Why do we pay people to waste our most precious resource?

It's one year today since the contract to build Sydney's desalination plant was signed and ANU environmental economists Quentin Grafton and Michael Ward have run the numbers on whether it was a good deal.  Their conclusion: the net benefit to Sydney households of the plant is negative one billion dollars.  Ouch.  The decision to build it will cost each Sydney household on average more than $700.

What's the alternative though?  Well how about just letting people pay the actual cost of water so that they have an incentive to economise?

When most things get scarce, their price goes up.  This sends a signal to consumers to economise and find alternatives and a signal to producers to find new sources and ways to produce them.  We don't do this with water though.  Instead we subsidise one of our most precious resources - massively.  We encourage industrial water users to recycle their water or else use recycled water rather than water we've spent millions making fit for drinking.  But why would they when it's so cheap?  Cheap because it's subsidised by every taxpayer.

So why don't we do this?  According to NSW's Water Minister Nathan Rees, that system "would result in gross inequalities and be a nightmare for business":

Any form of sound business planning would be impossible if water prices fluctuated from month to month and season to season.

The current system isn't too equitable either.  Is it equitable that low income earning taxpayers who do their best to save water subsidise big water users to fill their pools and keep their lawns looking lush?  In any case the extra revenue from actually charging wealthy water users for the water they use can be used to provide assistance to low income households.

As for the business certainty argument, businesses deal with price fluctuations all the time.  I'm sure the cafe downstairs from my work would be happier if coffee bean prices didn't fluctuate, but they don't ask the government to nationalise the coffee trade to deal with it.  The prices of rent, employees, petrol, commodities, food and every other business input fluctuate weekly or daily.  And if it's critical for a particular business to know the price of water in advance, I'm sure purchasers and suppliers could negotiate to lock in a price in advance for a set period.  That's what futures markets do with commodities around the world.

The federal government is putting a price on carbon emissions - a challenging and complicated task that involves working out the emissions from a huge range of business activities and creating new and untested markets.  So why can't we allow a realistic price to be placed on one of our most precious resources?  The alternative is pouring an extra billion dollars into an environmentally questionable desal plant that we don't really need.

We need some clear thinking on plastic bags - Part 1

I've been observing the debate about plastic bags for years but haven't posted anything on it.

I'm agnostic about whether something really needs to be done about plastic bags in particular.

Good environmental policy, it seems to me, looks at the best ways of fixing identified problems - rather than targeting certain products.

So what are the problems with plastic bags? As I understand it:

• they're a large componenet of litter;
• they're a reasonably important component of waste / landfill;
• they get into waterways where they harm marine life;
• they're made from a non-renewable resource.

To my mind, a more sensible starting point is to look at each of these problems separately.

Let's start with threats to marine life. What are the big threats? What's the most effective way to reduce their impact? Will getting rid of plastic bags make a big difference? These are the questions we should be examining.

Let's look at litter. What are the problems it causes? What are the main components? What are the most effective ways to reduce it?

Ditto for landfill and ditto for non-renewable resources.

I suspect that there's more effective measures to deal with these issues by looking at all contributors to a problem than singling out one product.

I also suspect that plastic bags are being targeted because they're a visible consumer product. The only concrete regulatory measure that the Howard government announced to reduce greenhouse emissions was phasing out incandescent light globes. Now it's a start and probably worth doing but will make an extremely modest contribution. I suspect they chose that because it's something everyone sees and has experience with - people will notice they're dong something. Similarly, Australian governments have had difficulty coming up with solutions to water shortages other than water restrictions on households. Again, a modest measure that looks to the average person like you're doing something, but really does little to fix the underlying problem.

Targeting plastic bags without examining why also creates confusion. Are biodegradable bags a good alternative? Queensland seems to think so. But my understanding is that they take months or longer to break down and in the meantime they create the same litter problems and danger to marine life that plastic bags do. And while they use renewable inputs (eg corn starch rather than petroleum), there's no guarantee that the overall environmental impact of those inputs is any lower: growing corn has its own problems in terms of resource use (think cleared land, water use, petroleum-based fertilisers, petroleum-fueled tractors) and waste (think fertiliser and pesticide runoff - what does that do to aquatic and marine life?). So deciding on alternatives really depends on what we're trying to achieve.

