The apparent failure of the latest Australian government's tender for market-based water recovery is a stark warning that like oil, politics and good water policy don’t mix according to Professor Quentin Grafton, an environmental and resource economist at The Australian National University.

Professor Grafton warned today that, without proper analysis and planning, there was a real risk that billions of taxpayer’s money may be wasted and will fail to generate the needed  environmental flows.

“The goal of the latest tender was to buy at least 200 billion litres of water entitlements that would be used to increase environmental flows in the Murray River. Unfortunately, and despite advice to the contrary provided in September last year, the Government imposed a condition of sale on entitlement holders that they undertake water-savings measures equal to the amount of water entitlements they wish to sell in the tender,” said Professor Grafton.

“This condition would have at least doubled the cost to the Australian government of purchasing water entitlements than if it had purchased water entitlements on the open market. It is this condition, and not any profiteering or greed by irrigators that explains why The Australian reported today that ‘...46 irrigators had asked for too much money per megalitre for their water to be accepted' under the tender.’

“The failure of a $200 million buy back of water is manageable provided the Australian government learns from its mistakes. Without hyperbole, it would be disastrous for Australia if the Prime Minister's $10 billion plan announced in January were to be similarly mismanaged.

“The $10 billion includes a plan to spend $4.765 billion over 10 years on promoting irrigation system and on-farm water efficiencies. At first blush, this seems like something that should be good for the environment and also irrigators. In fact, this may not be the case because some water inefficiencies generate ‘apparent’ water losses, such as seepage to the ground, that cost the farmer money but actually increase return flows to the hydrological system. Thus spending tax-payers money to reduce apparent rather than ‘true’ water losses will actually reduce, not increase environmental flows.

“The Prime Minister's Plan also includes $3 billion for market-based recovery to reduce over allocation in the Murray-Darling Basin. Rather than buying water entitlements the government would be better advised purchasing seasonal allocations of water, or it risks purchasing 'dry water' - water entitlements that exist on paper but the actual diversions associated with these entitlements are much less,” Professor Grafton said.

“In sum, there is a real possibility that the Australian government could waste billion of dollars on water efficiency improvements and market-based water recovery in its proposed $10 billion plan, and generate few public benefits. Let's take the oil out of the water, and make sure that every tax-payer dollar spent on water generates the maximum benefits for all Australians.”