Investing in recovering water for the environment in Australia's Murray-Darling Basin

Abstract

Irrigated agriculture makes an important contribution to the economy of Australia's Murray-Darling Basin. Competing water demand, recurring drought and climate change have ushered in an era of water policy reform. To recover water for the environment, surface water extraction is capped and investment in irrigation infrastructure is prioritized. This article applies a computable general equilibrium model to evaluate the economic impacts of investment in irrigation in a case study of the Murrumbidgee subcatchment. Results indicate an increase in regional output, income and employment, while at the national level there is a small negative impact resulting from the transfer of resources to the basin and the crowding out of private investment.

Keywords::

• computable general equilibrium model
• water recovery
• environmental water
• irrigation efficiency
• water policy reform
• Murray-Darling Basin

Acknowledgements

The author thanks Jeff Connor, Mac Kirby, Rosalind Bark and Neville Crossman, CSIRO, for their constructive comments. Thanks to Martin Nolan, CSIRO, for the map of the Murrumbidgee subcatchment.

Notes

1. The GTAP-W model is an extension to the Global Trade Analysis Project's (GTAP) model and version 6 of the GTAP Database representing the global economy in 2001. Salient features of the GTAP-W model are a new production structure where the land endowment is disaggregated into pasture land, rain-fed land and irrigated land. In addition, water in GTAP-W is treated as an explicit factor of production (Calzadilla et al., 2011).

2. It is important to note that while GVIAP may be reduced with SDLs, increased dry-land production may offset some of this decline. Dixon, Rimmer, and Wittwer (2010) developed TERM-H2O, a dynamic multiregional CGE with considerable detail in the agricultural sector, to explore water buybacks in a context of temporary drought. The framework they develop is able to capture this offsetting impact through how land is modelled. In TERM-H2O, agricultural sectors use ‘effective land’, which is a constant elasticity of substitution combination of irrigated land, unwatered irrigable land and dry land. This enables irrigable land to move between irrigated agriculture and dry-land agriculture depending on the price of irrigation water. An increase in the price of irrigation water reduces the rental value of unwatered irrigable land, resulting in increased demand from dry-land industries for unwatered irrigable land (Dixon et al., 2010; Wittwer & Griffith, 2011). Mobility of land between irrigated and dry-land agriculture represents an improvement on TERM-Water.