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Focus: Draft Murray-Darling Basin Plan released

1 December 2011

In brief: The Draft Murray-Darling Basin Plan, released this week, marks a major shift in the management of water resources towards providing more water for the environment, but significantly less than was proposed last year. Partner Chris Schulz (view CV) and Lawyer Fergus Green report.

How does it affect you?

  • The draft Murray-Darling Basin Plan (the draft Plan) is a proposed legislative instrument under the Water Act 2007 (Cth) that would significantly alter the way in which the water resources of the Murray-Darling Basin are managed.
  • The draft Plan provides for legally binding 'sustainable diversion limits' (caps on consumptive water use) that are, on average, significantly more relaxed than were proposed 12 months ago in the Guide to the Plan, meaning less water will be recovered for the environment under the draft Plan than was previously thought necessary.
  • The sustainable diversion limits contained in the draft Plan will not come into effect until 2019, by which time state governments will need to have their local water resource plans accredited by the Commonwealth and ensure water entitlements and allocations do not exceed these limits.
  • The Federal Government has agreed to 'bridge the gap' between current consumptive diversions of water (eg for irrigated agriculture) and the draft Plan's sustainable diversion limits by prioritising water infrastructure efficiency upgrades and buy-backs of water entitlements, with a view to minimising the social and economic impact of the Plan on rural communities.
  • While the draft Plan will be subject to a lengthy consultation process involving affected state governments and other stakeholders, state governments affected by the Basin Plan have no power to directly control the content of the final Plan. The Commonwealth has a limited power of direction, but, importantly, cannot direct the Murray-Darling Basin Authority on the key issue of the sustainable diversion limits incorporated into the final Basin Plan.

Background

The long-awaited draft Plan proposed by the Murray-Darling Basin Authority was released this week, marking a critical step along the path to major reform of the way Australia's iconic river system is to be managed.

The Basin states – Victoria, New South Wales, Queensland, South Australia and the ACT – and the Commonwealth have long grappled with the challenge of restoring the ecological health of a river system whose environmental functions and assets have been compromised by prolonged drought and the over-allocation of water entitlements.

The Basin states and the Commonwealth agreed to return over-allocated water systems to sustainable levels under the National Water Initiative (2004). The enactment by the Federal Government of the Water Act invested this reform process with considerable new resources and attention. The Water Act's key objectives include to:

  • restore and protect the ecological values and ecosystem services of the Basin, return overallocated water systems to sustainable levels of extraction and give effect to international environmental agreements; and
  • promote the use of Basin water resources in a way that optimises economic, social and environmental outcomes.

The Water Act signalled two important shifts: first, towards the pursuit of environmental outcomes in the management of the Basin; and, second, towards the centralised management of the Basin at the Commonwealth level. To achieve this, the Water Act established the Murray-Darling Basin Authority (the Authority) and charged it with the task of producing a Basin Plan for adoption by the Commonwealth.

However, the draft Plan embodies a significant shift in the balance of environmental and socio-economic considerations compared with that struck in the Authority's 'Guide' to the proposed Basin Plan (the Guide), released more than a year ago. These changes, and the length of time taken to make them, reflect the political reorientation of the Authority that followed the intense community backlash against the cuts to water entitlements that would have been necessary under the requirements proposed in the Guide.

The draft Plan will be the subject of a lengthy consultation process involving affected state governments and other stakeholders before the final Basin Plan is formally adopted. However, the Authority is an independent statutory authority whose members are appointed by the Commonwealth; it is not a representative body of affected states. Basin state governments have no power to directly control the content of the Basin Plan, yet the Water Act requires them to implement it and generally prohibits them from acting inconsistently with it.

Additional environmental water and Sustainable Diversion Limits

Recognising that a range of water diversions (particularly water taken for agriculture, industry and drinking) have compromised the Basin's environmental integrity, the Authority is required under the Water Act to determine the environmentally sustainable level of take for each water resource area in the Basin (and for the Basin as a whole) – that is, the amount of water that could be taken from the environment without compromising:

  • key ecosystem functions (natural processes such as the transport of nutrients and sediment and wetting/drying cycles);
  • key environmental assets, including ecosystem services, water-dependent ecosystems and sites with ecological significance (eg rivers, lakes, wetlands, flood-dependent forests);
  • the productive base of the water resource; and
  • the key environmental outcomes of the water resource (including ecosystem functions, biodiversity, water quality and water resource health).

