Leading gifted horses to water: The economics of climate adaptation in government-sponsored irrigation in Victoria

Authors: Bethany Cooper and Lin Crase
Year: 2013

The gifting of irrigation assets to irrigation districts means the value of this irrigation infrastructure need not be included in the regulatory asset base (which is used to calculate water prices paid by water users), and water users are therefore not obliged to subsequently pay water prices that reflect the full cost of this infrastructure. This project looked at whether publicly funded infrastructure of this form distorts production choices, especially over the longer term, possibly exposing enterprises and communities to sudden future climatic shocks, using farmers in northern Victoriaas a case study. It was clear from the review of the institutional architecture that the prospect of including gifted assets in the regulatory asset base is remote, and the regulator (Essential Services Commission) has largely prohibited consideration of this approach. It was also clear from the work undertaken reviewing tariffs and from the qualitative research with farmers that there is a good deal of customer dissatisfaction with the existing tariff structures. A BestWorst Scaling survey technique was deployed to provide evidence on how to structure tariffs that take into account the preferences of water users and simultaneously assist adaptation. The results for the BestWorst Scaling experiment showed several changes that would be strongly supported by farmers. First, a simplification of the tariff so that it communicated adequate information about water use, service and the underlying relationship to cost and water availability would be well regarded. Second, there was strong support for an option to use multiple payment periods. Third, farmers were keen to see a reduction in the termination fees faced by irrigators. The findings of this study have impacted directly on the water supply corporation. In February 2013 the water corporation announced plans to overhaul its tariff structure, including actions to simplify pricing and facilitate staged payments. The arrangements for termination charges are also being reviewed.

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