Possums Pollytics

Politics, elections and piffle plinking

A real Murray Darling Water Plan

Posted by Possum Comitatus on May 21, 2007

This whole back of the envelope, “lets piss $10 billion up the wall on the Murray without having a clue what we’re doing” business is…welll. Words don’t do justice to the broad general stupidity of it.

Let’s create a real Murray Darling water plan that deals with appropriate allocation, prevents over-allocation, guarantees that water flows to its highest value use, is properly market priced and builds sustainable environmental flows into the system as a foundation stone.

First off, you need two bodies.

The first body, some independent agency similar to the Reserve Bank of Australia that decides on the actual quantity of water to be allocated in the Murray-Darling

Basin. Let’s call this body the Murray-Darling Water Authority (MDWA)

The second body, some water trading statutory monopoly that can act as a secondary trading market for that water, akin to the ASX. Let’s call this body the Murray Darling Water Exchange (MDWE)

The key point to maximising the commercial value that can be generated by a finite resource, in this case water, is to let it be priced according to what users are willing to pay for it. et water flow to it’s highest value use.

This is easily achieved. Every year the MDWA could determine how much water can be pulled out of the basin for commercial use based on the prevailing science. This then allows for water release to be based on a very simple formula:

Commercial water volume = Total River Flow – Environmental Flow – Town Water Requirements.

The rights to this commercial water can be sold each year, via two primary market sales.

The first is the sale of rights, by megalitre, for use in the following year.

The second is the sale of rights, by megalitre per year, for use in the next three years.

This provides a primary market for short-term use (the single year rights sale) and also for longer term use (the three year rights sale) which gives the water market a

capability to pay a premium price for longer term water security. It may even be possible to sell water allocations as a 5 year right as well.

The key to making this work though is the process by which these rights are sold.

Using some simple (and and grossly understated numbers) as an example. Let us say that the MDWA concludes that 6 gigalitres of water can be used for commercial purposes in the next year. So the authority keeps a gigalitre for themselves in their reserve, and tenders the remaining 5 gigalitres to the public for commercial use in the basin.

The way to run the tender is simple, each year everyone who wants to buy water issues a tender to the MDWA saying how much per megalitre they are willing to pay, and how many megalitres they wish to buy.

At the close of the tender, the MDWA then allocates the available water from highest per-megalitre tender to lowest until the available water allocations are exhausted. So let us say that the market put in tenders to buy 9 gigalitres of water, but there are only 5 gigalitres available for sale.

So if the highest price someone put in their tender was $1000 per megalitre, and they wanted 2000 megalitres, then they get 2000 megalitres of the available 5 gigalitre issue at a price of $1000 per ML.

If the next price was $950 per ML and they wanted 1000 ML, then they too get their full desired amount for the price and so the tender continues from the highest per ML tender, right through until all of the 5 gigalitres of water available for issue has been purchased.

Let us say that this process had continued until there was only 30,000 megalitres left in the allocation and the next priced tender was $200 per ML and they wanted 50,000 ML. That last tender gets 30,000ML at $200 per ML and everyone else, the other 4 gigalitres worth of tenders who bid too low miss out. They have no commercial water allocations from the primary market for the year.

The same thing can be done for 3 and possibly even 5 year water allocations.

But all is not lost for those that missed out.

The other body, the Murray Darling Water Exhange, allows farmers that haven’t used, or dont plan to use all of the allocation they purchased, to sell their surplus on a secondary market.If a farmer purchased 1000ML for next year, but heavy rain was experienced in February, reducing their need for that water down to only 700ML, 300ML could be put up for sale by the farmer on the Exchange so that others who originally missed out on water allocations could purchase some on the secondary market, or allow others who underestimated their needs to top up their allocation.

It also would allow the Authority to buy and sell some or all of their reserves on the secondary market according to the needs of environmental flow requirements or instances of demand/supply volatility that could interfere with normal business practices.

It would also allow places like Adelaide or other interested parties to purchase water rights and not use them, essentially paying to increase the flow of the Murray-Darling Basin.

The same system could be used for groundwater and surface water, and would of course, have to be done within catchments – the original water allocations would be sold with catchment specific requirements. People at the upper end of a tributary feeder river for the basin couldn’t buy rights from someone with Darling River frontage, but they could certainly sell their rights to them if they are further down the river system.

