WATER from Victoria's proposed desalination plant is likely to cost nearly three times the price Melburnians currently pay for their household water, a report by the Institute of Public Affairs has found.
And the cost of sourcing water from the $3.1 billion plant at Wonthaggi could be up to six times as expensive as building another dam.
The conservative lobby group's claims come as three senior economists from the Australian National University have also called for a more thorough economic analysis of the desalination project.
The IPA report, released today, argues that the Victorian Government should consider building a new dam to boost Melbourne's water supplies, in preference to pursuing the desalination and the north-south pipeline projects.
Report author Alan Moran, director of the IPA's deregulation unit, found that water from the proposed desalination plant in Wonthaggi would cost 301 cents a kilolitre to harvest and pipe to Melbourne. Currently, Melbourne water users pay an average of 111.8 cents a kilolitre for household water.
Water prices in Victoria are traditionally set by the Essential Services Commission, and the Brumby Government has guaranteed water prices will no more than double by 2012.
No price cap has been set beyond 2012, when the desalination plant becomes operational.
Mr Moran claimed that a new dam built on the Thomson or Macalister rivers in Gippsland would cost in the order of $1 billion, and water sourced from there about 47 cents a kilolitre.
Arguing that other major supply options such as recycling water from the Eastern Treatment Plant and harvesting stormwater were hopelessly expensive, Mr Moran said the Government's ideological opposition to a new dam would cost all Victorians.
But the Government believes dams cannot provide water certainty in an era of climate change and declining rainfall.
Victorian Water Minister Tim Holding said it was easy for people to talk about dams but the reality of choosing locations and avoiding environmental damage was more difficult.
"We now need to complement this network (of dams) with a non-rainfall dependent source of water — and that is exactly what our desalination plant will provide," Mr Holding said.
However, Professor Quentin Grafton and two other ANU economists have argued that water-saving alternatives such as scarcity pricing — under which water becomes cheaper in times of abundant supply and more expensive in times of scarcity — should be seriously considered before the desalination plant is built. Such a model could see Melbourne's water consumption drop and the need for a desalination plant delayed or eliminated, Professor Grafton told The Age.
The economists' submission calls for the scope of the upcoming
environmental effects study into the desalination plant to be
broadened to include "an economic analysis of scarcity pricing as
an alternative".
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Quentin Grafton comments in "Flushing
Money After Water", Goulburn Town
and Country, November 12, 2007, p.5
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Terry Dwyer writes a Letter to the Editor in “Abuse of Water
Monopolies”, The Australian, November 7, 2007, p.11
http://blogs.theaustralian.news.com.au/letters/index.php/theaustralian/comments/abuse_of_water_monopolies/
I SEE that the competition watchdog, the
Australian Competition and Consumer Commission, and some politicians
are loudly declaring that penalties for price-fixing and market-rigging
are too soft and demanding jail terms for price fixers.
Would it be impertinent to ask when we shall see a State or Territory water monopoly chief going to jail for price gouging or strangling water supply to a city? The social and economic damage done to Australia’s businesses and consumers by state and territory government abuse of water monopolies must surely far exceed anything done by Richard Pratt.
Terence Dwyer
Visiting Fellow, Crawford School of Economics and Government
Australian National University
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Both Labor and the Coalition have pledged billions of dollars for numerous projects from fixing leaky pipes and water pipelines to constructing recycling and desalination plants.
Australian National University (ANU) resource economist Quentin Grafton says the policies are misguided and the big-spending approach to woo voters could make the water crisis worse.
"More water supply would be welcome, especially if it came from increased rainfall, but will desalination plants, water recycling solve our water scarcity problems?" Professor Grafton said.
"The answer is no, unless we also address water demand in an effective and economically efficient way."
Prof Grafton says water policy should focus on the way people pay for water rather than conserving supplies through water restrictions.
"We need to pay more when water is a scarce supply and pay less when it is not," he said.
"This is opposite to how water is priced in most cities where prices only go up and are often determined years in advance without regard to the amount of water in the catchments."
Prof Grafton says subsidies to fix water pipes and build desalination plants only reduce the cost of water for people living in the targeted electorate.
"In so doing, it subsidises their water use and sends the wrong signal to consumers.
"We must all pay the full cost of water delivery and pay more when there is less available.
"Efficient water-demand management may not win elections but it will
do far more to help resolve our problems of water scarcity than
taxpayer-funded subsidies for water projects."
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Terry Dwyer interviewed in "$145m dam
may save Canberra Secure future
seen in Cotter development due for completion in 2011", Canberra
Times,
October 24, 2007, p.2
http://canberra.yourguide.com.au/news/local/general/145m-dam-may-save-canberra-secure-future-seen-in-cotter-development-due-for-completion-in-2011/1074416.html
Cathy Alexander
Some water experts have cast doubts on the long-term viability of Canberra an inland city with water-hungry residents as climate change brings hotter, drier weather.
