Interview of Mike Young and Jim McColl on their Droplet: New Water for Old – Speeding Up the Reform Process
Podcast from Lit Fuse – October 10th 2007. For more information subscribe to our podcasts at http://feeds.litfuse.com.au/litfuse
For more information on the Droplet Series, visit http://www.myoung.net.au/water/
I interviewed Mike Young and Jim McColl on their new Droplet, New Water for Old: Speeding Up the Reform Process. In their Droplet, they have put forward the proposition that we need to reform water entitlements, plans and registers at the same time. Of all the things to be concerned about with Australia’s water, I was intrigued about why this was so important, when we could be investing in infrastructure for new sources of water (such as stormwater recycling and desalination) or demand management (reducing per capita water use).
I have interpreted Mike and Jim to be arguing that currently we have a system for managing water that is based on inaccuracies in our understanding of how much water is available, inconsistent systems for how we allocate water in each state and entitlement systems for water that are insecure, inflexible and costly to trade between potential water users. What does this mean for you and me? I guess it means that too much water is used in some places, and that political pressures can have undue influence over who receives water and who doesn’t. By implication, I think Mike and Jim are arguing that our current imperfect system of water management has contributed to the current water scarcity in the Murray Darling System.
The solution proposed in the Droplet, and expanded upon in the interview, is that we need to allocate water in the Murray Darling System in much the same way as companies allocate profits to their shareholders. A system would be established which accurately accounted for the water available for use, shares would be held in an electronic register that would specify the owners right to share in the water available in the system. These entitlements to a share of the water could be traded much the same as shares, and for much the same cost ($50-$60 per trade – currently it is much higher). You might have high and low “security” shares, where those who pay for (presumably more expensive) high security shares get first rights to water available in the system.
Given the current crisis in the Murray Darling Basin, such an idea is worth considering. The National Water Commission has been established to investigate the need for water reform in Australia. The Commission is complaining that the states are too slow in enacting needed reforms in water management. Mike and Jim are arguing for greater reform and at a faster rate than the Commission is trying to achieve. Is there hope for such a change? What is slowing down the pace of reform?
I agree with Mike & Jim’s sentiments of moving entitlements and trading into an efficient system.
I see parallels with how the electricity market has addressed this issue, particularly as they have evolved through deregulation reforms over the last decade.
An electricity market prices in scarcity and risk over various periods (hours, months, years in advance), connects buyers and willing sellers, and also links to physical dispatch of generators.
While the electricity trading system has some similarities to water there are some fundamental diffrences and the electricity market is a long way from perfect. For example it suffers from buying from a market (wholesale) and then selling (retail) into a politically regulated market.
However it is an industry that has addressed capacity, pricing and trading and there would be some insights to learn from. The technicalities of how it works and also how they have overcome the barriers to reform.
On a second point. We need to ensure we frame the vocabulary of the converstaion around the problems it solves for users/customers and less of the pure (and very accurate) economic terms such as price, profit, etc.. This will make it easier for the subject to be discussed and engaged with at a political and community level.
Anyone like to participate in an exchange of experience / ideas with the electricity industry? I know the National Generators Forum happens to be meeting in Adelaide on Nov 6.
PS. Great blog/forum to stimulate the discussion and imagination. Well done Paul.
There seems to be an implication that rearranging water entitlement, planning, register, and trading schemes will somehow de-politicize the water sector in Australia. In an apolitical, asocial world these kinds of reforms would fall neatly into place and work with precision and efficiency. However, there are reasons that the inefficient system we have today developed the way it did, and the forces behind these reasons may quite possibly hold the same level of political clout they did when the current system was implemented. The goal of the proposal in the droplet is to reallocate water through mechanisms that attempt to side-steps politics; however to make a lasting change it may be that these exact political forces are what will be able to ensure the desired outcomes. Otherwise, any new system is in danger of being “highjacked” by stakeholders, political parties, or inveseted user groups. These need to be addressed and incorporated into any reform efforts. Also highly specialized market-based policy systems need near-perfect information with which to operate. Are we at the point where we can claim such knowledge? Look forward to more conversation, great droplet!!
Leaving a comment [like this] is just one way to extend the conversation about this blog post.
Another way [for readers who have a blog] is to write a blog post and use the ‘trackback’ facility to link back to this post. That is what the ‘trackback url [?] that appears just below each blog post is for. The trackback url for this post is:
http://blog.litfuse.com.au/2007/10/10/droplet9/trackback/
I will create a test response to demonstrate.
Fang – Mike Seyfang
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