Author: Linden Whittle
Overview
Carryover allows water entitlement holders to transfer some or all their unused allocations into the next irrigation season. Carryover was initially introduced as a drought management tool and has been effective in helping irrigators manage variability in seasonal conditions.
This study quantifies the effects carryover has on market outcomes for the southern Murray Darling Basin (sMDB) by comparing market outcomes of the current system with a hypothetical system without carryover. The market outcomes explored include volumes of irrigation water use and trade, allocation prices, and market benefits. The results also include changes in the likelihood of different outcomes, for example, the incidence of extremely high prices and low water use. Where relevant, results are disaggregated by region or irrigation activity.
Potential future changes in climate conditions and patterns of drought may affect how irrigators use carryover provisions. To test the sensitivity of the results to changes in climate, ABARES estimated the impacts of carryover under two hypothetical alternative climate scenarios; one considering an increase in drought frequency and a second considering an increase in drought persistence.
All estimates presented in this report are based on simulations using the ABARES Water Trade Model (WTM). The WTM is a dynamic partial equilibrium model of water markets in the southern Murray Darling Basin (sMDB) which explicitly models climate and irrigators expectations of the return to carrying over water into the following season. The expected return to carrying over water depends on current and expected future water prices, and also takes into account the potential for spills. Scenarios are run over a large number of hypothetical years to generate long run, expected impacts of carryover.
Figure 1 Summary of impacts of carryover in the southern Murray-Darling Basin
Key findings
Carryover stabilises irrigation water use and prices
Carryover provisions reduce volatility in irrigation water use and prices (Figure 1). Prices and water use are more stable because carryover encourages irrigators to build up reserves in ‘wet’ years and draw down on them in ‘dry’ years, partially offsetting the natural variability in allocations and prices across years.
Long term, average water use and prices are lower
Irrigation water use is estimated to be slightly lower on average (less than 3%) with carryover because more water is lost to evaporation and spills. This is a natural consequence of holding more water in storage, as opposed to a ‘use it or lose it’ approach.
Average prices are only marginally lower ($10 per ML across the sMDB) with carryover. This is because higher prices in ‘wetter’ years are roughly offset by lower prices in ‘drier’ years.
Carryover offers market benefits, on average
Carryover offers market benefits estimated at $51 million a year across the sMDB, with the benefits concentrated in ‘dry’ years ($145 million a year, on average) and the first year of droughts ($343 million a year, on average).
Carryover reduces water used for opportunistic irrigation activities
Carryover is estimated to significantly reduce the average volume of water used in rice production (by 143 GL or 22%) while increasing the average volume of water used in pastures and cropping. This is because carryover increases prices in ‘wet’ years and rice production is particularly sensitive to water prices in ‘wet’ years.
While carryover increases the value of irrigation water use for all activities, the increases are largest for pastures and cropping ($22 million and $12 million, respectively) and smallest for rice and horticulture ($4 million and $2 million, respectively).
All trading zones benefit from carryover
All trading zones benefit from carryover but to slightly varying degrees. Excluding the Lower Darling, the expected market benefits of carryover range from $9.0 million in the Barmah Below to $15 million in the Murrumbidgee. These differences largely reflect the extent to which different types of activities are undertaken in those regions.
Carryover affects patterns of trade between regions
Carryover is estimated to affect patterns of trade and water use between trading zones in the sMDB. This is because of differences in underlying demand for water between regions and carryover allows irrigators to take advantage of this. For example, carryover tends to increase the volume of water exported out of rice growing regions such as the Barmah Above and Murrumbidgee, while increasing imports into Northern Victoria
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