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By Professor Michael Porter
The paradox of Australia and water is that we have one of the highest per capita water catchments in the world; the problem very obviously is the distribution of rainfall relative to location of population and across a vast land mass.
The recent drought, associated with El Nino effects, and floods, associated with La Nina and ocean temperature oscillations, reveal that the problems are far more about efficient distribution and relative costs than absolute scarcity of water.
Recycling water, whether by recharging aquifers, tertiary treatment, or using household and local technologies, still comes down to a matter of whether allocated capital costs make the water supply sustainable.
Transportation of water is the key, but this is energy and thus capital intensive, which means allocated capital costs are substantial.
Once we add desalinated water to aggregate supplies, we find that in effect we have infinite water supply at a price in the coastal cities.
Metropolitan water is like regular capital in the world capital market; you can have as much as you like, at a price. That price reflects capital costs of treatment plants and pipelines, plus operating costs which are largely pumping and thus energy costs.
Australia not only has abundant water, we have a far greater capacity to use that water to grow food – indeed we can rightly think of ourselves going forward as a food bowl for Asia.
Asian aquifers are very definitely threatened by excess extraction, pollution and expansion of metropolitan areas that have inadequate water supply. Australia most likely has an increasing comparative advantage in food.
In considering recycling water supply, both on macro (city) and micro (household) levels, the key is to achieve financial sustainability of the total system, and that involves placing recycled and other water sources on bases that ensure long term efficiency as well as fairness in water allocations.
We need to think of recycled and desalinated water as insurance water, water which has a multi-part pricing system. This makes a case for a independent national bulk water supply management system, a sort of Reserve Bank of Water, that recognises the local demand and supply considerations, given the extreme costs of water transportation costs.
The last thing we want is centralised, uniform pricing of water. What we need are common principles for dealing with scarcity and excesses of water supply, and where it makes sense, water grids that enable water to be traded across the grid to remove shortages and create returns to those willing to supply other users of water at times of local or global scarcity.
This trading of water will have the effect of reducing price differences through trading. By having prices that are centralised and not reflective of costs and demands, we will undermine our competitive advantages in areas such as food production.
Ideally we want a bulk market based around a grid, with an independent operator under rules laid down by government; much in the manner of the Reserve Bank for money markets, or perhaps the original NEMMCO electricity grid.
Pipelines and bulk supplies are huge capital intensive investments, and the need is for supply side “tension” so the community feels its capital is well invested.
Recycled water has to be sustainable against competition from catchment-based water, desalinated water, and piped water from other sources including irrigation and rivers (e.g Perth – Kalgoorlie, Mannum- Adelaide, Goulburn-Melbourne pipelines).
There are also issues regarding stranded assets – or water supply systems – when conditions change. The central problem is the huge capital costs of water supplies – of whatever kind – and the risk that some water sources will end up with no scope for recovering costs.
Dr Michael G Porter, Research Professor of Public Policy, at the Alfred Deakin Research Institute, features at a free public talk titled Water recycling: From toilet to tap, staged by the University of Melbourne.
This is an edited version of his address.