This way, not only would water flow to its highest value use, there are mechanisms that allow proper secondary trading, options to pay for water guarantees longer term, a mechanism to allow the Authority to accommodate environmental effects like floods and droughts as well as to be able to smooth out damaging volatility in the spot price.

The beauty of such a system, apart from letting commercial water use flow to its highest value use, is that it also allows for the development of water futures markets. That would become, over time, essentially an important water insurance and risk market that would let the widespread information that water users have be be disseminated into price signals.

The key issue though is back at the beginning with the body that determines the amount of water to be released through primary allocations – the Murray Darling Water Authority. It needs to be independent, free from the intervention of the agrarian socialist lobby come election time. The money raised from the primary water auctions would allow the Authority to be self funded, as well as allow the authority to fund efficiency measures in terms of water infrastructure development within the catchment. The key role of the MDWA would actually be environmental flow determination and determining the allocation for town water use by towns along the catchment, as the commercial allocation is simply a function of the total flows minus these two requirements.As long as environmental flow determination was done as an open process, with public hearings, submission mechanisms and well funded science – we would be able to solve water overallocation once and for all.

The only problem is the requirement to buy back every single license in the catchment first, and the funding of some structural adjustment program to assist people to get out of the industry, or relocate to where water is less scarce. But that is inherently “doable”, it’s just a matter of political will.

9 Responses to “A real Murray Darling Water Plan”

  1. EconoMan said

    I completely agree that 1) the Government’s plan is stupid and 2) the solution should be market based. However, your plan (perhaps intentionally) glosses over many complexities. For example: the link between surface water and ground water; the need to define return flows as part of the property right. The impact on infrastructure pricing (the so-called stranded assets issue, though see the Productivity Commission report on stranded assets).

    Some more general concerns though:
    1) Although I’m all for cutting out the “agrarian socialist lobby” o(perating via the National party) the amount of water allocated to ‘environmental flow’ is an inherently political decision. It depends on society’s preferences for the environment etc versus, well, pretty much everything. The science cannot answer this question, onlt the ‘total’ available and consequences for the system of flow X for the environment. Your open process etc doesn’t sound too bad (though it would be open to the same agrarian socialist lobbying), but there is a legitimate argument that this decision should be made by elected officials.

    2) Why should the ‘town’ be allocated according to ‘requirements’. The towns, as well as the cities, should be able to buy water on the market. So the amount to be traded is Total Flow – Environmental Flow (as decided in 1)

    This would be a cheaper source of water for cities than desalination or recycling, and would likely remove the need for water restrictions. ‘Commercial value’ includes the value people get washing their car, watering their gardens, filling their pools, or having long showers!

    3) There is no need for your auction to perfectly discriminate. I’d go further and say it shouldn’t. Game / Auction theorists could help develop a better auction system, if an auction is even needed.

    An alternative way of achieving a similar objective is to fund an Environmental Purchaser, with the amount determined by society through politics (imperfect I know), which buys water for the river system as and when they think best. This is my preferred model. It would make transparent how much money we are allocating to the environmental flow as a society. This removes the need to buy back all licenses. Instead, there would be a need for large scale re-buying of over-allocations. This hopefully doubles up as a lot of the ‘structural adjustment’ people need to get out of the industry /relocate.

    4) As you say, there should be a futures market etc. There should also be much more flexibility in the types of rights. Not just annual and 3 or 5 yearly rights, but seasonal rights, flood level rights, etc. Water is a state-contingent commodity. It matters where it is, when it is (so to speak) and how much other water is around. The more the property rights reflect this, the better.

  2. possumcomitatus said

    On your first point, I disagree that environmental flows are an inherently political decision. Society’s preference for the environment vs. pretty much everything else is not that different to society’s preference for the cost of capital vs their preference for inflation. The latter has been successfully accommodated by the RBA independently of politicians and the heterogenous social preferences on the issue. A generation ago that would have been unheard of because it too was considered an essentially political decision– but we all adapted to change, seemingly for the better.

    Environmental flows can be similar by using the best imperfect science available to determine a minimum flow level that achieves, on balance, some majority of a given set of minimal environmental benchmarks.

    The key would be to define those benchmarks of course. The obvious one being “the river has to actually flow”, but could take into consideration the flow required to, on balance, provide some minimum standard of water quality for that flow. We’ve already done a lot of the legwork on what ought or ought not to constitute variables for defining environmental flows, from the CSIRO to the MDBC, through to the large amounts of work the Victorian government has put into it over the last 5 years for Murray and the Snowy.

