
  • barriers to trade are still being imposed by some states;
  • irrigators lack clarity for investment decisions; and
  • interstate bickering over water continues.[26]

Guide to the proposed Basin Plan

1.29      The Intergovernmental Agreement on Murray-Darling Basin reform (3 July 2008) provides that the MDBA will make the first 'Basin Plan' in early 2011. A central element of the Basin Plan is to set sustainable diversion limits (SDLs) which local water resource plans will have to comply with. Water resource plans must be consistent with the Basin Plan and accredited by the Commonwealth minister on the advice of the MDBA. It is intended that water resource plans will be made by the states, although they can also be made directly by the MDBA.[27], [28]

1.30      Existing state water resource plans will be allowed to run their course, which is to 2014 for most plans in South Australia, NSW and Queensland, and to 2019 for most plans in Victoria.[29]

1.31      Under the Water Act 2007, before making the Basin Plan the MDBA must carry out various consultations, including exposing a 'proposed Basin Plan' for at least 16 weeks of public comment.[30]

1.32      The MDBA published an issues paper on sustainable diversion limits in November 2009 and received 153 submissions in reply.[31] At that time the MDBA expected to release a proposed Basin Plan for public consultation in mid-2010.

1.33      On 28 June 2010 the MDBA advised that it would hold an additional stage of consultation before releasing the legally mandated proposed Basin Plan. The extra stage will consist of a 'Guide to the proposed Basin Plan' on which stakeholder comments will be invited. The guide will feature key content of the proposed Basin Plan including:

  • proposed Sustainable Diversion Limits on water use;
  • environmental watering requirements;
  • the minimum supply of water needed to meet critical human water needs;
  • water quality and salinity objectives; and
  • separate detailed guides for each of the Basin's 19 catchments.[32]

1.34      In the 28 June 2010 announcement, the MDBA stated that it expected to release the Guide to the Proposed Basin Plan in August 2010, and the proposed Basin Plan 'later in the year'. The MDBA postponed releasing the guide during the caretaker period of the general election which was called on 17 July and held on 21 August. On 1 September 2010 the MDBA announced that it would release the guide on 8 October. The 1 September announcement did not advise how this delay will affect the timing of release of the proposed Basin Plan.[33]

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