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Focus: New Victorian Environmental Water Holder

6 July 2011

In brief: Victoria has a new statutory body to hold and manage environmental water in that state. Partner Anna Collyer (view CV) and Lawyer Fergus Green report on these changes and explain their significance in the context of ongoing Commonwealth-state water reform in the Murray-Darling Basin.

How does it affect you?

  • The Victorian Environmental Water Holder (EWH) is a new body that will hold and manage Victoria's environmental water entitlements, previously held by the Environment Minister.
  • The purpose of the new arrangements is to deliver greater returns on investment in environmental water by enabling it to be managed in a more flexible, responsive and efficient way. The EWH will be responsible for planning for, and making decisions on, the use of environmental water in Victoria in consultation with waterway managers, local communities and the Commonwealth Environmental Water Holder.
  • Waterway managers have new powers and functions in relation to environmental water planning and uses in their waterway management districts. The EWH and waterway managers will be expected to work closely to deliver the benefits sought by the new arrangements.
  • The management of environmental water in Victoria will continue to evolve in the context of the gradual implementation of the forthcoming Murray-Darling Basin Plan, and may need to be reassessed in the near term.

The evolution of environmental water in Victoria

Victoria's new EWH was established formally on 1 July 2011 when key provisions of the Water Amendment (Victorian Environmental Water Holder) Act 2010 (Vic), which amends the Water Act 1989, came into effect (the amendments). The EWH is an independent statutory body responsible for managing environmental water entitlements in Victoria in consultation with waterway managers and local communities.

The EWH builds on a long history of state and federal initiatives to increase the volume of water allocated for environmental purposes, and to improve the management of such water, in response to ecological decline and falling water quality in the ground and surface water systems of Eastern and Southern Australia, particularly in the Murray-Darling Basin. The deterioration of environmental and water quality in these water systems has resulted from a combination of prolonged droughts and substantial over-use and over-allocation of entitlements.

As part of the 2004 Intergovernmental Agreement on a National Water Initiative (NWI), Victoria, along with other jurisdictions, committed to significant changes in the recognition, planning, security and management of water for environmental purposes. To implement its NWI commitments on environmental water, echoed in its White Paper, the Victorian Government established under the Water Act, the Environmental Water Reserve, and a system of statutory entitlements and rules relating to environmental water. The Environmental Water Reserve is comprised of:

  • Environmental entitlements – a form of statutory entitlement to water (groundwater or water in a waterway or works) allocated by the Water Minister to be managed and applied for environmental purposes; and
  • Rules-Based water – other water set aside for the environment by operation of conditions on any other water entitlement or under other provisions of relevant legislation.

The Reserve is only a small subset of the total environmental water available in Victoria. The bulk of environmental water consists of (less reliable) unregulated flows, spillage from storages and other flows that are not accounted for under the existing cap on consumptive water diversions that applies in the Murray-Darling Basin. However, only water to which a person has a right under an environmental entitlement can be accessed from storages, controlled and managed.

Environmental entitlements within the Reserve were previously managed by the Environment Minister. The amendments transfer this responsibility to the newly established EWH, giving effect to Victorian commitments in the Northern Region Sustainable Water Strategy (2009) and Victoria's Water Management Partnership Agreement with the Commonwealth (signed in January 2010).

The EWH will hold all existing and future environmental entitlements under the Water Act, along with other rights and water entitlements that it may acquire. Together, these rights and entitlements constitute the Victorian Environmental Water Holdings (the water holdings).

The Department of Sustainability and Environment states that the EWH will hold environmental entitlements that currently equate to a long-term average of 350 gigalitres (GL) per year and that this amount will increase with the completion of water recovery projects such as the Northern Victorian Irrigation Renewal Project, the first stage of which will return a long-term average of 75 GL per year to the environment.

The role of the EWH

The primary objective of the EWH is to manage the water holdings for the purposes of preserving and improving the environmental values and health of water ecosystems (eg rivers, wetlands and estuaries), including their biodiversity, ecological functioning and water quality.

A secondary objective of the EWH is to manage the water holdings to preserve and improve 'other uses that depend on environmental condition', such as recreational, social or cultural uses, where consistent with the primary objective.

The main functions of the EWH are, in accordance with its objectives, to:

  • apply and use water in the water holdings in accordance with the Water Act;
  • acquire, purchase, dispose of, and otherwise deal in rights and entitlements in the water holdings;
  • coordinate the exercise of water rights under entitlements held by another person or entity (eg the Commonwealth EWH);
  • facilitate the provision of works to enable the efficient application or use of water in the water holdings; and
  • plan and enter into agreements for the purpose of the above functions.

The division of responsibilities for environmental water

When introducing the amendments last year, the then Water Minister said that the EWH would improve the environmental 'bang' associated with each 'buck' invested in environmental water, enabling such water to be managed in a more flexible, responsive and efficient way.

