Wetter cities, drier (but richer) rural areas.

John Quiggin has a terrific CEDA report out today. From the executive summary:

Replacing city water restrictions with higher prices in the long term will encourage people to invest in water-saving technologies, find other ways to use less water, and encourage the development of new supply options such as recycling.

The report also argues Australia needs to free up the controls that now stop irrigators from selling more water to city users. Selling cities an extra six per cent of the water now used for irrigation could add 20 per cent to city water supplies and “make a significant difference to the availability of urban water”, it says (see page 46 of the Overview).

Irrigation uses approximately 70 per cent of Australia’s water supply and is priced at around 10 cents for every 1000 litres. Urban households and business account for about 25 per cent of total water use, but pay around $1 per 1000 litres. Even allowing for the costs of treatment and distribution, this is a large gap. In the absence of controls, city water firms would find irrigation water an attractive supply source – and some irrigators would make more money selling water to the city than using the water on their crops.

This latest CEDA report extends the conclusions of CEDA’s landmark 2004 report Water and the Australian Economy, which warned that Australia was entering a period of water scarcity that would demand more market-based approaches.

[Andrew Leigh]

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