Based on the most recent Water Recovery Progress Report, published by the Murray-Darling Basin Authority as at 30 June 2022, it is increasingly apparent that the initial water recovery target for the Murray-Darling Basin as a whole, of 2,680GL, is very unlikely to be achieved by the 2024 deadline. It is also apparent that the new Federal Labor government will be more prepared than the previous Coalition government to take direct market action to address likely deficits. Essentially the Basin Plan provides two basic approaches to the achievement of targeted recovery volumes:

  • The recovery of water entitlements which had previously been held by farmers or water infrastructure operators; and
  • Investment to improve supply, or remove constraints, so that the environmental water held by the government is able to achieve greater environmental benefits. These are referred to as ‘Supply and Constraint’ measures.

The Basin Plan stipulated a recovery target of 2,680GL for recovery by June 2019 through a combination of these approaches. At that date the target was reached via a combination of the recovery of water entitlements, 2,075GL and 31 Supply and Constraint projects registered by the basin states projected to generate benefits equivalent to the recovery of an additional 605GL of water entitlements.
The states then had until June 2024 to complete the projects and demonstrate that the projects do actually deliver benefits equivalent to this volume.

It has been reported that the Supply and Constraints projects are well behind schedule and increasingly unlikely to deliver the forecast water recovery benefits on time. The current recovery contribution from these projects remains unclear however it is reasonable to assume there is a significant shortfall.

In order to address this, the Labor government announced in the budget that it is putting funds aside for the purpose of delivering the Basin Plan environmental commitments in full. They have not disclosed the quantum of these funds, citing commercial sensitivities, however, they have clawed back over $6 billion by halting new dam projects initiated by the previous government and $1.17 billion from a reduction in funding for National Water Grid projects.

There is an additional water recovery target of 450GL which is to be recovered through the implementation of efficiency projects in the sMDB. Efficiency projects are investments in items such as water delivery infrastructure that result in water savings which can then be assigned to environmental outcomes. Currently, the actual recovery stands at only 2GL leaving a large shortfall to resolve. The rules governing the recovery of this 450GL stipulate that projects must satisfy a social and economic neutrality test.

It seems highly unlikely that directly purchasing water entitlement to repurpose away from irrigation to environmental use could pass the socio-economic neutrality test. In her post-budget commentary, Minister Plibersek is on record stating “there is an amount of money that is listed as not for publication in the budget that won’t be just for buybacks. It will be for other water projects that will help us meet our goals as well”.

The funds being set aside, and the additional volumes needing to be recovered to ensure compliance with the Basin Plan obligations, are all substantial and as such, any government buy-back intervention could be expected to have a material impact on the sMDB water entitlement market. Given the volume of water of entitlements on issue are capped due to the existing hydrological constraints, repurposing additional volumes for environmental purposes will reduce the consumptive pool available to irrigators and can be expected to underpin a further appreciation in entitlement values.