    If some set of minimum standards were developed, even if they were imperfect minimum standards, that would then allow for the open process of argument and debate to operate around those standards when the times comes to actually decide the total commercial allocation volume.

    Should the problem arise of dire circumstances inflicting the catchment, the government could always intervene to reflect the national interest as they would intervene with the RBA should Australia ever again find itself fighting a world war.

    On point 2, some minimum volume for residential requirements would be needed to be guaranteed (ceteris paribus).Some minimum volume of water for residential use should have first dibs on the water. I agree completely what you are getting at here.I would prefer that the minimum amount of water provided to residential users in the catchment be around 120 litres per person, per day. Slightly less than South East Queenslands level 5 water restrictions. That would then allow for a two tiered tariff regime to operate for residential use (which I think should be put in place nationally for residential use)- cheap water for everyone at a volume that keeps you alive and hygienic, and any water use above that level charged at full marginal pricing. That would mean that residential users would have to go to the market and bid for the water they use above their minimum, basic necessity allocation.

    On point 3.The reason I propose a blind auction system is threefold.

    Firstly it’s simple. “Want to bid for water, name the price of your bid.”

    Second, this type of auction works – it’s the way the primary market for government bonds operates.

    Thirdly, it’s efficient. Water is automatically allocated sequentially from its highest value use to its lowest value use. It provides ease of entry and exit into the water market (almost the complete opposite of what exists today) providing a robust level of competition for the scarce resource water is. Because there is also a secondary trading market, it allows for firms that may have misjudged their primary market bid volume or price offer, or have experienced changed circumstances to be able to correct or amend their water allocations as necessary at prices reflecting true market price.

    The reason I want to get the politics as much out of the way as possible is that ALL of the problems that the Murray Darling catchment faces is either caused by, or exacerbated by political action. Until you can effectively remove the porkbarreling and special interest pleading gravy train’ers that over allocate water on the basis of political patronage rather than price, nothing will ever be solved.

    And this system also allows places like Adelaide for instance to be able to go to the primary market and buy water allocations if they want to improve the flow at the river mouth, it allows for environmental groups to buy allocations if they wish to increase flow levels.It allows all governments to do the same. But everyone will be paying for the true cost of that water.

    On point 4, the nature of property rights; this is the hardest part of all.

    I am absolutely against any perpetual rights system. Perpetual rights are incompatible, completely and utterly incompatible with the intertemporal nature of river flow volumes. Not only are they distortionary, they are simply unnecessary. Commercial rights to water should have a time limit, short enough to maintain water flowing to its highest value use and to be consistent with the intertemporal heterogeneity of river flow volumes, but long enough to be able to provide some basic level of commercial certainty.1, 3 and 5 year volumetric allocation rights combined with a secondary market and futures market are consistent with that.

    Seasonal and flood rights are tricky, as is groundwater. Seasonal rights are pretty easily dealt with via simple 12 month water purchases using commercial expectations of the water volume needed for use, combined with a secondary market to provide a mechanism to amend any misjudging of water needs. Flood rights though are a different kettle of fish. On the one hand some level of allowable storage of flood derived water is probably fair enough, but that needs to be balanced out against the natural boom bust cycle of Australia’s inland river systems. The allowable levels of flood diversion would also be different from catchment to catchment.That does need some serious thought.

    As for groundwater; Bloody hell! We don’t even completely understand the groundwater system properly, let alone having any idea about the volumes of water involved apart from some guestimations based on very limited data. Since you can’t manage what you don’t know, the first step under any system for the Murray Darling basin should surely be some decent research into groundwater volumes and interactions with the river system to at least give us some meaningful, useable and mappable data on the problem.

    Originally you mentioned the stranded asset issue. I’m not really too concerned about that.If those infrastructure assets do become ‘stranded’, it’s probably a reflection of more efficient commercial water allocation rather than poor policy. Stranded assets would be expected. Obsolete assets are the cost of industry evolution. Dealing with stranded assets that have been abandoned because of a lack of commercial viability could be a problem if those assets like weirs and whatnot start to impede flows. But the money generated from the primary market auctions could be used to fund the dismantling of any abandoned assets that become problematic.On the whole, I think stranded assets would be reflective of a good thing, rather than being in and of itself a bad thing.