The ACT Government's solution is to build a new Cotter Dam, which will boost Canberra's water storage by a third. The dam is the centrepiece of the Government's new water plan.
The old Cotter Dam is small and was built almost a century ago. Soon it will have a soaring 80m wall and will hold 20 times as much water 78gigalitres if it rains, of course.
Chief Minister Jon Stanhope said as he announced the project yesterday, "In simple terms, it will make a small bucket much bigger."
Building new dams can enrage conservationists or landholders, but the Cotter appears a safe choice it's burnt-out government land, according to the Conservation Council, and there's a small dam on site already.
Mr Stanhope said the $145million dam should be completed in 2011.
Actew managing director Michael Costello said the company would open the design of the dam to public tender within a few weeks.
The design should be finished by April 2008, then Actew would tender out the construction. Fifty to 100 people would be needed to build the dam. The whole process should take three to five years.
Mr Stanhope brushed off concerns about finding construction workers during a skills shortage.
Mr Costello said Actew would borrow the money to build the dam and the cost would be passed on to consumers about $70 per household a year. In total, the water plan would cost households $130 a year.
An Actew spokeswoman said the Cotter Dam site had been selected for a new dam because the Cotter River was reliable and the catchment had fared relatively well through the drought. A dam could be built at the site relatively quickly and cheaply, she said.
Actew had investigated building a dam near Mt Tennent, in the Namadgi area, which was backed by the Liberals. This idea was dropped because of fears it would be too expensive and the catchment was too vulnerable to drought.
However, visiting fellow at the ANU Crawford School of Economics and Government Terry Dwyer said the Tennent Dam should be built as well. If rainfall continued to be poor, Canberra would need both dams.
"We could go further," Dr Dwyer said.
Canberra was not harnessing the Tennent catchment, which would be a better way of boosting water supplies than recycling sewage, which was still on the table.
Dr Dwyer also asked why the Government was giving away water to downstream users through environmental flows from its dams.
Liberal senator Gary Humphries questioned why households were being forced to pay for the new Cotter Dam instead of the ACT Government.
He said the Government had reaped $140million in dividends from Actew since 2001, and was now "double-dipping" by forcing households to pay for the new dam.
Mr Stanhope said large utility projects were
always funded by the utility because the cost could be spread over the
life of the project, instead of being imposed on one generation. He
said that when Senator Humphries was in the ACT Liberal government, not
a cent of Actew dividends was spent on water infrastructure.
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Terry Dwyer comments in "Dummy Plant
Set to Give Canberra Taste of Things to Come", Canberra Times,
October 24, 2007, p.2 No text
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Terry Dwyer writes a letter to the editor in “Arguments for Sewage
Recycling Rely on Watery Logic”, Canberra Times, September 15,
2007, p.8
http://canberra.yourguide.com.au/news/opinion/letters-to-editor/letters-to-the-editor/1054230.html
Letters to the Editor
Maxine Cooper, of the ACT Government's Water Security
Taskforce, says
in the last six years rainfall in the Tennent catchment has fallen by
70 per cent as against 40 per cent for the Cotter catchment (Letters,
September 13, p18).
But that is no reason not to build the Tennent dam.
Drought figures are, by definition, exceptional. The Tennent catchment is much larger than the Cotter.
If the Tennent catchment is 700sqkm and Cotter 480 (of which much is already tapped) you must adjust the figures. If the net catchment increase is three times more for Tennent, then current equivalent "drought level" rainfall is 600ml for Cotter and 540 for Tennent. Actew itself has confirmed this in an email of September 4 to me, stating "they both provide about the same hydrology outcome".
Why waste money on potentially dangerous sewage recycling when we could have both a new Cotter Dam and a Tennent dam producing more water, more cheaply per kilolitre and with greater safety?
It also helps if you don't keep madly emptying dams throughout a drought.
Dr Terry Dwyer, Crawford School of Economics and Government, Australian National University
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Quentin Grafton discusses “Water
Myths” on Counterpoint, ABC Radio National, September 3,
2007 No text
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Research by Quentin Grafton and Tom Kompas discussed in "The Economics of Water Management",
Huliq.com, August 16, 2007 No text
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Terry Dwyer writes a letter about how "Dams
Need Rebranding", Canberra Times, July 6, 2007, p.15
http://blogs.theaustralian.news.com.au/letters/index.php/theaustralian/comments/dams_need_rebranding/
WHAT is it about flooding rains and desalination plants? Australia
is a clever country, right?