It's tempting to look at energy waste and think 'let's ban old-school light bulbs', to look at water problems and think 'let's water the garden less' and see litter and think 'let's ban the bag'. And yes, we all need to do our bit and those measures probably do some good.

But the challenge for good policy and what will produce real outcomes is to do the hard thinking about what are the real causes of the problem and what are the most effective measures we can come up with to deal with them - not just to go with whatever grabs our attention.

Water water everywhere… except the catchments

Rain has been bucketing down in Sydney over the last couple of days but it has been a different story in the catchments that receive the water for Sydney’s water supply. According to the Sydney Morning Herald, 80 millimetres has fallen in the city’s north and 40-50 mm in the east, but only 10-20 mm in the west and less than 10 in the catchment areas.

While emergency services in the city have been battling overflowing drains, gutters and leaking roofs, dam levels have fallen by 0.3% in the last week.

This underlines the problem with having Sydney’s water supply piped from areas that are much drier than Sydney is.

Some possible solutions? Catching some of the stormwater and diverting it for industrial uses is one. Rainwater tanks for homes are another. A report last week commissioned by the Australian Conservation Foundation, Nature Conservation Council (NSW) and Environment Victoria examined The economics of rainwater tanks and alternative water supply options (pdf).

The findings are not very surprising: water tanks are most cost effective in areas where there are high rainfalls and for houses with large roofs (where they can collect more water). There are plenty of those areas in Sydney. The cost per kilolitre for large tanks in high rainfall areas is less than a small desalination plant and not much higher than a larger plant. When you factor in the reduced pressure on stormwater systems and emergency services that comes from diverting some rainfall during storms into household water tanks, it’s a fair bet that the social cost of water tanks is lower than desalination. When you factor in environmental costs, rainwater tanks become cheaper again: a desalination plant powered entirely from green power, as has been promised by the NSW Government, is a fairly expensive proposition.

However, there’s another very cheap measure that doesn’t get much attention: you can divert rainwater from your downpipes directly onto your garden – or your pool, if you have one. You can buy a diverter for less than $40 (I found a few websites from distributors) and your rainwater can go straight into a hose and out onto the garden. (‘Raingardens’ are popular in the USA).

Now, I don’t know how much this would reduce your water consumption by – after all, gardens are getting watered anyway when it rains – but it’s essentially zero cost and reduces pressure on stormwater systems. And it means your garden gets a thorough soaking when it rains. I lived in a house in Sydney a couple of years ago where the downpipes diverted directly into two garden beds and they rarely needed watering.

For backyard pools, it makes no sense to fill them from mains water when this option is available: an added advantage is that rainwater is much warmer than mains water.

Industrial water recycling and desalination may well be attractive measures as the drought continues: but household level measures can make an important contribution at a modest cost.

Weekly blog roundup

Energy saving light globes

Federal Environment Minister Malcolm Turnbull wants to change the standards for lights to phase out the old-school electricity-chewing incandescent globes by 2010. This seems to me a sensible move that will make a modest impact at a modest cost. Joshua Gans is underwhelmed by the idea but Grant Young thinks it’s a good start.

Meanwhile, the libertarians at Catallaxy are incensed by this abolition of our freedom to waste electricity. I have sympathy with their ‘don’t ban things, persuade people to change instead’ philosophy, but I don’t think phasing incandescents out over 4 years is really such a big deal (from a personal freedom, or any other, perspective). If people are really worried about it, they have three years to stockpile incandescent lights (maybe in the underground bunkers that some of Catallaxy’s commenters no doubt have ready for when the leftist global warming conspiracy gives the UN an excuse to take over the world and abolish all personal freedoms).

Water

Harry Clarke crunches the numbers for suburban backyard rain water tanks and concludes that they just don’t make any economic sense.