The amendments seek to achieve these outcomes through a cyclical process that comprises four components:

  • planning (the preparation of strategic plans and priorities for each water season);
  • decision-making (about the use of water, or water trading, in particular circumstances);
  • implementation (physically carrying out those decisions); and
  • monitoring and analysis (of environmental water uses after the fact).

The amendments envisage the sharing of these functions between the EWH, waterway managers and local communities. Effective interaction between these entities and groups will be essential to achieving the efficiency gains to which the Victorian Government aspires.

Planning for environmental water use: Seasonal watering plans and regional waterway strategies

In the environmental water planning phase, waterway managers will develop plans and priorities for the use of environmental water in consultation with local communities, which are then considered by the EWH in making its seasonal plans for the allocation of water from its holdings.

Waterway managers are authorities that have a Waterway Management District under the Water Act. They include catchment management authorities and Melbourne Water. The role these authorities previously played managing Victoria's environmental water has been formalised and extended by the amendments.

Waterway managers' formal functions now include planning for, and undertaking, the use of environmental water in their waterway management district.

Additionally, waterway managers are required:

  • to prepare a regional waterway strategy setting out its plans and priorities and a program of actions for implementing those plans, taking into account any relevant sustainable water strategy, river health strategy, or other relevant plan or policy statement made under the Water Act or related environmental legislation;1
  • to prepare a seasonal watering proposal for the use of water, or other exercise of rights, in the water holdings for each water season that is consistent with its regional waterway strategy; and
  • to consult with local communities in carrying out these tasks (specific consultation requirements are expected to be included in subordinate rules).

The EWH, however, has the ultimate authority over water planning. It must make a seasonal watering plan or plans covering the whole of Victoria for each water season and, in doing so, must take into consideration any relevant seasonal watering proposals prepared by a waterway manager.

A seasonal watering plan must include, in respect of the relevant season and region of Victoria, a forecast of climatic conditions and priorities for using water, and dealing with rights and entitlements, in the water holdings. Subordinate rules are expected to provide further guidance as to how the EWH is to prioritise seasonal watering proposals from waterway managers, though this will inevitably involve an attempt to maximise environmental outcomes. The Department envisages that where there is limited water available, the EWH will identify the highest state-wide priorities to ensure critical drought refuges are protected.

Making and implementing decisions about environmental water use: Seasonal watering statements

An issue that often arises in policy debates concerning the management of environmental water in Australia is the distribution of power to make decisions about particular uses of environmental water between central authorities in each jurisdiction (including environmental water holders where applicable) and local entities (including catchment management authorities and other statutory entities or even smaller local groups).2

Under Victoria's new arrangements, the EWH can authorise and direct waterway managers to implement decisions about the use of Victoria's environmental water by issuing seasonal watering statements. A seasonal watering statement, which must be consistent with the applicable seasonal watering plan, authorises the specified waterway manager to use water, or to exercise rights, in the water holdings on behalf of the EWH. A statement must include details about 'the purpose for which, the amounts of which and the circumstances in which' water under the specified rights and entitlements in the water holdings are to be used or applied. The relevant waterway manager must comply with a seasonal watering statement.

In practice, the degree of autonomy and flexibility that waterway managers will have to use and allocate water in a particular case will depend on the level of generality at which seasonal watering statements are expressed. This will depend, in part, on both Ministerial guidance and the informal policies and practices adopted by the EWH regarding the specificity of its statements.

If, for example, the EWH issues statements that are expressed at a relatively high level of generality, waterway managers will enjoy considerable flexibility to make specific decisions about the application of environmental water within the parameters of the statement, allowing them to respond to changes in weather and other conditions quickly. Conversely, if the EWH issues highly specific statements directing waterway managers to use environmental water in particular ways, it will need to be very responsive to informal requests for authorisations to use water from waterway managers and local groups if the policy aspirations of a more efficient and responsive system of environmental water allocation are to be realised.

Information and analysis of environmental water use

Continuous improvements in the effectiveness and efficiency of environmental water uses will depend on the extent and quality of analysis undertaken about the effect of particular environmental water decisions and on the responsiveness of the EWH and waterway managers to the results of such analysis.

In this respect, the new arrangements again envisage a shared role. Waterway managers will continue to be responsible for monitoring matters relating to their waterway management functions, which now include environmental water. Meanwhile, the EWH will play a role in analysing the effects of particular uses of water in the water holdings, facilitated by a statutory power to request information from waterway managers relating to their use of environmental water.

Ministerial guidance and accountability to Parliament

The EWH will also be subject to a degree of Ministerial control through the Environment Minister's powers to issue rules and directions. Subordinate rules are expected to address issues including:

  • the required content of seasonal watering plans and seasonal watering statements;
  • dealings with rights or entitlements in the water holdings;
  • processes and priorities of the EWH with regard to water planning and decision-making; and
  • community consultation requirements.