Everybody knows that global warming means it no longer rains and that dams are therefore a waste of money. That is why Sydney’s desalination plant was first announced when Bob Carr was wading through floods in Lismore and re-announced by Morris Iemma when the Hunter River flooded. It’s why a desal plant for Melbourne has the go-ahead while Gippsland floods. It’s why a sewage recycling plant is to be forced on Canberra when soaking rains have come.
It’s good to know our clever politicians want to improve educational levels. Perhaps they could start by re-educating water ministers and politically correct water bureaucrats with some basic logic, science and arithmetic such as: it does rain and it’s much, much cheaper and less energy-intensive to catch it when nature has cleaned it for you than to have to clean it of salts and sewage and pump it uphill.
Perhaps dams need to be re-branded as passive solar water
desalination and sewage recycling devices to help some (eco)logically
challenged people get the point.
Dr Terry Dwyer
Visiting Fellow
Crawford School of Economics and Government,
Australian National University
Canberra, ACT
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Terry Dwyer writes about water use in the A.C.T. "Letters to the
Editor", Canberra Times, 2 May 2007, p.10
Professor Gary Jones (Letters, April 23) suggests it is misleading to talk of environmental flows as emptying dams in the interests of river health. But is it?
The ACT Government and Actew have never disputed that 109 gigalitres (over 112 years' supply) were let out from when the dams were last full in 2000 to May 2004.
Environment ACT admitted that most of the 20 megalitres a day being let out of Bendora Dam late last year was being lost to the system. Actew's own water graphs in its glossy ads this week condemn both it and the ACT Government. They show that for each year from 2001 to 2005 annual inflows into the dams were at 60 gigalitres more than enough to supply Canberra and Queanbeyan. Only in 2006 did the flows drop below 60GL.
If there had been no water emptied out of the dams in the previous low rainfall years, dam levels would be nowhere near as low as they are now. Jon Stanhope and Actew say environmental flows are now only 2GL a year. But what have they been, day by day, week by week, month by month from 2000 to now?
It is rather like a naughty child who has spilt out most of the milk from the carton saying he is not doing it now. Are we seriously expected to accept such excuses?
<>Terence Dwyer, Visiting Fellow, Crawford School of Economics and Government Australian National University
The current water crisis in Canberra is not due to climate change. Nor is it due to drought. It is entirely due to deliberate ACT Government policy.
The ACT's dams were built to supply 450,000 people with no restrictions but the ACT Government ordered that our dams be emptied throughout the drought by way of very large environmental flows during recent years of lower-than-average rainfall.
Between 2000 and 2004, 109GL (112 years' supply) was emptied out of the dams, benefiting downstream users (who paid ACT water users nothing for the water released).
These outflows were continuing as late as November last year. A total of 20ML a day was being let out of Bendora Dam, enough to have supplied 29,000 ACT households (nearly a third of Canberra) on an annual basis.
It is simply not necessary for ACT families and their children to become guinea pigs in an experiment which would see sewage being directly recycled into drinking water. While in theory technology can be made to work, experience with technological disasters such as the Titanic's water-tight compartments or the space shuttle's tiles suggest caution is warranted.
Cautious people prefer their drinking water naturally recycled by solar evaporation and falling as rain into reservoirs on mountain streams. (This also uses a lot less energy and costs a lot less than Actew's plan to filter sewage, pump it upstream, pump it up again to Mt Stromlo and treat it again.) Cautious people are also concerned by the increased fire risk from dried-out trees and gardens.
The truth is that the Future Water Options project found that the ACT has enough water for a million people, even with the current high environmental flows ordered by the ACT Government.
After allowing for stormwater run-off and treated effluent, the ACT uses only some 4per cent of its estimated average annual water of 494GL. The ACT does not lack water. What the ACT lacks is sufficient water storage to supply Canberra's needs and keep topping up rivers throughout a long drought.
Once the ACT Government took the decision to start emptying the existing dams in the interests of river health or fish habitat in the lower Cotter River, it should have realised than the dams built to support 450,000 people would have trouble coping with 350,000.
It should have realised that its taxes and monopoly profits from water should be spent on extra storage if it wanted to keep emptying dams throughout drought.
Unfortunately, the ACT Government seems to care more about river or fish health and habitat than it does about the health of the human population and the environment of the garden city we used to live in. So it has preferred to continue emptying the dams as trees and gardens die. Having manufactured a water shortage, it now demands that people pay huge sums for the privilege of drinking recycled sewage.
None of this is necessary, nor are the costs of water restrictions in time and damage to health, homes, trees and gardens.
The people of the ACT can have all the extra water they need for less than $150 per household a year.
If these statements come as a surprise to some readers, they can read the following for themselves on the Future Water Options pages on Actew's website (www.actew.com.au/futurewateroptions/TennentOptions.aspx).