Rising rents

Every second article in the Herald seems to be about rents going through the roof. Joshua Gans argues that proposed rent subsidies won’t help anyone except landlords.

Carbon offsets

Grant Young asks a very sensible question:

I wonder - if Richard Branson is splashing all this money around to reduce climate change, why doesn’t his airline have an “offset this flight” button when you book a flight?

People that want it can get it easily when they’re booking the flight. People that don’t simply uncheck the box.

What a great idea. Make it easy for people to offset their emissions at the point of sale, let them know how much it would cost, and no doubt many will take it up. Perhaps just as importantly, even if people choose not to offset, providing this will educate people about air travel emissions, what offsets are and how much the ‘carbon cost’ of their flight is.

Have a great weekend.

Weekly Blog Roundup

As I suggested last week, I’m planning to have a weekly roundup of interesting blog posts from the week on environmental and economic issues – concentrating particularly on Australian issues and on issues that are both environmental and economic.

So here’s some of my favourites from this week:

Water restrictions

Economist Harry Clarke outlines some of the benefits of water restrictions but argues that increasing prices would give the same benefits without the arbitrary side-affects. (This is something I talked about a couple of weeks ago). Harry also deals with the concern of charging high prices for water to people on low incomes and offers some solutions.

Phone books

Earlier in the week, Amy Stodghill talked about the apparent waste of providing chunky paper phone books to every household and business in the US. I asked Telstra / Sensis about the position in Australia. The discussion has struck a chord, with Grant Young and Andrea at Buy Organic adding their thoughts and Sven Cahling talking about the situation in Sweden (for anyone who can speak Swedish!).

Green power

Economist Joshua Gans asks some questions about Green Power, such as ‘Will buying green power actually lead to more green power production?’

Have a great weekend!

Sydney to ship in drinking water?

Giant water tankers shipping water to parched Sydney from verdant Tasmania? And you thought desalination was a wacky idea... This raises quite a few interesting economic and environmental issues, but for now I'll just say 'Wow, really?!'

Five years ago Solar Sailor won an Australian Design Award for its electric catamaran, often seen plying Sydney Harbour. With rigid sails covered in solar cells, the boat catches the wind when it blows, or generates power from the sun when it shines. If the conditions are right, it can use both.

Now the company, chaired by the former prime minister Bob Hawke, proposes initially using conventional supertankers to ferry Tasmanian water to mainland ports. Later it would use even bigger hybrid electric supertankers, powered by solar and wind energy...

North-west Tasmania had abundant water, he said, in hydro-electric dams just 15 kilometres from the coast and only a short sea trip from mainland cities: "The water is used once for hydro electricity. It is not used for irrigation or feeding a town."

Within 18 months a 50 billion-litre-a-year supply could be operating, using two conventional supertankers each ferrying 330 million litres to Sydney, the Central Coast, Melbourne or Queensland "just like delivering oil". Within five years specially built electric tankers, each carrying 500 million litres, could be plying the routes. The ships would be powered by rigid solar sails, coal-fired electric motors, or both.

The company proposes exporting up to 200 billion litres of Tasmanian water a year for 20 years, enough to supply almost a third of Sydney's needs.

The ships would moor on the horizon off Sydney and the water would be pumped through undersea pipes to Kurnell, then into Sydney's water supply. It would cost about $1 a kilolitre, including a 30 cent-a-kilolitre royalty to Tasmania for water otherwise "going to waste".

Big brother is watching your birdbath

Today’s Sydney Morning Herald reports that New South Wales is out of step with other Australian states which are tightening water restrictions as the drought continues:

WHILE other states are tightening water restrictions… NSW is steadfastly refusing to do the same, preferring to spend $1.3 billion to build a desalination plant.

On New Year's Day Adelaide and Melbourne significantly tightened water restrictions, and Melbourne restrictions will be tightened again as early as April. In Queensland restrictions are also likely to be tightened soon...

But the NSW Government said yesterday that any tightening of Sydney's water restrictions would be draconian ...

