Australia’s Millennium Drought: Impacts and Responses

Abstract

As this edition of The World’s Water goes to press in early 2011, eastern Australia is recovering from devastating floods that claimed more than 20 lives and destroyed hundreds of homes. The heavy rains of 2009 and 2010 that caused so much destruction also marked the end of Australia’s decade-long Millennium Drought. Beginning in about 1997, declines in rainfall and runoff had contributed to widespread crop failures, livestock losses, dust storms, and bushfires. Such are the vagaries of water on the continent with the world’s most uncertain and variable climate.

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Chapter 5
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Matthew Heberger
As this edition of The World’s Water goes to press in early 2011, eastern Australia is
recovering from devastating floods that claimed more than 20 lives and destroyed hun-
dreds of homes. The heavy rains of 2009 and 2010 that caused so much destruction also
marked the end of Australia’s decade-long Millennium Drought. Beginning in about
1997, declines in rainfall and runoff had contributed to widespread crop failures, live-
stock losses, dust storms, and bushfires. Such are the vagaries of water on the continent
with the world’s most uncertain and variable climate.
The “Big Dry,” as the long drought is commonly called by Australians, has profoundly
affected the continent’s environment, economy, and national psyche. It has prompted
changes to the way Australia manages water and has accelerated reforms that were
already under way to modernize its water laws and institutions. Modern Australia,
shown in Figure 5.1, is home to 22 million people, and is an industrial, developed soci-
ety with among the highest standards of living in the world. Most of its citizens live in
cities near the coast, and much of the food they eat and products they buy are imported
from overseas, insulating them somewhat from the worst effects of drought.
Australia’s farmers are even more vulnerable. Agriculture, once the country’s domi-
nant industry, now makes up only 2.5 percent of the economy, yet it uses two-thirds
of the water supply. For most of the 20th century, irrigation policies were designed to
encourage settlement in the dry, sparsely settled outback. As part of a sweeping package
of economic reforms in the 1990s, the Australian government began signaling to farm
communities that they should no longer rely on government drought relief. The dura-
tion and severity of the latest drought, however, has caused the government to soften
this policy—thousands of farmers received “exceptional circumstances” payments over
the past ten years.
Drought has caused many other changes over the past decade. Australia’s sheep
population, which once outnumbered humans 10 to 1, has been halved in the past 10
years. Other agricultural sectors were also hard hit: rice production collapsed in some
years, as did cotton. City dwellers have learned to live with frequent water restrictions,
prompting creative ways to reuse water and spawning new industries in water conser-
vation technology. Drought has also increased Australians’ awareness of climate change
and the fragility of their country’s ecosystems. The lessons learned in recent years in
Australia may soon be of interest to other parts of the world as water management chal-
lenges grow.