The central task of the Authority in making the Basin Plan was to establish long-term average sustainable diversion limits (SDLs) for the Basin as a whole and for each surface water and groundwater resource area in the Basin. SDLs are binding limits on the use of groundwater and surface water in the Basin for consumptive purposes, informed by the environmentally sustainable level of take as well as by socio-economic considerations.

As a precursor to determining the sustainable level of take and the associated SDLs, the Authority undertook and commissioned a range of scientific studies to estimate the total amount of water that would be needed each year to achieve these environmental aims. In the Guide, this amount was referred to as the Environmental Water Requirement, and the Authority concluded that 22,100–26,700 gigalitres per year (GL/y), or an additional 3000 to 7600 GL/y, of surface water would be required for this purpose. The Authority went on to propose cuts to consumptive water use at the lower end of this range – namely of 3000 to 4000 GL/y1 – as only these cuts would, according to the Authority, imply acceptable social and economic impacts. It was the size of the cuts implicit in these figures that attracted the ire of affected communities.

In the draft Plan, the 'Environmental Water Requirement' concept has been abandoned and the Authority proceeds directly to its conclusion that an additional 2,750 GL/y of surface water would be required to meet the environmental aims of the Water Act outlined above.2 The Authority's official Summary of the Draft Plan explains that this figure is the result of 'balanced judgements' made by the Authority in reliance on a combination of environmental-scientific, social-scientific and economic information sources.

The additional amount of water required for the Basin environment each year would need to be recovered from current consumptive uses, which fall into two categories:

  • watercourse diversions (approximately 80 per cent of consumptive diversions) – diversions from watercourses to provide water for towns, irrigators and industries (typically via systems of entitlements administered by Basin states in accordance with regional water resource planning instruments);3 and
  • interception activities (approximately 20 per cent of consumptive diversions) – activities that intercept water that would otherwise flow into the Basin's river system, including farm dams and forestry plantations.

The Authority calculated Baseline Diversion Limits, concluding that (on average) 13,623 GL/y of water from the Basin was diverted for consumptive uses in the baseline year (2009). Subtracting from this the additional 2,750 GL/y required for the environment, the Authority arrived at a Basin-wide SDL for surface water of 10,873 GL/y. The Authority notes that of the additional 2,750 GL/y required, 1,068 GL/y was recovered between 2009 and September 2011 as a result of water buybacks and water infrastructure upgrades, while an additional 214 GL/y of savings will result from the recently announced Stage 2 of the Northern Victorian Irrigation Renewal Project, leaving an additional 1,468 GL/y to be sourced by the time the SDLs come into effect in 2019.

The Basin Plan also sets out the SDLs for individual SDL resource units within each water resource plan area. The extent of the required cuts to consumptive water differ markedly across water resource areas, meaning the extent of community impacts and structural adjustment required will differ across Basin communities.

Transitional arrangements

Transitioning from current arrangements to SDLs would, according to the Authority, yield substantial environmental benefits as required by the Water Act. However, this transition will also have considerable social and economic consequences for individuals, businesses and communities in the Basin. Accordingly, a number of transitional arrangements will be put in place to minimise and offset these effects. Transitional arrangements will be effected by a mix of Federal and state government policy and mechanisms established under the Water Act. The Authority has an important function to advise the Commonwealth on various aspects of transitional arrangements.

Delayed application of SDLs

The most significant 'transitional' measure is the delayed application of SDLs until 2019. The Federal Government has agreed to honour all of the Basin states' existing water resource plans (which will typically allocate water to consumptive purposes above levels that would be allowed under SDLs mandated in the Basin Plan) until they expire.4 The existing plans applicable in most Basin states expire between 2012 and 2017, and as late as 2019 in Victoria. It was proposed in the Guide that provisions in the Water Act allowing the setting of temporary diversion limits (at more relaxed levels than the SDLs) would be used to provide additional transitional relief in those states where existing plans expired relatively early.

However, the Draft Plan proposes that all SDLs will take effect from 2019, removing the need for these more technical transitional arrangements. The Authority expects that states will gradually adapt the management of their water resources from the status quo (ie the Baseline Diversion Limits determined by the Authority, reflecting existing state plans or, where these do not exist, current average actual diversions) so that consumptive diversions are in line with SDLs by 2019.