Dam levels are at a historic low of 36.4 per cent and will receive only a small boost from this week's rain. The Government has said it would go ahead with a desalination plant at Kurnell if the dams fell to 30 per cent, which is likely to happen soon after the state election on March 24.

Asked why restrictions could not be tightened to slow falling dam rates before March and April, when rainfall is heaviest, the Water Minister, David Campbell, said it would send a mixed signal to the public. "The community is accepting the position at the moment; they are doing the right thing," he said. "I don't think we need to send [sic] an air of panic. We have got a [Metropolitan Water] plan … which indicates we can secure Sydney's water supply without going to draconian water restrictions."

I have mixed feelings about water restrictions. Economic theory suggests that a more efficient way to deal with water shortages is by increasing prices (or, better, letting prices find their own level). Higher prices will encourage more careful use of water, but people will find the way to save water that best works for them. For some people that will be shorter showers, for others less water for the garden, for others washing the car less often. Over time, people will adjust in bigger ways: installing water-saving shower heads; reducing the size of their gardens and using more drought-tolerant plants.

I was at my Dad’s place in Canberra a few weeks ago and the bird bath – usually frequented by a number of native birds – was empty. Apparently Canberra’s water restrictions prohibit the filling of backyard water features because they lose a lot of water through evaporation. That seemed rather a shame to me, especially as I’m sure it’s a tiny fraction of his overall water use and there’s so many other ways he could cut down on water use. Any system of restrictions is inflexible, a ‘one size fits all’ prescription.

On the other hand, I think water restrictions can be useful in changing the way people think about water use. Economic theory prefers to let prices do their thing in encouraging behaviour changes because that will allow people to choose the behaviour changes that best fulfil their needs – and different people have different wants and needs driving their water uses. The most efficient solution is allowing people to make the choices that best fulfil their desires. But this partly rests on an assumption that the desires that underpin people’s choices are fixed and given. And this is not necessarily the case.

The thing is, water restrictions may not just stand in the way of people attaining their preferences, they may actually change those preferences. By signalling that we as a community are concerned about water use and want to limit it, that may just change my desire to have a big green lawn to show off to my friends and neighbours.

But is this something that could better be achieved by, say, educating people about the fragility of our river systems, than making people hose their gardens rather than use sprinklers?

What do you think?

Update Thurs 4 Jan:

• ABC's 7.30 Report had a story on this issue last night. The transcript (not yet available as at 9 am) will be here.

• Larvatus Prodeo had a discussion on this issue overnight as well.

Crazy water audit plans

I don't want to be too scathing, because ABC Online news reports rarely provide sufficient context to get a proper idea of what they're about - but this plan from a Professor of water policy sounds crazy to me:

The author of a new book on ways to better manage water says all users should have to account for the way they use the resource.

John Pigram, a Professor of water policy at the University of New England in New South Wales, says farmers have already been forced to improve their efficiency to make the most of low commodity prices.

He is calling for a national audit system to force users to justify their water allocations.

"Whether that be for irrigation, for industry, for a wetland, or a brewery, [they have] ... to be accountable for its use," he said.

"They have to specify what they want the water for, how they're going to use it and manage it and eventually audit their performance, and if it doesn't come up to scratch they either lose the water or they have to adjust their management protocols."

Is he for real? He wants someone (ie, the government) to check on every single water user to check if they're using it properly, efficiently, and really truly need the water they're using?

Here's an idea - how about we just charge people appropriately for water and let them figure out themselves how much to use and how to use it? The farmers who he states "have been forced to improve their efficiency" weren't forced because they submitted detailed water plans to government and government came up with some great ideas on how they could all make their water use more efficient. They were forced to, as Pigram himself suggests, because the financial pressure from "low commodity prices" made them figure out their own ways of saving water (and therefore money). How about we just stop subsidising water, let people pay the price for it that reflects its increasing scarcity, and let them figure this stuff out themselves?

Water trading is the new paradigm

Two news stories in the last 24 hours illustrate the extent to which water management issues in Australia are increasingly becoming the province of water trading markets rather than direct control and regulation by government.