98 The World’s Water Volume 7

It is often written that Australia is the driest inhabited continent. This simple descrip-
tion, correct in the aggregate, belies Australia’s relative water wealth. Australia’s per-
capita renewable water resources average 25,000 cubic meters per year, a level higher
than France, Germany, or Japan (UNESCO 2009). Surrounding Australia’s vast inland
deserts, where rainfall averages less than 20 centimeters per year, a variety of climates
exist on and near the coasts. These range from subtropical rainforests in the northeast
where rainfall can exceed 3 meters per year, to Mediterranean climates on the south-
west coast marked by winter rains and hot, dry summers. Much of this precipitation is
unavailable for human use—88 percent of rainfall re-enters the atmosphere via evapo-
ration or transpiration by plants, with only 12 percent left to penetrate the ground,
replenish aquifers, or flow in rivers (Cooperative Research Centre for Water Quality and
Treatment 2006). In southeastern Australia, the country’s most productive agricultural
zone, the peak of the summer growing season in December and January coincides with
the lowest streamflows under natural conditions, and hence the least water availability.
Throughout this chapter, statistics are reported by Australian water years, which run
from July 1 to June 30.
As Australia’s first European settlers learned, averages mean far less in Australia
than in the north. In temperate climes, the average tells one what to expect, while in a
highly variable climate like Australia’s, the calculated mean does little to indicate how
much rainfall to expect in a given year. Australia’s latitude means it is subject to the
atmospheric phenomenon called the subtropical high (Figure 5.2). Circulation patterns
create long-lasting zones of high air pressure over the continent, leading to clear skies
and low rainfall. And unlike temperate regions where rain is driven by seasonal pat-
terns that recur every year, Australia’s precipitation is heavily influenced by ocean and
atmosphere conditions that can persist for several years, such as the El Niño Southern
Oscillation and the Indian Ocean Dipole (Verdon-Kidd and Kiem 2009). El Niño events
generally coincide with low rainfall, while the associated La Niña often brings floods
(Nicholls 2008). Recent work by the University of New South Wales indicates that warm
sea-surface temperatures in the Indian Ocean are significantly correlated with drought
in southeastern Australia and that this effect may be even more important than El Niño
(Ummenhofer et al. 2009).
Since 1860, when reliable records began, Australia has had a major drought some-
where on the continent in 82 out of 150 years (Lake 2008). It is now known that drought
is a normal and recurring feature of Australia’s climate. The most serious droughts on
record include the Federation Drought from 1895 to 1902, the World War II drought
from 1937 to 1945, and the recent “Big Dry” from 1997 to 2009. Shorter droughts appear
throughout Australia’s recorded history, for example in 1914–1915, 1965–1968, and
1982–1983. “Australia should be used to the death and destruction of drought,” wrote
the newspaper The Australian, “but each time we are surprised by its ferocity—and
every disaster seems worse than the last” (McKernan 2010).
While previous droughts were usually limited to specific regions, the Millennium
Drought differed in that it covered much of the continent over the course of several
years (Lloyd 2010). Each of Australia’s most populous cities—Sydney, Melbourne, Bris-
bane, Adelaide, and Perth—has been affected (Figure 5.2), along with the nation’s major
food-producing regions, primarily the Murray-Darling River Basin in southeastern Aus-
tralia, and the wheat belt in the southwest.

Australia’s Millennium Drought: Impacts and Responses 99
The short but acute drought of 1982–1983 was among the most damaging on record.
Rainfall deficiencies (amount below the long-term average) were the greatest ever
recorded (Verdon-Kidd and Kiem 2009). While rainfall deficiencies were not as severe
during the Millennium Drought, climatologists have rated it even more severe in terms
of its duration and spatial extent. Anecdotes abound verifying their conclusion. A grazi-
er in Central Queensland with records going back 120 years told interviewers: “What we
have just been through is more than twice as bad as the worst drought previously record-
ed which was in 1902. . . . [In] this drought, we have had trees dying here. Those trees
were here when Captain Cook sailed up the coast [c.1770] so when you have got briga-
low trees dying it is a drought—there is no doubt about it” (quoted in Stehlik 2005).
A number of definitions of drought have been put forth by different authorities, and
these definitions vary depending on their purpose (Cooley 2007). Hydrologists define
droughts based on changes in environmental water, such as lake levels or river flows.
A meteorological drought refers to a deficit of precipitation. Agricultural droughts are
declared when soil moisture is depleted below levels needed for healthy crops. A water
management drought may be declared when reservoirs fall below a certain level.
Fi g u r e 5.1 ma P o F au s T r a l i a .
Source: Map created by the author using data from Natural Earth, www.naturalearthdata.com.

