As Syme notes in this volume, urban water utilities have been conservative in their reaction to changed demand-and-supply options. The focus is on technological solutions, and the identification of new sources of water supply with well-established approaches to demand management. Some attention is given to water-sensitive urban design and the incorporation of externalities into pricing and cost-benefit analyses, but there are large gaps in achieving sustainable management. While sustainability agendas require more innovative adaptations to changing water availability, to date, the issues of increased scarcity in urban water have been largely managed on an intra-urban basis by regulating through the imposition of water restrictions and efficiency incentives, based largely on pricing measures. Some commentators point to the success of demand-side measures, but clearly the impetus is shifting yet again to give priority to supply-side ‘solutions’ for Australia’s cities. If supply side-options are in the ascendancy, the issues of property, access to ware resources and rights to water again become of central importance.
Debates about the utility of property concepts and market mechanisms in achieving the goals of sustainable water use and efficiency have, to date, largely focused upon the rural sector. Yet many of the questions that arise about the balance between private rights and the public interest have similar resonances in an urban setting. Water-scarcity issues have impacted (impact) all our major cities. Typically, while demand-side measures such as water restrictions have been implemented, and there is much exhortation to change ingrained social practices such as showering, the ‘business as usual’ scenarios have prevailed. The hope of technological fixes of new dams, desalination plants, water recycling and innovative technologies are being held out as solutions to expand options for metropolitan water supply.
Recycled water, at first instance, appeared to be the panacea to the problem of growing urban water scarcity. While much potential obviously exists in wastewater recovery and treatment, considerable cultural resistance has emerged to recycled water for residential purposes (Hurlimann 2007). Further, water-quality standards require intensive water treatment, which means that in many instances it is not cost-effective. Recycled water systems, where instituted, often have received public subsidy; although one might query whether the full costs of environmental externalities, including energy demands and greenhouse gas emissions, have been costed into other alternatives vis-à-vis recycled-water pricing. Nonetheless, attention is being directed now to supply infrastructure development that can look to ‘fresh’ sources of water. In concert, there exists the potential to use water ‘property’ trade/exchange models more directly.
Scarce water supply has been addressed in recent policy paradigms — particularly in the rural sector — by use of allocation mechanisms; that is, to institute entitlement-based regimes and potential re-allocation of water to the so-called highest and best use through the property/contractual/trading process. However, the highest and best use of water, if taken to its ‘logical’ conclusion can operate across a variety of spatial scales. Rural–urban water exchanges clearly fall within the possible scales.
On an ad hoc and limited basis, it is clearly possible for urban dwellers to purchase water from outside urban areas. Trade in rural water to supply urban swimming pools (The Age October 2007: 1) is just one example. Arguably, such trade meets water-efficiency objectives and it emulates models borrowed from the United States. As Glennon (2005: 1902) notes, ‘… the best way to reform agricultural water use in the United States is to give farmers a financial incentive to use less: let them sell water to the cities.’ Indeed the bulk of water trade in the southwest corner of the US is rural-to-urban water sales. Such potential clearly exists in Australia to facilitate an increased rural-to-urban water trade based on private modes of exchange through contractual and property regimes. Young (2007: 86) argues that even with the projected five million increase in the Australian population over the next 25 years — which will occur mainly in urban areas — any estimated ‘transfer’ of water from rural to urban areas under such a process will amount to less than 1 per cent of the amount of water that is extracted for use. Such water trade would not be ‘unidirectional’, with water flowing to cities and taxpayer and water consumer ‘investment’ flowing back to regional areas. He cites existing urban subsidy of rural environmental rehabilitation such as the natural heritage trust funds as a model to be emulated. Moreover, Young argues that such rural-urban water transfers under a willing seller/willing buyer formula would provide a net benefit for investment in water even while recognising the need to consider environmental externalities and third-party effects (Young 2007: 90).