In NSW, the government is achieving its environmental aims of returning environmental flows by purchasing these flows directly in the market:

The New South Wales Government has begun buying water from the Macquarie and Lachlan valleys to return to the Macquarie Marshes. The Riverbank program will see $105 million spent on buying back water from licence holders over the next four years to replenish the state's wetlands. Environment Minister Bob Debus will visit Dubbo today and says expressions of interest are being sought from licence holders wishing to sell their water.

Meanwhile in Victoria, farmers are complaining that water trading is "destroying local farms":

The Parliamentary Secretary responsible for water, Malcolm Turnbull, has met farmers in Shepparton. They have told him they cannot compete for local water which is being sent down the Murray to irrigate vineyards and almond farms, and that they enjoy tax breaks through managed investment schemes (MIS).

This second story illustrates one of the limitations of markets: as I’ve observed before in relation to water markets, they only deliver the most efficient allocation if the economic system in which they operate does not include other inefficiencies (such as unequal tax treatment). If that is not the case, introducing trading can actually lead to a less efficient allocation than before.

Sydney's water future: some other views

I wrote last week about the new Sydney Metropolitan Water Plan. For anyone who's following this, there have been another couple of articles in the paper this week, offering quite different views on the Plan.

Michael Duffy writes that politically savvy 'monopoly buster' company, Services Sydney, is dragging Sydney Water and the Government kicking and screaming toward greater deregulation of the metropolitan water and sewerage market and, with it, more recycling and better economic and environmental outcomes.

Former Sydney Water executive Charles Essery has a rather less sanguine view, suggesting that the recycling targets and measures in the Plan have not changed since the last version of the plan was issued in 2004, that the recycling plant announcements are window dressing and that desalination will be back on the agenda within a year.

It seems the desalination solution might be dead but it's definitely not buried.

Water, water everywhere

There’s been a flood of news stories about water in Australia in the past few days. The federal budget has dedicated $500 million to assist the Murray-Darling basin, there’s been debate about a new large dam in Queensland, and changes to Canberra’s water management regime.

The NSW government has also been selling its new Metropolitan Water Plan, with the announcement of two new water recycling plants and the opening of water recycling in NSW to competition.

One new water recycling plant, to be built in western Sydney, will treat waste water from sewage treatment plants and use it for irrigation, environmental flows and dual reticulation use in new housing estates. The proposed plant will apparently be five times bigger than the recycling plant at Rouse Hill, which is currently Australia's largest residential recycling project. The other will, interestingly, be built in Kurnell (where the desalinisation plant was to be built) and supply recycled water for industrial uses on the Kurnell peninsula.

The other ‘announcement’ is that the metropolitan water industry in NSW will be opened up to competition to try to encourage water recycling. This was actually originally announced back in December following an inquiry into water and wastewater in Sydney (good summary here) but the Government has now released new draft rules which will bring the changes into effect. The new rules for water supply and treating waste water will take the current duopoly away from Sydney Water and Hunter Water. Private competitors will have access to pipes mains and sewers to treat and supply recycled water. The result should be cheaper industrial water for business and less consumption of drinking water by industrial users.

I’d welcome comments from anyone who knows a bit more about this area, but it seems to me that these are very positive developments. It seems sensible to open water supply infrastructure not only to users of water but also to potential recyclers and suppliers of water – in the same way that third parties have access to the electricity grid to supply electricity.

The announcements over the last few months of ‘newly discovered’ groundwater supplies and the tapping of deep water in Sydney’s dams has given Sydney some breathing space for its drinking water supply. This means that we can avoid the excessively expensive, energy intensive and environmentally damaging option of a desalinisation plant. But we should use this breathing space to develop water (and stormwater) recycling and water saving measures to ensure that desalinisation doesn’t return to the agenda.

Hooray, there’s uranium in our water!