  3. EconoMan said

    Let’s get what we agree on out of the way first: We are in screaming agreement on getting the politics (agrarian socialist lobby) out of it. We also acknowledge that getting the property rights system correct is very hard. To elaborate, part of the reason for over-allocation at the moment is that the economists designing policy on water rights didn’t understand the science (the ‘property’) well enough. Not adequately considering return flows is the best example I can think of. We also agree that we need more research into the science (such as groundwater and links to surface water) in order to design the best policy framework.

    On to what we are debating:
    1) Sure the science would inform the debate on how much we want to allocate to environmental flow. But does society want just the minimum? But then again, your proposal of the science working out what we need to achieve certain benchmarks is fine, provided society decides those benchmarks.

    (The RBA control of interest rates to control inflation is not a good parallel IMO. Back in Macro 101 or 201 we learned about the Philips curve, and the reason why the Govt might be encouraged to ‘cheat’ the curve in the lead up to an election to reduce unemployment. Making it independent gets you a consistently better outcome on inflation for the same average outcome for unemployment (in theory). The water issue is not the same — it’s about deciding the right NAIRU if you like)

    2) I would take it one step further. I like John Quiggin’s idea that, in order to addres equity issues of going to full marginal cost pricing of water, every individual (but not company) is entitled to a set amount of water free: Can’t remember the number, it might have been 75L / day. Adequate for basic drinking and hygiene etc. All water above that is priced at “long run marginal cost” (technically, marginal cost of the next cheapest available source). Of course I still include towns/cities able to buy water from the Murray Darling.

    On 3), I still don’t see that you’ve addressed why the highest bidder should pay the price they bid and not the equilibrium price. It does not improve efficiency, and it transfers money from the companies and consumers in that downstream (so to speak) market to your MDWA. Perhaps it allows lower taxes because we don’t need to fund the MDWA as much (at all?). But it seems completely unnecessary and arguably distortionary. It would massively increase the incentive to ‘game’ the auction.

    Again, I maintain that a more efficient, and easier to implement plan is a funded body to buy water for the river. It’s goals would be to achieve the benchmarks discussed in 1) and agreed by science and society. It can then decide how best (cheapest) to do it. Buy water counter cyclically etc. It’s even simpler, and it still gives you an efficient allocation to highest value users (the market ensures that). Free entry and exit is achieved by removing the imposed regulatory barriers to entry/exit (such as exit fees).

    On 4) There is no a priori reason to ban perpetual rights, or, more accurately, long term rights (say 20 years). As long as they are robust to uncertainty. That could mean they are well within expected allocations, and maybe subject to drought adjustments. You say they are simply unnecessary — I’m not sure if 5 years and futures can provide enough certainty. But this isn’t a huge issue.

    More generally, the entire policy framework should be robust to the uncertainty of how much water will be available in future. This requires an allocation of the ‘risk’ of future events. It’s probably fair for Government to bear the downside risk of ever reducing flows due to climate change. But year on year risk should largely be born by the users.

    Don’t get me wrong, I don’t consider stranded assets a problem. But it is currently a policy impediment to free markets in water, because the policy leads to exit fees. When assets are stranded because water ‘moves out’, the assets should rightly be re-valued downwards. Therefore, the price charged to achieve cost recovery would not increase unreasonably on those left.

  4. possumcomitatus said

    EMan, I’ll get back to on about Monday or Tuesday if that’s alright, I’ve got to chase up a few links.

  5. possumcomitatus said

    Finally – sorry about the wait, I’ve been up to my eyeballs in all manner of tedious shit.

    (1) If society wants more than just the minimum, why not let them pay for it. If the citizens of NSW for example place a higher than value than the minimum standards on larger environmental flows, there would be nothing stopping them either directly purchasing water and not using it (hence letting it flow), or via the NSW or local council doing it on their behalf via their taxes.

    When setting some minimum set of benchmarks, political decisions will always be involved to some extent. The smaller the better as far as I’m concerned, but I realise that probably a majority of others don’t share that view. But if a minimum set of standards are going to underpin the system, you simply cant let those standards be dictated by the usual special interest pleaders. Some degree of objectivity needs to be central.

    (2) On the marginal issue pricing, I agree insofar that some basic entitlement provision is a necessity, but I still see the charging of some nominal amount for it, and using a two tier tariff regime as a better option. That basic entitlement still has value. Since charging for it now doesn’t seem to do any particular harm, removing the charge would seem unnecessary.

