Date posted: 27/05/2024 5 min read

Running wild

We’ve been managing water resources for more than 3300 years, so how come we’re so bad at it?

Quick take

  • In both Australia and New Zealand, water management isn’t up to scratch.
  • In Australia, the Productivity Commission has just started on its third inquiry into water reform, which will no doubt trigger another round of legislation.
  • In New Zealand, the National-led government has torn up its predecessor’s Three Waters (drinking water, sewage, stormwater) proposals and will be introducing new ideas of its own.

It should be simple. It rains. Water arrives and gets used by people, animals, crops, industry. Sometimes it rains too much or it doesn’t rain at all. You need reservoirs to store it and stormwater controls to prevent floods. You pee: you need sewers to take it away and treat it.

Humans have been managing water systems since we climbed down out of the trees. The oldest still operational dam in the world, in today’s Syria, dates back to 1304 BC. Although climate change has been making it tougher more recently, after several millennia of practice you’d think we’d have it sussed by now.

And you’d be wrong.

In both Australia and New Zealand, water management isn’t up to scratch. You only have to think of rivers running too low, or even entirely evaporating, in the key Murray-Darling Basin, or the serial failures of water infrastructure in New Zealand. In Wellington, the endless water pipe collapses have become a national joke.

In both Australia and New Zealand, water management isn’t up to scratch. You only have to think of rivers running too low, or even entirely evaporating.

Work in progress

To be fair, both countries are trying to get it right. There’s some useful new legislation on the books, notably Australia’s Water Amendment (Restoring Our Rivers) Act 2023 and New Zealand’s Water Services Economic Efficiency and Consumer Protection Act 2023. As it happens, both countries ended up sensibly creating new roles for their competition authorities (the Australian Competition and Consumer Commission (ACCC) and the Commerce Commission) to help make water markets work better.

But it’s widely acknowledged that more needs to be done. In Australia, the Productivity Commission has just started on its third inquiry into water reform, which will no doubt trigger another round of  legislation. In New Zealand, the Nationalled government has torn up its predecessor’s Three Waters (drinking water, sewage, stormwater) proposals and will be introducing new ideas of its own.

The Murray-Darling BasinPictured: The Murray-Darling Basin incorporates two major rivers, the Murray and the Darling, providing water to the Australian Capital Territory, New South Wales, Queensland, South Australia and Victoria. Image credit: Zac Edmonds.

Risking collapse

Each country has its own big issue.

In Australia, it’s the sustainability of the Murray-Darling system. It’s at risk of being overexploited and, over the longer haul, collapsing. You might think there’s nothing surprising about that: for a long time people thought that communal resources like rivers or fisheries inevitably get run down or fished out. The logic of this ‘tragedy of the commons’ idea is that people sharing a common resource – the archetypal example being herders sharing grazing grounds – will each face an incentive to get their animals onto the grass before the other guys. The collective rush results in overgrazing and with less grass next time, the incentive to get what’s left is even stronger, triggering another run on it.

There’s nothing inevitable about it. American economist Elinor Ostrom won the Nobel Prize in Economic Sciences in 2009 – the first woman to get it – for pointing out that people are not as short sighted as that. They can see what will happen if they’re not more careful. And many communities around the world have found cooperative ways to keep the resource going, including, for example, graduated sanctions on community members who push their luck.

In the Murray-Darling, the communal solution has been a cap-and-trade system. In theory, a cap is set on how much water can be taken out for consumptive purposes, leaving enough to keep the river flowing and in good ecological nick. People’s entitlements to that draw-off can be traded, so the water goes to where it’s most valuably used.

Why isn’t it working?

Some folk who aren’t comfortable with markets in things like water or pollution emissions will say the trading itself is the problem, but it’s not. As the ACCC said in its 2021 Murray-Darling water markets inquiry: “Water trading has brought substantial benefits to many water users across the basin. Water markets allow irrigators to increase their water supplies, to earn income by selling their water rights when they are more valuable to someone else, to expand production, or to release capital for investment in their businesses. In turn, water trading promotes efficiency of dependent industries and delivers broader benefits to the Australian economy.” And, while the market hadn’t initially been working as well as it might have, it’s since been improved in line with the ACCC’s inquiry recommendations.

More likely reasons are that the amount of water being held back for ecological sustainability isn’t enough and the prices in the tradable water market may still not fully incorporate the spillover costs of any adverse ecological damage they cause.

Pipe dreams

A burst water pipe in Wellington sent torents of water down Arlo Street. Wellington’s pipe network woes continues with leakages and burst pipes wasting millions of litres of drinking water a day.Pictured: A burst water pipe in Wellington sent torents of water down Arlo Street. Wellington’s pipe network woes continues with leakages and burst pipes wasting millions of litres of drinking water a day. Image credit: Kevin Stent/Stuff.

In New Zealand, the big issue – as you’ll have guessed from Wellington’s bursting pipes – is chronic underinvestment in water infrastructure. When the previous Labour led government turned its mind to the issue in 2017 with its Three Waters Review, it estimated that the accumulated deficit had blown out to somewhere between NZ$120 billion and NZ$180 billion. Those numbers have been challenged but whatever the true number is, it is large, set against New Zealand’s current GDP of some NZ$400 billion.

The proposed solution was to take water assets away from the local councils who owned them but wouldn’t (or couldn’t) maintain them, and create three new entities that (unlike the councils) would have the financial capability and incentive to do the overdue work. This proved to be politically undoable, partly because local communities strongly resisted it – New Zealanders may have seen the “Stop Three Waters” signs that went up all around the country – and partly because it got overlaid with a proposal for Māori co-governance of the water entities.

The current government envisages “a new type of financially independent council-controlled organisation”, says local government minister Simeon Brown. My guess is that these new water organisations will end up with the sort of price and quality regulation that electricity lines businesses currently face. We’ll likely see the water equivalent of line businesses that have been forced by the Commerce Commission, using Section 4 of the Commerce Act, to invest in their network. End users won’t like the bills, but they’re a necessary step towards an Ostrom-style sustainable solution.