It’s a funny world. ABC news online last week reported on an ‘exciting’ accidental discovery of high levels of uranium in groundwater in Western Australia’s wheatbelt and two days later reported that high levels of uranium in water near Alice Springs is suspected of contributing to kidney damage in the local Aboriginal community:

A group carrying out research into salinity in the Western Australian wheatbelt has stumbled on unusually high concentrations of uranium in the local groundwater.

The Cooperative Research Centre for Landscape Environments and Mineral Exploration made the discovery and has now received financial support from two hopeful junior exploration companies. The centre's chief executive officer, Steve Rogers, says while uranium mining remains under a State Government ban, mining companies are still keen for clues to potential deposits.

Dr Rogers says apart from the mining potential, the find has broken new scientific ground."We compared them to a database from the United States Geological Survey and the concentrations we see are higher than anything that anybody has ever seen in the United States, remembering that these are concentrations of uranium that are actually dissolved in water," he said. "So this is very exciting from our point of view."

My questions:

• The Cooperative Research Centre for Landscape Environments and Mineral Exploration is established, regulated and mostly funded by government. Why is public money going towards exploring for a mineral that would be illegal to mine?
• How is finding high levels of a highly toxic radioactive substance in water in an important agricultural area that produces a lot of our food ‘exciting’? Particularly when that substance is suspected of causing renal damage when dissolved in water sources.
• What does the excitement and funding from exploration companies say about the attitude of the mining companies and government bodies that make up the CRC to Australia’s laws? Is their attitude that those laws can be changed to suit them if the right pressure is applied?

Tasmania's wild rivers - mighty, free and full of poo?

Happy New Year!

My girlfriend and I have just returned from a great break in Tasmania. We stayed in Hobart most of the time with some side-trips across to the West Coast and down to the Huon Valley. We walked through the signature rainforests – huon pine, celery-top pine, sassafras and huge cool climate eucalypts such as the swamp gum – and crossed or travelled up the Huon, Franklin, Derwent and Gordon rivers and the huge Macquarie Harbour. Most of these rivers are a dark cola brown from the tannins from buttongrass on the highland plains at the rivers’ sources.

A little tragically, I was on the lookout for a hot environmental issue to write about here. Given Tasmania’s reputation for pristine wilderness and clean mighty rivers, it surprised me that the big issue in the news at the time was not old-growth logging or the cancer decimating Tasmanian devil population, but the fact that Tasmania’s main river – the Derwent – is not safe for swimming:

Public health authorities have welcomed efforts by the Hobart City Council to pinpoint what has polluted a popular swimming spot on the River Derwent. People are being advised not to swim at the Sandy Bay beach until further notice, because of faecal contamination.

Director of public health, Roscoe Taylor, says people risk contracting gastroenteritis, skin infections or respiratory disorders if they swim at the city end of Nutgrove Beach. He says it is hoped the beach will be safe by next summer but other beaches on the Derwent are more problematic. "It's very doubtful that Cornelian Bay will be up to swimming standard for quite a long time," he said.

The UN’s Atlas of the Oceans has this to say about the Derwent river estuary:

Named after the Celtic word 'clear water' in 1794 the Derwent estuary population has since grown substantially and now boasts 40% of Tasmania's population along its periphery. The estuary is an important and productive area with a variety of habitats including areas of wetlands, intertidal flats, kelp beds, seagrasses and rocky reefs that support a wide range of species, including black swans, oyster catchers, migratory bird species, penguins, dolphins and seals, platypus and seadragons [and] the critically endangered Spotted handfish...

As with many estuaries, local population growth has occurred resulting in estuary waters being used more and more for recreation, industry and marine transport. The upstream Derwent river provides the majority of the regions drinking water and is a source of energy via hydroelectric power stations. However these activities take their toll. Sedimentation has increased, there is heavy metal contamination, sewage problems, which together have lowered the oxygen level is some areas as nutrients have increased. Scallop dredging has destroyed seagrass and kelp beds, and kelp has been overharvested… large wetland areas in the upper estuary have also suffered recent degradation.

I reckon the health of rivers is one of the most widespread and intractable environmental challenges around the world. It’s something that environmental economics should be ideally placed to address because it’s about resolving conflicts over a common resource.

