Opening statement to Commonwealth Select Committee on the Social, economic and environmental impacts of the Murray-Darling Basin Plan on regional communities

With Sinclair Davidson and Scott Hargreaves

The Murray Darling Basin Authority appears to be immensely proud of the fact that the Murray Darling Basin Plan was endorsed in the House of Representatives by 95 votes to 5, and argues this shows the plan “balances the competing interests” of usage of the basin.

However, this committee has heard a great deal about the negative impacts of the Plan.

As our colleague Dr Jennifer Marohasy pointed out to the committee, dramatic improvements in environmental outcomes could be achieved through restoration of the Murray River’s estuary. Letting the Lower Lakes fill with seawater during periods of drought could save approximately 900 gigalitres of freshwater per year in evaporation losses alone.

While we do not propose to address that issue today, what it does suggest is that an adaptive approach to the plan which only has room for incremental changes risks locking in poor outcomes.

We recommend the Productivity Commission immediately be commissioned to conduct a full cost-benefit analysis of the Murray Darling Basin plan with the knowledge that has been gained through this inquiry and the implementation of the plan so far.

A cost-benefit analysis that assesses alternative policy settlements, such as estuary restoration, would also clarify the opportunity costs of policy choices foregone.

It is the case that the Water Act requires the Productivity Commission to conduct an inquiry into “the matter of the effectiveness of the implementation of the Basin Plan and the water resource plans”, which the MDBA describes as an “audit”.

This is inadequate. Rather than an implementation assessment occurring five years into a seven year plan, the Productivity Commission should have been tasked to inquire every three years during the implementation phase, and to study not only into process, but the purpose of the plan.

Furthermore, the Productivity Commission should be enabled to constantly monitor the progress and efficacy of the plan, as well as alternative approaches. Only an external body would have the required objectivity to conduct cost benefit reassessments.

A final word about the scope of cost-benefit analysis. The 2012 Regulatory Impact Statement argued that “Many environmental benefits [of the plan] can only be expressed in biophysical/ecological terms, rather than in monetary terms”.

We do not accept that argument. Value is created through human action, and can only be appreciated on a human scale. In this context there is something we could label as “conservation value”. There is an opportunity cost to not using resources that may otherwise be used. There is an option value associated with maintaining biodiversity, even if we have no intention of exchanging an asset or selling it.

These values can be estimated. We might debate how well they are estimated but this sort of thing can be done and is done on a regular basis.

Undefined and incomparable environmental benefits should not be used as a policy trump card.

Just because a benefit cannot be measured with precision does not mean it has infinite value. An upper or lower estimate of the benefit, translated into monetary terms, is necessary to understand policy choices.

This is the approach we recommend the Productivity Commission take.