Time to consider private water trusts for managing environmental water

At present a centralised model is used to manage the Commonwealth’s 1700 GL of environmental water.  The Commonwealth Environmental Water Holder (CEWH) enters into partnerships with state government agencies and other regional bodies to assist it to deliver environmental water but these entities do not have autonomy because the CEWH retains the sole authority to trade the water and to approve environmental watering decisions.

This approach may offer the strongest means of ensuring environmental watering strategies and operations across the Murray Darling Basin are coordinated. Public ownership and management of the water may also be viewed as a mechanism for guaranteeing that the water is managed in the public interest.

However, the current model is not without its shortcomings.

First, there is the problem of how a centralised authority can get access to information and knowledge at the regional and local levels to make efficient decisions about the best use of the water holdings. For a system with the complexity of the Murray Darling Basin this is likely to be difficult.

Second, under a centralised model, getting the right level of community support for environmental watering is likely to be challenging. The delivery of environmental flows requires significant cooperation from landholders and other land managers. A locally managed program is likely to foster greater community engagement than a program perceived to be managed out of Canberra.

Third, the Australian Government is not well placed to oversee all the functions associated with environmental watering, which include for example pumping, grazing management around wetlands, environmental monitoring, water trading, water accounting, financial administration and so on. There is likely to be private bodies that can coordinate and manage some of these functions more cost effectively.

Fourth, it is understood that one of the challenges currently being faced by the Commonwealth is finding suitably qualified partner organisations that are able and willing to deliver water at the scale necessary to meet the desired environmental objectives. Part of the problem is the lack of financial incentive for regional bodies to become involved in delivering environmental water on behalf of the Commonwealth.

An alternative approach

An alternative approach, which has the potential to address these four challenges, would be to adopt a decentralised model of environmental water management. This could involve the Commonwealth leasing a portion of its water entitlements to a number of regional, not-for-profit private water trusts. Features of this model would be:

• As lessees, the water trusts would be assigned management rights to the water, including the right to trade water on the temporary market for irrigation or to other water trusts for environmental use.
• The water entitlement would be provided to the trusts on a ‘no charge’ basis, but in return the trusts would be required to provide specified environmental watering management services to the Commonwealth and to deliver specified environmental improvements over a fixed period of time (within a band of acceptable outcomes, allowing for seasonal variation and the uncertainty associated with natural systems).
• Each trust would be obliged to deliver environmental water in a manner consistent with the environmental watering plan developed by the Murray Darling Basin Authority (MDBA) and the regional strategies and priorities contained therein. [1]
• As a not-for-profit trading entity, the water trusts would seek to fund their water management activities through sales of water allocation that are surplus to environmental needs – as determined by the water trust. The trusts would also have the capacity to raise funds through donations.
• Each water trust would be governed by an independent board of trustees comprising suitably qualified individuals with experience and local knowledge in water management, riverine ecology, agriculture, business administration and so on.
• The CEWH would have step in rights should the water trust fail to meet its charter of responsibilities.

Under this model, the MDBA would retain the authority to set the overall strategic direction of environmental watering priorities and objectives. The Commonwealth would retain ownership of the water entitlements. The Commonwealth’s legislative obligations under the Water Act would be mirrored in the terms and conditions under which water is leased to the water trusts.

This approach has the potential to motivate greater community engagement in environmental activities, promote greater private investment and innovation and to improve decision making at the regional level through harnessing local knowledge. It may also alleviate irrigator concerns about the Commonwealth exerting market power in trading water because under a decentralised model multiple entities (water trusts) will be responsible for trading decisions.
As an extension to the model, the Government could offer financial incentives to the water trusts in the form of direct payments in return for environmental outcomes over and above baseline specifications. These payments could be allocated through a competitive tendering scheme, much the same way as the Environmental Stewardship Program has operated for some years now as a means of allocating Commonwealth funding to biodiversity outcomes.

A range of other decentralised models could be considered. As part of the ongoing evolution of the environmental water market, it is timely to investigate these alternatives.

[1] The Water Act requires the CEWH “to perform its functions and exercise its powers consistently with and in a manner that gives effect to the Basin Plan”, and specifically, that Commonwealth environmental water is managed in accordance with the Basin Plan’s environmental watering plan.