However, the costing and assumptions for calculation for such environmental externalities are rarely made explicit (see, for example, the multi-criteria analysis employed to determine options regarding the Goulburn Campaspe Link GHD 2006). Moreover, perhaps the most significant assumption of the calculation is that such benefits would accrue on the basis that all the issues at the heart of the NWI process would be addressed, such as the return of all surface and groundwater in rural areas to a healthy ecosystem state. Clearly to date, there has been significant achievement on the water-use efficiency measures and the instigation of processes to support water trading. By contrast, there has been very limited progress on the actual return of waters to over-allocated rivers and water systems in regional Australia. Even where environmental water has been allocated, there are substantial impediments to its effective implementation to support ecosystem functions (Foerster 2006; Ladson and Finlayson 2002). The view that equivalent ‘benefits’ could be achieved by using water from rural areas to sustain urban parks on the basis of satisfying consumer preferences for ‘greenery’ or ‘vegetation conservation’ or for urban wealth generation and employment gains would suggest a fundamental problem with a market-environmentalist approach. Water, if we accept its fundamental ecosystem qualities, is not an infinitely substitutable and transferable resource. It has localised environmental, equity and distributive-justice implications.
Arguably if we accept the exchange value or ‘substitution’ involved, the optimal approach might be to dispense with living urban parks and gardens and move to plastic trees. Clearly water, in situ, provides many important social cultural and economic values that cannot be captured by property and exchange constructs as these are currently conceived under market environmentalism. Barriers to trade can alternatively be called legitimate policy and legal constraints in the public interest, which satisfy various public duties entailed in state ‘powers over water’. Moreover, arguments that water ‘holding’ should be free of all restraints and barriers to trade simply does not accord with the substantial constraints and mixed regulatory objectives that operate with land holding as a form of property right. Land holding and water rights have been progressively disaggregated, perhaps most strikingly in urban areas where water is supplied as a ‘service’. Yet water remains embedded in its social and physical context and, like land, must fulfil a range of, at times, competing objectives.
Further, arguments have been raised that property regimes should be excluded in situations of risk where there is the possibility of irreversible harm. Arguably, under the impact of climate change, many aquatic ecological systems and other water-sensitive biodiversity will approach the point of irreversible harm quite quickly, especially if water is drawn from already stressed rural areas to urban areas in order to secure water supply. Risk-spreading operates in a highly skewed manner, with public ‘actors’, like the environment, bearing inordinate proportions of the risk of climate change, which ultimately will become an intergenerational debt. Similarly, attention needs to be directed to the social and cultural impacts of rural–urban water ‘transfers’ beyond the efficiency incentives that potential sales of rural water to urban areas may comprehend. For example, one scenario to analyse the efficiency of urban–rural water trading states: ‘[T]he technical feasibility and environmental implications of connecting each of the above cities with their region and with neighbouring regions is not assessed’ (Young, Proctor and Qureshi 2006: viii). Such exclusions from assessments of shadow pricing for urban water would seem to leave out major cultural costs and externalities that may be integral to determining the long-term value of water.
To date, any major scheme to institute rural-to-urban water trade remains small scale and within the scope of significant controls on movement of water out of rural catchments. Indeed, in Victoria there remain limitations on the extent of water ‘property’ that can be held independently of land holding, despite moves to separate land and water entitlements and to ‘unbundle’ water holding into water shares, water-use licences and delivery charges. The issues of speculative accumulation of water rights in any development of secondary markets in water, together with potential for monopoly controls and price setting, are recognised as legitimate reasons to provide limitations on freestanding water ‘rights’. Clearly the hand of government regulation is in the market to achieve particular public-policy outcomes.
Significantly, therefore, it appears that the trends to institute market environmentalism sit alongside much more mixed regulatory objectives. What appears to be occurring in the water-security context is an amalgamation of the resource development/infrastructure mode of water regulation, with ‘public’, rather than market, mechanisms of exchange. To date, the exchange is not the typical inter-party private mode of commercial water trade but one instituted by the public sector, albeit with considerable private participation in infrastructure development. Under the rubric of securing water supply for urban areas, governments again have adopted a classic resource model whereby regional resources are drawn to the centre from the periphery. This mode is evident in the latest stages of the Victorian Government Water Plan with its focus on three major infrastructure developments, all dependent upon drawing water resources from regional areas. The food-bowl modernisation project and the associated ‘pipeline’ exemplify this process.