Risk allocation

Another transitional mechanism that has been rendered effectively irrelevant (at least in the medium term) by the draft Plan is the 'risk allocation' (compensation) mechanism in the Water Act. The Act makes provision for compensation payments to entitlement holders where the volume or reliability of their water access entitlements is compulsorily reduced in order to comply with SDLs. The 'risk' of such reductions is 'allocated' between individual entitlement holders, the Commonwealth and the applicable Basin state in each case, according to a risk allocation formula set out in the Act.5

On one interpretation, the risk allocation mechanism (including the payment of compensation by the Commonwealth) is triggered only when SDLs are reduced after the Basin Plan comes into effect.6 However, the Authority's position, revealed in the Guide and maintained in the Draft Plan, is that the risk assignment provisions apply also to the transition from prevailing arrangements (as reflected in Baseline Diversion Limits) to the new SDLs, and that the Commonwealth should bear 100 per cent of this 'risk'. The effect of this 'risk allocation' is that (assuming the Authority's application of the risk allocation provisions to the transition phase, as opposed to subsequent SDL reductions only, is lawful) the Commonwealth will voluntarily assume statutory liability for recovering the water needed to 'bridge the gap' between the status quo and the SDLs.

Sourcing the required environmental water: Efficiency upgrades and water buybacks

The Commonwealth has indeed, as a matter of policy, committed to 'bridging the gap' through a combination of water infrastructure upgrades that improve the efficiency of water allocation and voluntary water buy-backs.

First, the Federal Government hopes to recover much of the required environmental water through efficiency gains resulting from ongoing investments by Commonwealth and Basin state governments in water infrastructure upgrades, for which some $5.8 billion has been set aside. The drawback of such investments is that they are a relatively expensive means (compared with water buybacks) of recovering water. The benefit of efficiency upgrades is that they keep water entitlements in the hands of irrigators and therefore retain the knock-on economic benefits of irrigated agriculture to communities. In the fraught political environment of the Basin in the 'post-Guide' era, efficiency upgrades have been elevated to a central component of the strategy for environmental water recovery. The Federal Government and the Authority have evidently judged that the benefits to local communities outweigh the costs to all taxpayers.

The remainder of the required environmental water will be recovered through Basin states and the Federal Government buying back water from willing entitlement holders. This will ease the burden of transition to SDLs on entitlement holders (though not necessarily on the communities in which they operate). The Commonwealth has already bought back water entitlements in the Basin, and will continue to do so, spending a total of $4.6 billion over the 12 years to 2018-19 under its Restoring the Balance in the Murray-Darling Basin Program.

Implementation of the Plan

The eventual Basin Plan will be put into effect primarily through the accreditation, oversight and enforcement by the Authority of state water resource plans. Each plan will cover one of 36 'water resource plan areas' as defined by the Authority (13 for surface water, 17 for groundwater and an additional six for combined surface and ground water). In aggregate, these localised plans will cover the entirety of the Basin's resources through the application of a consistent set of water resource and planning boundaries.

While these plans will draw heavily from current, region-specific water planning instruments at the state level (and are, in most cases, geographically aligned with such existing instruments), they will contain important new features in order to give effect to the Basin Plan. Most importantly, each water resource plan will contain mechanisms for implementing the SDLs applicable to it (ensuring that the aggregate effect is to meet the Basin-wide SDL). SDLs will apply to defined SDL resource units within each water resource plan area.

The draft Plan sets out requirements that each water resource plan must meet, and the Authority and the Federal Water Minister will assess proposed plans to ensure they are consistent with the ultimate Basin Plan. State plans will be accredited over the period to 2019.

While Basin states will be responsible for implementing their water resource plans, they must comply with those plans, the Basin Plan and the Commonwealth Water Act. Moreover, the Commonwealth (primarily via the Authority) will retain a key role in monitoring and enforcing compliance, for example, by establishing transparent compliance rules and water accounting methods and by conducting compliance audits. The Authority will establish a 'register of take' for the purposes of accounting for water taken in each SDL resource unit, recording the difference between the actual take and the applicable SDL in each water accounting period beginning 1 July 2019. A state will be failing to comply with an applicable SDL if it has a cumulative debit of 20 per cent or more of the SDL and it does not have a 'reasonable excuse' for that debit.

Other mechanisms by which the Basin Plan will be given effect, and which are included in the Draft Plan, include:

  • the Environmental Watering Plan, which sets out the governance framework for determining how water will be applied to the environment to maximise environmental outcomes;
  • a water quality and salinity management plan, which sets new water quality and salinity objectives; and
  • new water trading rules, which establish the way water will be traded across the Basin (including the removal of existing volumetric limits to water trading).

