WAVES Natural Capital Accounting Natural Capital Accounting in Action Feb 2016 in Action Australia’s water accounts inform policy In brief to tackle impact of drought • The Murray Darling Basin is When severe and prolonged drought hit Australia’s Murray fundamental to Australia’s economy, accounting for over Darling Basin, the country’s agricultural heartland, 50 per cent of the country’s policymakers used economic modeling to weigh up the irrigated produce. most efficient and cost effective policies to recover water and reduce consumption. Water supply and use tables • Limited information on how to minimize the impact of from water accounts were central to these models. The drought caused much political models presented clear evidence for a water buyback debate. policy being the best to tackle the acute water shortages • Data from water accounts were one of the few reliable and limit the economic impact and environmental sources of information to damage caused by the drought. Ultimately, for political support economic modeling to reasons a different approach was adopted. assess the proposed policies. “ The Murray Darling Basin is one of governments are able to recover By having access to the most important agricultural water by compensating farmers the Australian Bureau regions in Australia and a major wishing to sell their water of Statistics’ data on water contributor to the national entitlements. However, lack of supply and use, we were economy. When the region robust analysis of this policy led able to show that the experienced a 13-year drought, policymakers, academics, farmers impacts of buybacks are policymakers sought solutions for and the media to question how nothing like the ones reducing water usage with much water could really be saved associated with droughts. minimal effects on GDP and and what the effect on The data used constructed a employment. The result was a productivity would be. What strong argument.” program which had two main would be the impact on the profits elements: a water rights buyback of farmers who, despite having Professor Glyn Wittwer of the Centre of Policy Studies, Victoria policy, and a scheme to improve benefited financially from the sale University irrigation infrastructure. of their water entitlements, now had less water available for Political questions irrigation? The expectation was that the losses to GDP and In Australia’s water markets, employment would be the same landowners are entitled to use a as in a period of drought, when specific volume of water each year. blanket cuts on water allocations Under the water buyback scheme, are imposed. www.wavespartnership.org Wealth Accounting and the Valuation of Ecosystem Services 120% 4% 100% 25% 80% 41% 46% 48% 55% 60% ~100% 96% 40% 75% 59% 54% 52% 20% 45% 0% Rice Cotton Grapes Hay Fruit Production Dairy from sheep and livestock Murray Darling Basin Rest of Australia Irrigated agricultural production in the Murray Darling Basin accounts for over 50 per cent of Australia’s irrigated produce. Source: MDB Authority Website. The Murray Darling Basin Authority needed to weigh Contrary to expectations, the studies found that the up the buyback policy against upgrades to irrigation scheme had limited effect on agricultural activity and infrastructure, a scheme that aims to recover water jobs (regional GDP declined by 0.1 per cent; farm by reducing transmission losses. This approach was output by 1 per cent; jobs by 0.2 per cent). This was politically less contentious, but in the past had because farmers showed surprising flexibility in proven costly with inconsistent results. moving away from irrigated produce to dryland production and were largely able to maintain profits Surprising results based on credible despite having less water available for use. data These findings confirmed that government buybacks To measure the effects of the buybacks, the had a positive impact on communities and, being economic models used needed to be based on robust data from water accounts, added real complemented with physical data on water supply value to the debate. Had the accounts not been and use. This was provided by the water accounts. available, ad hoc data would have been compiled for Two types of water accounts are produced regularly the modeling, reducing the reliability and credibility of in Australia: the Water Account Australia (WWA), the results. composed of water supply and use tables in physical and monetary terms, and the National Fully informed decision making Water Account, which is a physical asset account. The water accounts provided strong technical Authorities commissioned studies incorporating information that allowed the decision on water data from both of these accounts. Using policy to be fully informed. However, as is often the computable general equilibrium modeling, the case, social and political factors also influenced the studies captured patterns in water use of final decision, and policymakers opted for upgrades farmers who had been compensated for their to infrastructure as a more traditional and tangible water entitlements. solution to the water scarcity caused by the drought. ABS Water Account, Australia www.abs.gov.au/ AUSSTATS/abs@.nsf/mf/4610.0 What is natural capital accounting? A set of objective data showing how natural resources contribute to the economy and how the economy affects natural resources. The accounts are an extension of the System of National Accounts. Natural capital accounting integrates natural resources and economic analysis, providing a broader picture of development progress than standard measures such as GDP. Further resources can be found at www.wavespartnership.org Wealth Accounting and the Valuation of Ecosystem Services (WAVES) is a global partnership led by the World Bank that aims to promote sustainable development by ensuring that natural resources are mainstreamed in development planning and 1818 H Street, NW, national economic accounts. Washington, DC 20433 USA