The Large Tennent Option would create the ACT's largest dam with a volume of 159GL (billion litres) and increase the ACT's water storage by about 74 per cent.
A new large Tennent Dam would collect water from the large catchment of the Naas, Gudgenby and Orroral rivers. The catchment has high rainfall and run-off in the upper section but lower rainfall in the eastern sections.
When full, the large Tennent Dam would store the equivalent of 27 months of water use. Because of the large storage volume, this option would be a reliable source of water in a long drought.
It is predicted that if the Large Tennent Option was added to the existing storages, there would be sufficient water to provide a reliable supply for the ACT region for the next 50 years or more.
The Large Tennent Option is estimated to cost $240 million. The cost includes $115million for the dam, $18 million for clearing, $27 million for new roads, $40million for a new water-treatment plant and $40 million for the pipeline and other items, including environmental and catchment issues and planning approvals.
The cost to the average household ratepayer, assuming construction begins soon, would be $150 a year.
Dr Dwyer is a visiting fellow at the Australian National
University's Crawford School of Economics and Government
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Professor Jeff Bennett and Professor Quentin Grafton cited in "Experts
take the politics out of water", Science Alert, Wednesday, April
11,
2007
http://www.sciencealert.com.au/opinions/20071104-14915.html
Experts take the politics out of water
| Wednesday, 11 April 2007 | |
| By Quentin
Grafton
ANU experts take the politics out of water with the release today of an analysis of the Federal Government’s $10 billion national water security plan, warning of the risk of wasting public money and potential social justice consequences if careful economic and social policy analysis and planning isn’t undertaken before the money is spent. In Dry Water, Professor Quentin Grafton argues that while the national water plan is a step forward toward a better water future, there is a real risk with a big-spending program of misdirecting money that might otherwise be used for greater public good. Professor Grafton argues this means the Government will need to resist self-interested calls by irrigators to direct public investments into projects that generate the highest net private, rather than public, benefit. He says the Government will also need to take a careful approach to the buyback of water entitlements or, if there has been an over allocation of water entitlements, it may find itself buying back ‘dry water’ – of no benefit to the public or the environment. In a brief on Water and the Environment, Professor Jeff Bennett asks ‘Is $10 billion too much, too little or just the right amount to spend on a national plan for water security and is 500 gigalitres too much, too little or just the right amount of additional water to release down the Murray River? He argues the correct answers to those questions won’t be known until the costs and benefits of allocating water to the environment are calculated. Professor Bennett argues that without information on the values of ecosystem services, government decisions regarding water allocations are more likely to be influenced by the lobbying of vested interest groups, rather than by the goal of improved societal well-being. In her contribution, Dr Karen Hussey explores the social policy aspects of water policy, warning that water trading could see small- and medium-sized producers squeezed out of the market, and less efficient producers exiting the market, taking with them the viability of rural community infrastructure such as banks and schools. For urban communities, the introduction of pricing signals could disadvantage lower income earners. Dr Hussey warns of the significant need to incorporate a human rights and a social justice dimension in the policy analysis. Editor's Note: The Dry Water paper is available by clicking here (Adobe pdf). |
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Quentin Grafton discusses government's plan for the Murray-Darling
Basin
in "Treasury at Odds with Government",
Courier Mail, April 7, 2007, p.48
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Professor Jeff Bennett and Professor Quentin Grafton made numerous
television and radio appearances on April 4, 2007 to discuss the Prime
Minister's water plan.
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Your front-page story on a new "not-for-profit consortium" advocating doubling the price of water as a solution to Canberra's water crisis ("No water restrictions, but at a price", March 27, p1) must surely rank as one of the more bizarre episodes in the history of economic thought.
Perhaps these gentlemen will next propose solving oil shortages by doubling the price of petrol for those who live far from work or in the country and whose mileage exceeds the average?
The proposal's discriminatory doubling of water prices from an already ramped up $2.29 per kilolitre to $4.60 would mean a family paying an additional $2000 annually for an amount of water equal to the former free allowance.
Is it really intended that having a normal suburban garden should become a status symbol for the wealthy?
Fortunately, economics has two relevant fundamental laws which expose such folly.
One is the "law of one price" (which is why rationing or split-rate pricing creates black markets).
You do not charge a family more for four loaves of bread than you charge four single people buying a loaf each.
Similarly, pouring water out of dams free to downstream users while selling it for $2.29 to local households is a discriminatory tax on local households.
Second, price should be set at short-run marginal cost or else losses are inflicted upon consumers.
For example, there is no point to putting tolls on uncrowded roads.
All you do is raise some money by inflicting worse costs on those forced to use less satisfactory routes.
Terence Dwyer, visiting fellow, Crawford School of Economics and
Government, Australian National University
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