Social and economic impacts of the Basin Plan in Victoria

Frontier Economics and Tim Cummins & Associates have analysed the social and economic issues associated with water recovery for the environment in Victoria under the Murray Darling Basin Plan:

This 2022 report updates previous analysis undertaken in 2017, both commissioned by the Victorian Government to help inform Victoria’s policies on water recovery and Basin Plan implementation.

Under the Basin Plan, the relevant Governments agreed that 2,750 GL of water would be recovered for the environment by 30 June 2024 — the ‘Bridging the Gap’ water recovery requirement. This water was to be recovered mostly from buying water entitlements from farmers, by enabling water efficiency projects, or by investing in projects that deliver the same environmental outcomes using less water. Beyond the ‘Bridging the Gap’ water recovery, the Basin Plan allows for enhanced environmental outcomes from the recovery of an additional 450 GL per year of environmental water through efficiency measures.

There is unambiguous evidence that environmental watering is restoring the environmental values of the Basin. However, we found that Basin Plan water recovery has had significant socio-economic impacts on irrigators and communities in northern Victoria, and that further water recovery from the consumptive pool will add to the impacts already being experienced. The socio-economic impacts of the Basin Plan in Victoria are particularly apparent in the Goulburn Murray Irrigation District (GMID) — without the Basin Plan, water use in the GMID could be expected to have been about 50% higher in recent years (2018-19 to 2021-22) and GMID milk production could also have been expected to be about 50% higher than was observed. In a repeat of the Millennium Drought, the socio-economic impacts of the Basin Plan will also affect the horticultural industries of the Victorian Mallee and surrounding areas — requiring an extra 25,000 hectares of high value horticulture to be dried off due to the reduced consumptive pool.

The report considers the range of mechanisms that have been used to recover water for the environment and enhance environmental outcomes — including water entitlement buyback, on-farm investments, off-farm investments, and Sustainable Diversion Limit Adjustment Mechanism (SDLAM) projects. As a result of the way in which water was recovered, there is now more volatility in the total volume of allocations available for irrigation from one year to the next.

There are reasons to be optimistic about meeting most of the ‘Bridging the Gap’ requirements of the Basin Plan by 30 June 2024. On current estimates, up to 94% of the 2,750 GL requirement could be achieved (leaving a shortfall of 160.3GL). However, if various identified risks cannot be managed, the shortfall in the 2,750 GL requirement at 30 June 2024 may be significantly larger —up to 372.3GL. ‘Constraints projects’ constitute most of the projects at risk.

After considering four scenarios of future implementation of the Basin Plan and the current state of play, we consider a sensible and plausible scenario is for Basin Plan implementation to focus on current or alternative SDLAM projects to offset the full 605GL in a timely manner (rather than by the current 30 June 2024 deadline). Buying back an additional 372.3 GL of water entitlements, instead of extending the deadline, would involve significant socio-economic impacts.

Information about the broader set of reports and a fact sheet are also available:

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