    (3) The reason of a tender bid auction rather than “some” equilibrium price is for a number of reasons. There is no really true equilibrium price being the big one, there is only what people are willing to buy and sell it for, and that would change dramatically over the seasons, years etc. according to exogenous factors, local demand issues, the marginal productivity of water as a factor input etc. Equilibrium is concept based on demand AND supply being adaptive, yet supply isn’t adaptive in a river system like the Murray Darling. You can’t make it rain more, you can’t adjust supply in the proposed primary market like one can adjust the supply of motor vehicles – you cant simply make more water. So to manage scarcity under that dynamic supply constraint and to ensure that water flows to its highest value use, you need a mechanism which directly reflects the value that each water user places on the commodity in the actual price of water itself.

    It comes back to a simple question. What is the price of water?
    Which comes back to an even simpler answer – whatever price you are willing to pay for it.

    That would allow water to get allocated first to those that are willing to pay the most for it, and lastly to those that are willing to pay the least for it. That directly allows water to flow to its highest value use by definition.

    The price of water would be the true price of water, not some abstract, artificially constructed price arrived at by a mix of political whim and commercial convenience cooked up in a bureaucracy, but its actual true price defined by what people are willing to pay for it.

    That one simple tender system solves the entire allocation problem. People don’t have to decide on who gets what, and why or which firm or industry deserves more of the scarce resource than another industry. All industries and all firms will be on an equal footing – at which point the market can sort it out.

    The MDWA would be rolling in enormous amounts of money allowing it to fund itself and the whole river management system. There are a number of things that could be done with that – funding the regeneration of the river would be one, funding river infrastructure that provides large public benefits but which provide little return to a private investor and hence wouldn’t ordinarily be undertaken by a private operator is another. Making contributions to a longer term industry restructuring package is another still. My only concern would be to make sure the revenue is tied to being spent on areas related to the river itself. Inventing a process to hand out the money would be a relatively easy thing.

    If you have a funded body to buy water as you propose – who funds it? The taxpayer?
    And what is the price of the water you are buying? If it’s a scarce resource where the value of water isn’t fully reflected by its price, the water your body would purchase would be at the expense of someone else. So who is that someone? – a firm or person that highly values water and would be willing to pay a lot more for it or a firm that is only willing to pay the prevailing price that doesn’t reflect its true value? And if you aren’t using the true price of water, how do you decide which of those firms lose their allocation because your funded body decides to enter the market?

    That’s why pricing water at its true value is so important, because then all of those decisions sort themselves out based on who is willing to pay the most for the commodity.

    On gaming the system, there’d be no point unless the secondary market contained demand for the water that was gamed at a level that allowed for profitable speculation. But if the water is attempted to be sold above its true value on the secondary market, then the gamers are up shit creek in terms of profitability. I have no great problems with speculators in any market – they add an additional layer of price signals. But that said, there may be a case to prevent that type of activity if its starts becoming problematic, but the price ceiling is still what people are willing to pay for water.

    I agree absolutely on the free entry and exit which gets us onto the next bit

    (4) What’s the need for perpetual rights?

    If it’s to guarantee certainty, then on what measure are you guaranteeing it on?

    If its on value, then water can be guaranteed by simply paying a high price for it that reflects its value. There is no need for perpetual rights if the perpetuity is based on the willingness to pay for the commodity.

    If you wish to guarantee certainty on some measure other than price, then instantly that perpetual right becomes disconnected from the value of the water it provides certainty to access. That’s a pricing regime disconnected from the economic reality of the commercial use of water.

    The practicable need for certainty arises from making sure that you have water when you want it as part of your factor inputs in the context of your production, planning and investment decisions – but if it’s a scarce resource with a very finite supply constraint, every water user is in exactly the same boat. Just because a firm might need water doesn’t mean they should be guaranteed to get it if they aren’t willing to pay its true value.5 year rights, a futures market and a secondary water market cover most of the short-medium terms certainty issues insofar that certainty and water flowing to its highest value use remain compatible.

    You raise an interesting point on return flows. If you could measure them effectively, and maybe weight them by quality, those return flows could easily be sold on the secondary water market.That would encourage thoughtful use of a scarce commodity.

  6. EconoMan said

    Sorry PC, but I think there are some serious flaws in the underlying economics of your argument.