The Environment Minister may also give a written Ministerial direction to the EWH in relation to the performance of its functions, powers and duties.

The Minister is, however, prohibited from issuing a direction or making rules relating to a particular use of water or a particular dealing in a right or entitlement to water.3

The EWH will be accountable to Parliament through the requirement that it include, in its annual report, information as to the performance of its functions, powers and duties for the relevant year, and that it maintain accurate records to account for its application or use of water and its dealings with water rights and entitlements.

The EWH's role within the Victorian water market

The EWH may hold water rights and entitlements in the form of environmental entitlements, interests in water shares, take-and-use licences, water supply agreements with third parties, bulk entitlements (to the extent any existing bulk entitlements are compulsorily transferred from the Minister under transitional arrangements set out in the amendments) and any other rights under the Water Act.

The EWH is free to trade water on both the temporary and permanent water markets, subject to:

  • the trading rules that apply to other entitlement holders;
  • additional rules issued by the Minister that apply specifically to the EWH;
  • the EWH's objectives as outlined in the Act; and
  • in the case of a proposed transfer of an environmental entitlement – Ministerial approval (discussed below).

However, the EWH's objectives are limited to managing water in the water holdings to preserve and improve the environmental values and health of water ecosystems, and do not extend more broadly to achieving those environmental outcomes. This suggests that, in practice, its trading activity will be relatively small and limited to maximising environmental benefits from water in the water holdings.

In order to trade an environmental entitlement, or part of one, to a third party, the EWH will first need to obtain the approval of the Water Minister (who must obtain the approval of the Environment Minister and must consider the effects of the proposed transfer). The EWH may then transfer an environmental entitlement, or part of one, by way of sale and may do so by auction, tender process or in any other manner it thinks fit, after advertising the sale in the Government Gazette and a local newspaper. If a transfer is approved, the Water Minister must decide what form of water entitlement the transferred entitlement is to become and the new form of the entitlement will then be granted to the transferee.

Rights and entitlements held by the water holder that are not environmental entitlements can be traded by the EWH (subject to other requirements) without the need to undergo this Ministerial approval and public sale process. For example, if the EWH obtained a water share from a third party for a specific environmental purpose in a particular year, but then sought to dispose of that share in a later season, it could trade the water share on the market without obtaining Ministerial approval.

Water shares and take-or-use licences held by the EWH can also be converted into environmental entitlements of an equivalent maximum volume by application to the Water Minister, whether on the EWH's own volition or compulsorily upon request of the Minister.

The EWH and national water reform

The ongoing expansion of the Commonwealth's role in water management in the Murray-Darling Basin will have a significant effect on the evolution of Victoria's statutory water framework generally, and on the management of environmental water specifically.

The Water Act 2007 (Cth) established the Commonwealth Environmental Water Holder (CEWH) to manage the water entitlements that the Commonwealth is accruing through its multi-billion-dollar Water for the Future program, which encompasses water entitlement purchases and water infrastructure upgrades that yield efficiency gains.

The Victorian EWH will be responsible for liaising with the CEWH to ensure that the use of environmental water in Victoria is coordinated for maximum environmental benefit.

Coordination of this nature will only increase in importance in the coming decade as the Murray-Darling Basin Plan is gradually implemented, new infrastructure upgrades are completed, and the Commonwealth makes further water entitlement purchases. In anticipation of these major reforms, Victoria's then Water Minister stated in his Second Reading Speech accompanying the amendments that Victoria's EWH framework should be reviewed at some time in the future.

However, if (as is widely expected) caps on consumptive water imposed under the Basin Plan are less stringent than those proposed in the Guide to the Plan released last October, less environmental water may be available in the Basin over the long term than was anticipated when the EWH was established. Accordingly, any Victorian review of environmental water may need to consider not merely the framework for managing environmental water, but also the adequacy of the volume of environmental entitlements in the water holdings.

The EWH may well improve the environmental 'bang' from each 'buck' worth of environmental water, but conserving and enhancing Victoria's riverine environments may ultimately require a lot more bucks for a lot more environmental water.

Next steps

The Murray-Darling Basin Authority is expected to release its proposed draft Basin Plan sometime in July.

  1. Interestingly, however, waterway managers will not be required under the Victorian Climate Change Act 2010 (which came into effect on the same day as these amendments) to consider the impacts of climate change when preparing a regional waterway strategy (though the Water Minister must do so when preparing a draft sustainable water strategy, which does have to be taken into account by waterway managers).
  2. See, eg, 'Mike Young calls for Local Management of Environmental Water', ABC Rural News (15 June 2010).
  3. By exception, the Minister may issue a direction relating to any such particular action in order to ensure consistency of the EWH's actions with a corporate plan or the Ministerial rules.

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