Nine years ago, the Council of Australian Governments (CoAG) established a National Framework for Water, which separated interests in land from interests in water, and aimed to improve water-pricing arrangements. The issue of how to define 'water property rights' once separated from land titles, however, was left unresolved.
A variety of water 'allocation' and pricing arrangements subsequently have arisen within and between Australian states. Inconsistencies in terminology, user expectations, usage conditions, security of supply and trading mechanisms have led to inefficient resource use, over-allocation of rivers and environmental degradation.
'The plethora of systems complicates trading, management and communication, and opens up opportunities for arbitrage and confusion,' Wentworth Group member and CSIRO economist, Professor Mike Young, says.
'The finite nature of the resource is unclear. Every time one person takes more, someone else downstream, or the environment, gets less.'
In their report, Robust Separation: A search for a generic framework to simplify registration and trading of interests in natural resources, Young and his colleague, CSIRO research fellow Jim McColl, outline a national approach to the issue.
The framework is a 'robust system': a generic system that builds on globally accepted ideas and concepts, is efficient and fair in a changing world, and will stand the test of time.
'We propose a water rights system based on banking, share trading and Torrens Title registration procedures,' Young says. 'This system has three components that can be managed independently.'
Using the limited liability share company concept, Young and McColl propose that water rights or 'entitlements' be formally described as a share, and managed in a system that mimics the share registry. The entitlement holder would have a long-term share in a common pool of water, the size of which might vary seasonally.
'Entitlements are granted by government and define the degree of access to the resource that can be expected over time,' Young says.
'They must also specify precisely what can and what cannot be compensated through the courts. Share systems make it clear that risk is involved and that circumstances may change.'
For example, a change in mean annual rainfall, which necessitates a change in the amount of water an entitlement holder receives (allocation), is a risk the holder must bear. But compensation may be sought if, for example, an administrative error is made.
Entitlements would also be registered under a Torrens Title system. This system revolutionised the means by which land ownership was defined by drawing on a ship-registration system developed in Germany in the 19th century. Instead of producing a deed or contract to define ownership, landholders had to go to a register.
'The vision underpinning the Torrens Title system is that interests in property should be defined on a register, not by distributed pieces of paper,' Young says. 'This dramatically reduces the opportunity for fraud and misrepresentation of the true nature of an interest. In any dispute, the register is deemed to be correct.'
The second part of the robust system defines water allocations as a 'unit of opportunity' (usually a volume), distributed periodically.
'An allocation is like a dividend,' McColl says. 'The entitlement expresses your share of a common pool available in a catchment, dam or river, and the periodic allocation is what you can extract annually on the basis of your share.'
McColl says allocations need to be managed separately as a common pool resource. Much like the management of money in the banking system, allocations would be credited to a formal account.
Trades and extractions from the common pool for irrigation, for example, would then be debited from these accounts. …