The Food Bowl Modernisation Project (FBMP) forms part of a number of major infrastructure-development projects intended to augment water supply for Melbourne and other regional centres. The FBMP is intended to provide up to 450 billion litres of water at a cost of $2 billion. The first stage will cost $1 billion and projected water savings of up to 225 billion litres are to be shared between Melbourne, irrigators and the environment.
The focus of this project is a substantial upgrade and redevelopment of irrigation distribution systems in the Goulburn Valley. This will include channel automation, piping, channel linking and metering of the Goulburn Murray irrigation systems. The second major component of the project is the construction of a pipeline that will allow delivery of Melbourne’s share of the water savings to be brought to the city. The State Government will provide $600 million towards the project. Two water authorities, Melbourne Water and Goulburn-Murray Water, will provide $300 million and $100 million, respectively. These funding arrangements for the project reflect both the public interest in improvement of outdated and inefficient water-delivery systems (efficiency improvements from 70–85 per cent are projected to be achieved) and the perceived need to augment Melbourne’s water supply. Indeed, to that end, it is proposed that Melbourne will receive its 75 billion litre share of water savings in 2010, ahead of the both irrigators and the environment.
This proposal is controversial on a number of fronts. Farmers in the region are opposed in principle to the movement of the region’s water to the city. In addition, if savings are not fully achieved by 2010 the Melbourne allocation will be supplemented with water that is dedicated for environmental (water-quality) purposes on the Goulburn and Broken Rivers. Assessments of regional social, economic and environmental impacts of this water-sharing arrangement have not been conducted. The Steering Committee has recommended in its Draft Report that despite the proposed pipeline bringing water to Melbourne, trade of water between farmers and city-dwellers will not be permitted. The rationale for this recommendation is not explained in the Draft Report.
The FBMP is largely focused on water-services infrastructure, although it is noted that the project will have significant economic (and therefore social) benefits in the region. For example, the Draft Report describes in considerable detail the various components of what the modernised water-delivery system will consist of, including interconnectivity, automated supply backbone, various connections to the supply backbone for different customers and customer irrigation systems. There are only brief references to any social benefits arising from having an efficient irrigation system and no references at all to how the modernised system might also facilitate delivery of environmental water to stressed rivers and degraded wetlands.
On paper, the water-sharing arrangements (75 billion litres each for irrigators, Melbourne and the environment) appear equitable and a reasonable justification of such significant public investment. Further, the annual allocation of these savings is to be equally divided between these user groups. Thus, if water availability is diminished by reduced inflows, the allocation will be adjusted appropriately and then distributed equally. However, the question of whether or not the environment will indeed receive its share remains. First, although there is a commitment that environmental water will have the same status as water available to Melbourne and to irrigators, the Minister still retains discretion over the allocation of this water.
Concerns remain therefore about the final outcomes for the environment and for rural communities of any movement of water out of the region. Whether it is sufficient to ‘offset’ such water by money flowing into the region through upgrading of irrigation infrastructure and some potential for provision of environmental water to stressed rivers returns us to the opening questions posed in this paper about the commodification and exchange value of water. Further, if the pipeline infrastructure is in place, will pressure mount for lessening the ‘barriers to trade’ to urban areas to permit private trading regimes? Potential price differentials for rural, as opposed to urban, water are a likely catalyst — especially with projected large price increases in metropolitan water in Melbourne that may emerge from any ‘reform’ of the metropolitan retail-water sector. These factors would seem to add to general privatisation pressures to create a regime of private property in water that does not distinguish rural from urban areas. If such a scheme was instituted, then the localised effects of ‘risk-spreading’ under any such potential regime is more problematic without firm and transparent legal safeguards for its operation to minimise its distributive-justice impacts. Alternatively, if we use a human-rights formula it may also raise dilemmas. Few would argue against the provision of basic water rights to urban dwellers in terms of drinking supply and basic hygiene on a basis guaranteed at law. Yet do urban dwellers have a right to ‘social needs’ water ahead of rural dwellers or the environment on the basis of efficient and highest-value use? Resolution of these complex questions will require rethinking how water is conceptualised, valued, managed and allocated within the Australian continent, including the respective processes of interaction between urban and rural areas.