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Economics of Restricting Rural-Urban Trade

Economics of Restricting Rural-Urban Trade. Prof. Mike Young Research Chair, Water Economics & Management School of Earth and Environmental Sciences The University of Adelaide Friday 1 st September 2006. Rural-Urban Trade Experience. Water trading is occurring in

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Economics of Restricting Rural-Urban Trade

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  1. Economics of Restricting Rural-Urban Trade Prof. Mike Young Research Chair, Water Economics & ManagementSchool of Earth and Environmental SciencesThe University of Adelaide Friday 1st September 2006

  2. Rural-Urban Trade Experience • Water trading is occurring in • California • Texas • China • Adelaide (perm.) • Perth (temp. only so far) • Pipelines, pumps and gravity • Kalgoorlie pipeline - 600kms • Adelaide pipeline - 48kms over up 418m • Whyalla, Port Augusta and Pt Pirie – Two 379 km pipelines

  3. Urban Water Management Challenges • Reducing Supply • Adverse climate change • Environmental flow enhancement • Increasing Demand • Population increase • Households • Commercial and Industrial • Without more new water, what can we do?

  4. ABS indicative population projection - 25% more in 25 years

  5. Climate Change – Admitting it

  6. Supply responses • Supply solutions • Traditional sources • New dams in under-allocated systems • Accessing groundwater • Rural urban trading - in both directions • => Pipes and pumps • And Water is heavy • Desalination • Cost $1.00/KL to $1.50/KL • Recycling • Typically more expensive than desalination (economies of scale?) Can’t say “no” to everything

  7. “Without Water” Study • TERM-Water • The Enormous Economic Regional Model (CSIRO & Monash) • 17 regions by 170 sectors • Supply Assumptions • Eastern and Southern Mainland Australia decrease by 15% • Western Australia no further drop in supply • NT and Tasmania not supply restricted • Water requirement per dollar of market output • Rural water use decreases by 34% • Urban water use decreases by 22%

  8. Scenarios • No trading, no new sources, ABS projections (No Initiative = Same supply) • Urban-rural trading (Market determines supply) • Trade + New sources • a) Extra 80GL new water @ $1.50/KL • b) Extra 120GL new water @ $1.00/KL • Allow Wage-driven migration

  9. 2032 Water Price $/KL

  10. Shadow price increase 2032-2001

  11. Change water use S2 – S1 (GL) Urban demand for rural water involves relatively small volumes(61+171)/25,000 GL = 0.93%

  12. Costs & benefits of introducing rural urban trade (% change)

  13. S2 Urban – Rural Trading (S2%-S1 %)

  14. Urban - Rural Trade Issues • How much should do we worry about equity, given that water price - as an equity lever is very inefficient? • How much do we expose urban & industrial Australia to rural price disciplines? • Imagine • Households whose water charges are a direct function of the traded price of water and dam supplies • Industrial and Commercial Users with tradeable allocations • Developers having to buy the water to get sub-division approval • Households with an option and opportunity to trade “their” water allocations (Individually tailored inclining tarrifs) • People profiting from stormwater capture and waste water recycling

  15. In cities, small volumes go a long way Contact: Prof Mike Young Water Economics and Management Email: Mike.Young@adelaide.edu.au Phone: +61-8-8303.5279Mobile: +61-408-488.538

  16. S1 Water use 2030 redistribution (GL)

  17. S1 Decomposition of shadow price increase ($/KL)

  18. S1 Decomposition of shadow price increase ($/KL)

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