Cuts of water buy-backs

Recent announcement by the − still fairly new − Federal Government that the planned buy-back of water entitlements will be capped at 1500 GL went largely unnoticed. Not surprisingly, farmers have endorsed this decision, but we have not heard many complaints from the environmentalist groups.
I was more worried with the intention to divert the money planned for buying-back entitlements towards funding infrastructure activities, than with the very fact that buying-back is slowing down and being capped. We know that subsidising irrigation infrastructure is a much less efficient way of securing water for the environment than buying-back entitlements (see the penultimate paragraph of the article in The Australian, link above).
But again, this Government seems to be generally in favour of direct regulation and action, rather than using market-based policy instruments, which is rather inconsistent with its supposed political colours (see a previous post on climate change)
Apart from this, slowing down the buy-back of water entitlements might not be as problematic as it may seem. The Commonwealth Environmental Water Holder already sits on quite a lot of entitlements, and doesn’t seem quite sure what to do with them, especially in times when there is plenty of water around.
So, not biting any further on entitlements might not be such a bad idea, especially if the Government can stand ready to play in the annual water allocation market, if and when adequate opportunities to buy and sell exist. Having a functioning water market will enable compensating for the possible shortfall in entitlements by buying annual allocations at times when the environment needs the water the most. This will be a much better use of the money saved on buy-backs!

Author: Tiho Ancev

Tiho Ancev is a Professor of Agricultural and Resource Economics in the School of Economics, University of Sydney. His main research areas are agricultural, environmental, natural resource and energy economics. Tiho’s main contributions have been in water economics and policy, economics of energy, economics of air pollution and climate change policies, and economics of precision agriculture and agricultural input use. He has published widely on these topics in top international peer reviewed journals. Tiho has led and contributed to national and international research projects in these research areas. He is currently the Managing Editor-in-Chief of the Australian Journal of Agricultural and Resource Economics.