Water Augmentation Inquiry by the NSW Parliament

The Parliament of NSW has launched an inquiry into the water supply for rural and regional NSW.
I am guessing that the word ‘augmentation’ was deliberately put in the title of the inquiry, even though the word ‘management’ might have been more appropriate. The term ‘augmentation’ explicitly implies that current supply is not enough, and that greater water supply is needed for rural and regional areas of NSW. This is in response to the acute water crisis experienced in the Far Western NSW earlier this year.
Economists have known at least since the early 1980’s that augmenting water supply in what is called ‘a mature water economy’ is going to be increasingly difficult (see a paper by Alan Randall in AJARE from 1981). This is due to increasing social cost of capital for new water infrastructure, increasing costs of maintenance of existing infrastructure, and greater environmental concerns about new water impoundments, among other things.
Despite this strong economic argument, governments and politicians tend to panic in times of acute water crises, and talk about ‘proofing’, as in ‘drought-proofing’, ‘flood-proofing’, ‘future-proofing’…
We have already seen the failure of that approach in Sydney, where a 3 billion dollar desalination plant was built to supposedly ‘augment’ the water supply at the time when Warragamba Dam was only 37% full. The plant was build, the costs incurred, but it has practically never operated. At least some local politicians in Far Western NSW are being reasonable and oppose the panic reaction that calls for costly quick fixes.
On top of these economic concerns, the inquiry has also been criticized for not taking climate change explicitly into consideration.
Water use and management in NSW should be in the public eye, and the fact that NSW Parliament is taking water issues seriously is encouraging. However, the terms of reference of the current inquiry seem to have missed some important points about economic feasibility of water supply augmentation, and the likely effects of climate change. Let’s hope amends could be made in the course of the inquiry itself.

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.