Upstream Demand for Water Use by New Tree Plantations Imposes Externalities on Downstream Irrigated Agriculture and Wetlands

20 Pages Posted: 14 Sep 2012

See all articles by Thomas L. Nordblom

Thomas L. Nordblom

Graham Centre for Agricultural Innovation (Charles Sturt University & NSW DPI)

John Finlayson

Charles Sturt University - Graham Centre for Agricultural Innovation

Iain Hume

Australian National University

Date Written: October 2012

Abstract

Large‐scale tree plantations in high rainfall upstream areas can reduce fresh water inflows to river systems, thereby imposing external costs on downstream irrigation, stock and domestic water users and wetland interests. We take the novel approach of expressing all benefits and costs of establishing plantations in terms of $ per gigalitre (GL) of water removed annually from river flows, setting upstream demands on the same basis as downstream demands. For the Macquarie Valley, a New South Wales sub‐catchment of Australia’s Murray‐Darling Basin, we project changes in land and water use and changes in economic surpluses under two policy settings: without and with a policy requiring permanent water entitlements to be purchased from downstream parties, before plantation establishment. Without the policy, and given a high stumpage value for trees ($70/m3), upstream gains in economic surplus projected from expanding plantations are $639 million; balanced against $233 million in economic losses by downstream irrigators and stock and domestic water users for a net gain of $406 million, but 345 GL lower mean annual environmental flows. With the policy, smaller gains in upstream economic surplus from trees ($192 million), added to net downstream gains ($138 million) from sale of water, result in gains of $330 million with no reduction in environmental flows. Sustaining the 345 GL flow for a $76 million (406–330) reduction in gains to economic surplus may be seen to cost only $0.22 million/GL; but this is much lower than the market value of the first units of that water to agriculture and forestry.

Keywords: catchment, demand, downstream externality, entitlement, environmental services, evapotranspiration, forest, interception, irrigation, market, Murray‐Darling Basin, supply, urban water, watershed, wetlands

Suggested Citation

Nordblom, Thomas L. and Finlayson, John and Hume, Iain, Upstream Demand for Water Use by New Tree Plantations Imposes Externalities on Downstream Irrigated Agriculture and Wetlands (October 2012). Australian Journal of Agricultural and Resource Economics, Vol. 56, Issue 4, pp. 455-474, 2012. Available at SSRN: https://ssrn.com/abstract=2146410 or http://dx.doi.org/10.1111/j.1467-8489.2012.00593.x

Thomas L. Nordblom (Contact Author)

Graham Centre for Agricultural Innovation (Charles Sturt University & NSW DPI) ( email )

Albert Pugsley Place
Wagga Wagga, NSW 2650
Australia
+61419290428 (Phone)

HOME PAGE: http://www.csu.edu.au/research/grahamcentre/our-people/members2/tom-nordblom

John Finlayson

Charles Sturt University - Graham Centre for Agricultural Innovation ( email )

EH Graham Centre (CSU+NSW DPI)
Pine Gully Road
Wagga Wagga, 2650
Australia

Iain Hume

Australian National University ( email )

Canberra, Australian Capital Territory
Australia
+(02) 6125 4020 (Phone)

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