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Abstract
Murray-Darling Basin communities have suffered recurring and prolonged droughts over the
past decade. Now that the rains have returned, these communities see the Sustainable Diversion
Limits (SDLs) planned by the Commonwealth as a new threat.
Modelling with TERM-H2O assumes that since the SDL process is voluntary, Commonwealth
purchases will proceed slowly over the next 12 years. This gives farmers time to utilize water
saving technologies as they emerge. This is in contrast to the relatively rapid purchase of 920 GL
up until September 2010 that has already occurred. These relatively rapid sales reflect hardship
associated with drought.
If the Commonwealth is to reach the 3500 GL target, it may need to pay over $4 billion more to
farmers for water (2010 dollars). The Commonwealth’s budget constraint will limit the volume
purchased.
Implementing (SDLs) will raise the price of water and the asset value of water held by farmers.
At the same time, the value of irrigated land will fall, partly offsetting the increase in the asset
value of water. This means that some irrigators may gain more than others. Those who do best
will be those whose water entitlements have a high value relative to the value of their land.
Under a voluntary scheme that proceeds slowly and gives time for further water savings to occur,
there will be modest job losses across the basin. These might fall to 500 jobs below forecast by
the year 2026. The extent to which farmers who sell water to the Commonwealth leave the
region will have a moderate influence on regional outcomes.
TERM-H2O is the only model which has been calibrated by using the drought of 2006-07 to
2008-09 to estimate regional impacts. In the drought scenario, over 6,000 jobs were lost in the
short term relative to forecast across the basin. Therefore, SDL impacts are much smaller than
drought impacts.