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This report represents the second part of a two part project investigating the management of irrigation storages. The first report: Management of irrigation water storages: carryover rights and capacity sharing (Hughes and Goesch 2009) focused on the economics of storage management and the potential advantages of capacity sharing. This report examines in detail two capacity sharing schemes implemented in Queensland - St George and MacIntyre Brook.
The report contains a large volume of information relating to the implementation of capacity sharing in St George and MacIntyre Brook. It is hoped the report will become a useful reference for water managers who have an interest in reforming water allocation/storage management policies. While the theoretical advantages of storage rights/capacity sharing are relatively well established, there has until recently remained scepticism over the feasibility of this approach in practice. The experience of St George, and to a lesser extent MacIntyre Brook, has demonstrated that capacity sharing is feasible and practical. While there are challenges to face in refining the approach and in introducing it into other systems, capacity sharing shows significant potential.
In Australia, access to irrigation water is traditionally governed by a system of water entitlements with nominal volumetric limits and seasonal allocations. Under this system, water managers effectively determine the proportion of total water available released for use in the current season and the proportion which remains in storage for use in future seasons.
Such a centralised approach to water allocation may, for a number of practical reasons, lead to an inefficient allocation of irrigation water. One way of addressing these potential inefficiencies is to introduce carryover rights, which allow water users to hold over a proportion of their seasonal allocation for use in future seasons. However, carryover rights while beneficial are subject to a number of practical limitations.
Capacity sharing is an alternative system of water allocation first proposed by Dudley and Musgrave (1988). Under capacity sharing, traditional volumetric water entitlements are redefined into shares of storage capacity and shares of inflow. The first report of this project discussed a number of the advantages of capacity sharing over the traditional announced allocation/carryover rights approach. Ultimately, capacity sharing provides a more transparent system which offers water users more flexibility over how and when they use available water resources.
Capacity sharing has been in operation in the St George region since 2000 and was introduced into the nearby MacIntyre Brook region on 1 July 2008. To date, these are the only irrigation regions in Australia where capacity sharing has been implemented at the end user level.
St George is located on the Balonne River in southern Queensland, approximately 500 kilometres west of Brisbane. The St George irrigation region covers a total area of around 19 000 hectares, of which 12 000 hectares are set up for irrigation. The main irrigated crop in the region is cotton, with some grapes and vegetables also being produced. The St George irrigation region has relatively limited off-farm storage capacity and is subject to very high storage losses.
The MacIntyre Brook irrigation region is located on the MacIntyre Brook, near the town of Inglewood, approximately 270 kilometres west of Brisbane. The MacIntyre Brook irrigation region is smaller than the St George region, with an irrigated area of around 2000 hectares. The main irrigated crop grown in the region is lucerne. The MacIntyre Brook system is subject to relatively large delivery losses.
With the introduction of capacity sharing at St George, SunWater has formalised a comprehensive set of rules to enable the conversion of traditional water entitlements into capacity sharing entitlements; these rules are summarised in this report. SunWater’s approach includes accounting for delivery losses via a system of defined zones with associated loss factors.
SunWater has also established a set of accounting rules and systems for managing the balance of water in each user’s capacity sharing account and for recording each user’s water use against a specific annual water use cap. This includes a system of periodic reconciliations to ensure that the aggregate volume of water in the accounting system matches the physical volume of water in storages.
The report presents information gathered from interviews held with irrigators, water managers and members of the finance sector in the St George and MacIntyre Brook regions.
From SunWater’s perspective, capacity sharing has been a highly successful policy in the St George region. SunWater has suggested that capacity sharing has led to a reduction in operating costs and a reduction in disputes with irrigators in the region. SunWater also observed interest in capacity sharing in a number of other irrigation systems across Queensland.
ABARE conducted informal interviews with six irrigators (four at St George and two at MacIntyre Brook). All of the irrigators interviewed were supportive of capacity sharing. The irrigators listed a number of advantages of capacity sharing relative to the previous arrangements. The irrigators noted that capacity sharing provided flexibility over inter-year water use/storage decisions without the external effects associated with carryover rights. For example, capacity sharing ensured that irrigators were responsible only for their own contributions to storage losses. The irrigators also felt that capacity sharing offered increased flexibility with regard to the timing of water use within the water year (financial year).
The irrigators indicated that capacity sharing had led to a reduction in uncertainty relative to the previous announced allocation system. The irrigators suggested that capacity sharing facilitated diversity, allowing water users with different crop types and risk preferences to adopt personalised water use strategies. The irrigators at MacIntyre Brook noted that, in the past, carryover rights were severely limited in their region and that capacity sharing provided much more control over storage decisions, and in turn, water supply reliability.