A review in 2015

The Authority has proposed that a review of the Basin Plan, including the SDLs, be undertaken in 2015, taking into account new environmental knowledge, the efficacy of infrastructure projects and improvements in the management of the Basin's resources. The Minister and the Chairman of the Authority have been at pains to emphasise that the remaining 1,468 GL/y proposed to be returned to the environment could be significantly reduced as a result of the review, implying more relaxed SDLs and lesser impacts on communities. However, the review could equally determine the need for greater amounts of environmental water, implying deeper cuts in consumptive uses – a point that has been less salient in the pronouncements of the Authority and the Government.

Legal and political challenges

The Basin Plan, once adopted by the Minister, will be a legislative instrument under the Water Act. As such, it will be subject to disallowance by either house of Federal Parliament. The Greens, concerned at the environmental inadequacy of the cuts implied by the Plan's SDLs, have flagged the possibility that they will propose a motion of disallowance when the eventual Basin Plan is tabled before Parliament. Such a motion would require the support of the opposition Coalition, but it has said that it will wait until after the consultation period has been completed before determining whether or not to support the Plan (recall that the Water Act was passed, with bipartisan support, by the Howard Government in 2007).

If the draft Plan survives any disallowance motion, it could nonetheless be the subject of a High Court challenge. The Premier of South Australia, concerned about the environmental implications for his downstream state of the low levels of water required to be recovered under the Draft Plan, has refused to rule out bringing such a challenge. Any such action would presumably attempt to exploit the ambiguity as to the primacy of the Act's 'environmental' objectives compared with its economic and social objectives (demonstrated by the Authority's apparent reliance on different legal advice in preparing the Plan compared with that on which it relied in preparing the Guide). This ambiguity leaves considerable room for differing interpretations about the validity of the process undertaken, and therefore the conclusions reached, by the Authority in determining the 'environmentally sustainable level of take' from the Basin and the consequent SDLs. While this is a contentious legal issue, significant technical hurdles would need to be overcome for such a challenge to succeed.

Next steps

  • Commencing 5 December 2011, the Authority will embark on a 20-week formal consultation process with stakeholders, including Basin states, peak bodies and community members, on the contents of the draft Plan, during which the Authority will receive and consider public comments.
  • The Authority, in consultation with the Murray-Darling Basin Ministerial Council, will then finalise the proposed Basin Plan and will formally present it to the Federal Water Minister for review and adoption.
  • The Minister is then required by the Water Act to adopt the Plan, subject to the Minister's limited powers to make 'suggestions' to the Authority, which the Authority is not obliged to incorporate, and to issue 'directions' to the Authority, which the Authority is obliged to incorporate (but any such direction must not relate to any aspect of the Basin Plan that is of a factual or scientific nature or to other key matters within the Authority's responsibility, including the SDLs). The time allowed for the Minister to make suggestions and directions is limited under the Water Act.
  • The Basin Plan is a legislative instrument under the Water Act that comes into effect when the Minister adopts it, which is expected to occur sometime in 2012 (after which time it must be tabled in Parliament and is subject to Parliamentary disallowance, as discussed above).
  • State water resource plans will be accredited up to 2019.
Footnotes
  1. The Authority, in the Guide, also concluded that the aggregate amount of additional groundwater needed for the Basin's discrete groundwater aquifers would be between 99 and 227 GL/y (long-term average).
  2. 1,636 GL/y is to be sourced from specific caps applying in local SDL resource units; 143 GL/y in total cuts are to be 'shared' across the Northern Basin and 971 GL/y shared from across the Southern Basin.
  3. Watercourse diversions also include floodplain harvesting, which is normally included in water resource plans.
  4. Murray-Darling Basin Reform Memorandum of Understanding of 26 March 2008 at paragraph [37], reflected in Part 11, Division 1 of the Water Act.
  5. See Part 2, Division 4 of the Water Act (s74A). The risk assignment framework is derived from clauses 48-50 of the Intergovernmental Agreement on a National Water Initiative of 2004, as amended by clause 10.1.3 of the Agreement on Murray Darling Basin Reform of 3 July 2008.
  6. This interpretation is supported by the Explanatory Memorandum to the Water Bill 2007 (Cth) at pages 24-25 ('Clause 78').

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