But what solutions does environmental economics offer to this? Is there any scope to create markets for river use? Is this something better left to planning law? Or is it something that should be looked after by government? How and who should decide what mix of uses a river should be put to? How do you resolve the competing claims on a river for drinking water, hydro power, irrigation, transport, recreation (swimming, fishing, boating), the protection of natural ecosystems, urban uses, industry, agriculture, forestry and so on?

Any ideas?

Productivity Commission Inquiries: Waste and Water

Most people know the Productivity Commission as an Australian icon of economic rationalism. Somewhat surprisingly, its also one of the more environmentally astute and (environmentally) progressive agencies in the (conservative) Australian government.

In some ways that shouldn’t be so surprising because, despite the misperception of green ideals as ‘standing in the way of progress’, most are actually about using our scarce resources efficiently. Woodchipping old growth forests in Tasmania is as much an economic outrage as an environmental one.

The Productivity Commission has conducted a number of often influential inquiries into environmental or environmentally-related issues. Its latest is an inquiry into Waste Generation and Resource Efficiency and a copy of the Issues Paper hit my desk yesterday.

Waste used to be the big environmental issue but it’s gone a bit quiet lately, overshadowed by climate change, water and biodiversity in particular.

The Terms of Reference state the issue:

Non-optimal levels of waste represent lost value and opportunities, while imposing undesirable economic and environmental costs on society. The objective of this inquiry is to identify policies that will enable Australia to address market failures and externalities associated with the generation and disposal of waste, including opportunities for resource use efficiency and recovery throughout the product life-cycle.

Some of the environmental and market issues to be examined are:

• Institutional, regulatory and other factors which impede optimal resource efficiency, recovery and optimal waste management;
• The adequacy of current data on material flows;
• The impact of international trade and trade agreements on the level and disposal of waste in Australia;
• Strategies that could be adopted by government and industry to encourage resource efficiency and recovery;
• The effect of government and commercial procurement practices; and
• The impacts of government support to production and recovery industries.

Some of the issues identified in the issues paper are:

• Arguments for government intervention (market failure – externalities, natural monopolies, public goods and market power issues);
• Recycling markets and policies that affect them;
• Energy recovery from waste;
• Pricing measures;
• Producer responsibility for waste.

Public submissions are invited and due by 8 February 2006. The Commission will also undertake public hearings in February and release a draft report in May.

Rural Water Use and the Environment: The Role of Market Mechanisms

At the same time, the Federal Treasurer has commissioned the Productivity Commission to undertake a study to assist State governments in meeting their obligations under the National Water Initiative. The Terms of Reference were released last week. The study will assess the feasibility of establishing workable market mechanisms:

• to provide practical incentives for investment in rural water-use efficiency and water related farm management strategies; and
• for dealing with rural water-management related environmental externalities

The study will look at take into account relevant practical experiences in other areas, such as with establishing tradeable salinity and pollution credits.

The Commission will report on the study in June 2006.

Both should provide some interesting material for anyone interested in the practical application of environmental economic policy.

Sydney’s proposed desalination plant

Probably the major environmental issue in Sydney right now is the proposed desalination plant. Sydney’s catchment has been in drought for some time and Sydney’s water supply is at relatively low levels. Various solutions for a secure water supply have been proposed but the big ticket item is a desalination plant.

Some of the issues are:

• It’s a very expensive way to produce clean water;

• It’s a very energy intensive way to produce clean water and that also means lots of greenhouse gas emissions;
  

• The proposed site (and its surrounds) is environmentally sensitive and contains a number of unique and endangered ecological communities;

• The political environment is interesting as the government has been criticised for its handling of other recent large infrastructure projects, in particular effectively granting a large degree of control over public services to private entities.

I’ll look at some of the issues surrounding the desal plant over the next few weeks but, if you’re interested, the environmental impact statement and other documents are on Sydney Water’s website. You can comment on the proposal until 3 February 2006 and I’d encourage you to do so.