LONG-TERM INVESTMENT IMPLICATIONS FOR AGRICULTURAL WATER MANAGEMENT

Estimates of sector investment needs have been given for both agriculture and water supply by the United Nations Framework Convention on Climate Change (UNFCC, 2007). The water demand estimates are derived from Kirshen (2007), based on partial baseline data and generalized modelling assumptions. The quantity of investment in well-adapted agricultural water management is perhaps less important than its quality.

Adapting to climate can be seen as an opportunity for change, particularly if seen in combination with other socio-economic shocks, including managing transitions to higher value crops or even transitions out of agriculture. With respect to large-scale investments in irrigation systems and associated flood protection structures, there is little point in capital expenditure that is compromised by climate change before the end of its economic life – this is an important conclusion of the Stern Review, but it does involve a debate over the use of appropriate discount rates and the extent to which some natural resources can be considered to be economic substitutes (Neumayer, 2007). Overall, irrigation costs will increase, primarily through re-adjusted operation costs and subsequent capital costs. Even without investments in additional inter-annual storage, the operational costs of re-designing and re-scheduling irrigation on the basis of more extreme or more frequent hydrological events are not negligible.

Two positive outcomes can be anticipated: first that adaptation may involve regional concentration of irrigation where domestic resource:cost ratios are low in a particular crop sector and natural resources are less constrained (e.g. gravity schemes such as Office du Niger in Mali). Under suitable trade agreements, there may be good economic and resource management reasons for establishing regional production centres in food staples and thereby relieve pressure on domestic production where

climate variability is expected to worsen. Second, the prospect of change may present an opportunity to re-tune investment approaches, for example with more emphasis on early warning systems and demand management rather than direct structural investment.

It is not possible at this stage to determine the incremental costs of climate change adaptation in terms of water management alone. This can be done only on the basis of national analysis of the water economy. However it is possible to indicate what the scope of that investment could be – assuming a national consensus on the urgency of implementing an adaptation strategy has been reached. A recent example from Australia is presented in Box 5.2.

BOX 5.2

Investment choices in Australia

The broad pattern of hydrological impacts of climate change for Southeastern Australia has been confirmed by detailed regional climate modelling and the use of statistical downscaling with expected reductions of stream-flow of -40 percent by 2070 in northeastern Victoria (DSE, Victoria, 2007) and -20 to -30 percent in the Murrumbidgee and Macqarrie Valleys in New South Wales (CSIRO, 2007).

The biggest implication of reduced runoff is that expected water allocations for irrigation, and water availability for environmental flows will both decline, as is the case for the Murray-Darling Basin. An immediate consequence of reduced surface water availability is that the trade-off between environmental and agricultural water use will come into sharper focus.

There are a number of important aspects to the changes in runoff: where yields are expected to decline, we can cautiously assume a reduction in groundwater recharge, but this may not always be the case. An expected increase in the frequency of larger rainfall events is likely to cause increases in peak runoff rate and probable maximum flood. This has implications for storage management in that the proportion of currently available storage will decrease unless peak flows can be captured and stored. Where runoff declines and the proportion of large events increases, we can expect lower median annual storage volumes and supply security. At the same time, spillway sizes will have to be increased to pass larger probable maximum floods, especially if more dams are designed or modified to harvest peak flows and carry storage from year to year. Thus the costs of surface water storage can be expected to increase, especially in terms of unit costs of median annual volume stored. In Australia, there has been a revision of estimated Probable Maximum floods (Australian Rainfall and Runoff, 1999) and a revision of spillway capacity, overseen by the Australian National Committee on Large Dams (ANCOLD)(CSIRO, 2007). If this logic is correct, then there will be considerable interest in enhancing groundwater recharge as an alternative and possibly cheaper means of storage.

An immediate adaptation that would have impact at scale is the adjustment operational rules for multi-purpose dams and large-scale irrigation schemes. Such operational fine-tuning of existing assets can extend to the point of delivery and would quickly necessitate an overhaul of service delivery organisations, coupled with significant efforts to improve farmer awareness.

Policies that encourage sustainable use of shallow groundwater to buffer inter-annual droughts and supply shortages will offer the most scope for autonomous adaptation, but pose some major challenges in the design of regulatory and incentive structures that ensure equity and long-term resilience. In the short to medium term, modernisation strategies for irrigation systems should aim to minimize capital investments, and seek the most cost-effective options in water control.

The uncertainty associated with climate change suggests that large, long-term capital projects should be avoided if their discount life is long. Medium to long-term investment in dams and large water storages will need careful scrutiny as the most economic sites have already been developed and the marginal cost of increasing irrigated areas will be significantly higher, necessitate higher factors of safety for dams or involve substantial energized pumping from groundwater storage.

The determination of acceptable environmental trade-offs will be noticeably challenging and more contentious than they are today, and compliance will probably add significantly to capital costs.

Chapter 6