    “Equilibrium is concept based on demand AND supply being adaptive”. No it isn’t. Even if supply is purely not adaptive in quantity, i.e. perfectly inelastic, then there is still an equilibrium. The quantity wouldn’t change, but the price would change as demand shifts. But supply can change. The quantity can change. It can change down (i.e. more environmental flow) or we could dip into environmental flow if the value on commercial use is extremely high at the time (higher than the value society places on the ‘lost’ environmental benefit). You’re talking about the ‘Total Flow’ not being under human control (ignoring the fact that we can store water intertemporally — albeit at cost). The Environmental Flow can change, which would change the supply of water to our market.

    You talk about an auction/tender system and then you talk about the price. There wouldn’t be one price. Your system sells water at thousands of different prices. You say “what is the price of water? Whatever price you are willing to pay for it.” Not necessarily! This gets to the absolute heart of my problem with your (3). You continue to argue that you need to perfectly discriminate in selling water. You say that this allows water to flow to it’s highest value use. By implication, you’re saying that the other system, using a normal market structure (an equilibrium price), doesn’t allow water to flow to highest value use. Wrong! Absolutely wrong! Everyone who values it at this price or higher will buy it.

    Both systems, in theory, would allocate water to the exact same users. The equilibrium price of ‘my’ market would be equal to the lowest successful bid in ‘your’ auction. (As an aside, in the perfect system it would also equal the marginal benefit to society of putting that water into environmental flow.) So if it is your argument that auctions would give better allocative efficiency, it is flat wrong.

    How about in practice? I argue that ‘my’ market, which would work similar to the vast majority of markets, would be more efficient, less administratively costly and less open to ‘gaming the system’.

    Apart from allocative efficiency, which I’ve already argued isn’t a justification, why do you think the water seller should perfectly discriminate and capture all the ‘Consumer Surplus’ of water users? What implications would there be for downstream markets from this? For example, high value users pay more for their water as an input to production. Do they then charge more for their output? What are the implications of a transfer of surplus from the water consumers to the seller, in this case the regulator auctioning the water?

    “There is no really true equilibrium price being the big one, there is only what people are willing to buy and sell it for,…” And what people are willing to buy and sell it for determines the equilibrium price. This is definitional – it is exactly what the market will do.

    “and that would change dramatically over the seasons, years etc. according to exogenous factors, local demand issues, the marginal productivity of water as a factor input etc.” Of course it would change over time and according to other factors. Any properly constructed market would account for this.

    “The price of water would be the true price of water, not some abstract, artificially constructed price arrived at by a mix of political whim and commercial convenience cooked up in a bureaucracy, but its actual true price defined by what people are willing to pay for it.” I don’t know where this is coming from. My argument is exactly that the market, not some political whim or bureaucrat, should determine the price.

    On (1). For a start, there is no true ‘minimum’, only what society wants as the minimum. Society should pay for all of it, directly or indirectly. And they do. Any water allowed to flow down the river has its opportunity cost (low as it probably is). This is exactly my point: There shouldn’t be an arbitrary decision about what the minimum required is. The ‘ideal world’ decision is how much society wants to let flow. Also, allowing citizens or even councils to buy water for the river is fine, but won’t deliver the optimal outcome, because there are free-rider and externality issues.

    But lets move on from this point, because we both agree that in the real world, that this would have to be informed by scientists/experts and prevent interest groups from stuffing it up.

    On (2), this makes no real difference to the bigger issues we are discussing. The basic entitlement does have value of course, but, to put it technically, that’s a necessary but not sufficient condition to charge for it. There is a solid equity and political economy for not bothering to charge for the basic entitlement. It helps low socio-economic groups deal with increased water bills (which represent a higher share of their income). It would also increase political support for moving to full cost pricing. “Sure we are charging high users more, but we’re giving you this free that you used to have to pay for”. But again, this is not the real issue we have.

    Back to (3) Yes the body could be funded by the taxpayer. You could also allow private contributions to the fund. This body would develop significant expertise in maximising the environmental return to its funding by buying water in the smartest way (best time to buy etc).

    The price of the water they are buying is determined by the market. The water would come from willing sellers on the market. No one who values it higher than the equilibrium price would sell. No one who valued the water more than the ‘value’ to the environment would sell at a price the body was willing to pay. As I’ve already discussed, the market would mean that the price does reflect the true value of water.

    On perpetual rights, I’m going to give this a miss. This comment is already long enough. Anyway, I’m enjoying the discussion.

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