All of the irrigators interviewed indicated that the transition to capacity sharing was well handled by SunWater. The irrigators also indicated that capacity sharing imposed no significant time or inconvenience costs, and that it was generally simple and low cost to use.
Interviews were conducted with four members of the rural finance sector. Three of the financiers were supportive of capacity sharing. These financiers indicated that capacity sharing was a more transparent system subject to less uncertainty. One of the financiers expressed concerns regarding the delivery loss zones in the MacIntyre Brook system, suggesting that some irrigators who regularly traded water to downstream regions were adversely affected. Similar concerns were also expressed by irrigators interviewed in the MacIntyre Brook region.
SunWater’s entitlement conversion rules take steps to minimise distributional effects associated with the introduction of delivery loss zones. However, there is still the possibility that certain irrigators (those in low loss zones who regularly trade large proportions of their water allocations downstream) could observe a reduction in income from water trading under the new system. In practice, these costs may be offset by other positive effects. In any case, delivery loss factors will tend to minimise the adverse external effects that downstream water trade previously imposed on other irrigators in the system. Further, well specified delivery loss rules will lead to an overall improvement in the efficiency of water allocation, which will benefit irrigators in aggregate.
A number of irrigators identified the restrictions on carryover in the water use cap as an issue. However, given the potential problems associated with water use exceeding traditional maximum levels, regulators may be justified in restricting carryover in water use cap rights. Carryover in the water use cap may allow irrigators to use more than 100 per cent of entitlement volumes in some years leading to an overall increase in mean water diversions/use.
In the capacity sharing schemes implemented by SunWater, rights to storage space and rights to inflows are bundled together and cannot be traded separately. In practice, because of the presence of transaction costs in water trade, separable inflow and storage rights may be desirable. The benefits of separating inflow and storage rights would need to be compared with any administrative costs that might be involved.
In this report, a range of quantitative data relating to the capacity sharing schemes at St George and MacIntyre Brook are presented, including hydrological data, water accounting data and capacity sharing adoption rates.
Historical inflow data for the St George region demonstrate a relatively high level of variability (both at an annual and monthly time scale). In particular, St George (as with many Queensland systems) is subject to extreme high inflow events. In recent years (since 1999-2000), St George inflows have been well below the historical average. Capacity sharing (introduced in 2000) has therefore been operating during a period of unprecedented water scarcity.
In both schemes, the adoption of capacity sharing by irrigators is voluntary. Adoption rates show that, among eligible irrigators, the take up of capacity sharing has been strong. As of the 2008-09 water year, more than 99 per cent of entitlements by volume were operating under capacity sharing at St George and more than 98 per cent at MacIntyre Brook, in its first year in operation.
Aggregate water accounts were constructed for both St George (for four water years) and MacIntyre Brook (the first six months of operation). These accounts show monthly aggregate water inflows, withdrawals, storage losses and reconciliation volumes for the two capacity sharing schemes.
The St George water accounts show significant end of year storage reserves, despite the relatively low inflows during the period and the relatively high storage losses. The water accounts also show how annual storage reserves serve to minimise variation in water use between years and within years. For example, the storage reserves proved particularly useful during the 2006-07 year when minimal inflows were received.
User level water accounting data from the two capacity sharing schemes are also presented in the report. The user level data demonstrate the extent of variation in water use/storage strategies across individual irrigators. For example, significant variation is observed in the end of year storage levels (account balances) of individual users in the capacity sharing system at St George.
The user level data presented in the report demonstrate that even in relatively small systems, with limited diversity in agricultural activity, individual irrigators display highly variable water use/storage preferences. As noted in the first report of this project (Hughes and Goesch 2009), one of the advantages of capacity sharing is that it permits irrigators to adopt diverse water use/storage strategies, without affecting other irrigators in the same system.
User level inflow data were used to estimate internal spill volumes for St George. Internal spills occur when an individual capacity share becomes full and receives surplus inflows (while other users’ shares are less than full), necessitating the reallocation of surplus water to other water users.
The estimates of internal spills show that internal spill events at St George are relatively infrequent. However, there were a small number of particularly large internal spill events. These internal spill events were exclusively associated with extreme high inflow events, where the main dam filled (from in some cases less than half full) in only a few days. It is likely that in other systems with greater storage capacity and less variable inflows than St George (such as those further south in the MDB), internal spill volumes would be significantly lower on average.