100 The World’s Water Volume 7
Drought relief in Australia has been tied to official drought declarations, and drought
triggers were inconsistent among the states and frequently politicized. As a result, the
Australian government moved to create a standard national definition of drought in the
1990s. Drought is now defined by comparing rainfall for a given period to the long-term
average for that same period. Rainfall totals in the lowest decile (lowest 10 percent of
records) are termed a “serious” rainfall deficiency. When rainfall is in the lowest 5 per-
cent of observations, it is classified a “severe” rainfall deficiency. The Bureau has not,
however, created a clear definition to mark the end of a drought (Botterill 2005).
Discussion of the Australia’s Millennium Drought often glosses over the fact that the
entire country was not in a drought for the past decade. In fact, in some years, good
rains in certain regions allowed water restrictions to be lifted and some agricultural
enterprises to prosper. In 2008–2009, a year before the drought lifted, planting of cotton
and canola were up nearly 50 percent in response to good growing conditions in some
regions. Figure 5.3 shows drought conditions in Australia indicated by rainfall deficien-
cies for the water years from 1997 to 2010. Rainfall in the lowest decile occurred in some
regions repeatedly over the last decade, much more often than one would expect based
on a 10 percent chance in a given year.
The Millennium Drought has had observable effects on much of the continent’s flora
and fauna. Along the Murray River, salty and acidic water is causing the death of beloved
red gum trees along 1,500 kilometers of the river. The condition of the Menindee Lakes
Figure 5.2 sTable high-Pressure ai r masses over ausTralia leading T o long, Warm, dr y
Pe r i o d s .
Source: Redrawn from Australian Bureau of Meteorology undated

Australia’s Millennium Drought: Impacts and Responses 101
along the Murray River, and the Coorong Wetlands near its mouth, have deteriorated
during the drought due to lack of freshwater inflows, causing the near disappearance of
iconic shorebirds, including pelicans, black swans, and fairy terns (Ker 2009). In 2007,
National Geographic noted that kangaroos had become a common sight in the parks
and streets of cities in southeast Australia, “invading” cities in search of food and water
(Peatling 2007). Koala are also at risk as drought is killing off several species of eucalyp-
tus trees, the animals’ main food source (Sohn 2007).
In the future, climate change is likely to exacerbate drought conditions. Some argue
that it already has. Scientists at the Commonwealth Scientific and Industrial Research
Figure 5.3 eX T e n T o F dr o u g h T i n ausTralia during The big dr y . Shaded regions indicate
serious water deficiency (rainfall in the lowest decile) for the Australian water year July
1–June 30. (The year of 1998–1999, in which few regions experienced serious deficiencies,
is not shown.)
Source: Data from the Australian Bureau of Meteorology undated

102 The World’s Water Volume 7
Organization (CSIRO) found that, since the middle of the 20th century, rainfall has
decreased by 15 percent, and temperatures in the first decade of the 2000s were 0.3–
0.6°C above the long-term average. These changes combine to increase potential evapo-
ration (Nicholls 2008, Ummenhofer et al. 2009). The combination of higher evaporation
and lower precipitation depletes soil moisture and runoff and raises the prospect of
more frequent and intense droughts in the future. A 2008 CSIRO report forecast a 35
to 50 percent decline in water availability in the Murray-Darling by the year 2030, and
predicted that flows to the Lower Lakes near the Murray’s mouth could drop by up to
70 percent (CSIRO 2008). A number of Australians now believe that their country is a
“canary in the coal mine” when it comes to climate change and that drought conditions
are an early indication of changes that other regions of the world are likely to experience
in the future.
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The most apparent effect of drought has been on Australia’s landscape and water-
courses; images of dry lake and riverbeds have become common in newspapers and
on television. The drying of soils and lowering of water tables has had a discernible
effect on the continent’s plant and animal life, and has led to an increase in wildfires
and dust storms over the past several years. Further, decreased river flows and reservoir
levels have dramatically curtailed irrigation in some years, causing loss of income and
economic hardship in rural communities. These impacts of the drought and others are
discussed in the sections that follow.
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Ten years of drought have affected nearly every aspect of Australia’s rural economies.
Considering only one of the worst years of the Big Dry, the Australian Bureau of Sta-
tistics estimated that drought in 2002–2003 caused a $7.4 billion drop in agricultural
production and a loss of around 70,000 jobs (Lu and Hedley 2004).1 For that year, losses
were equivalent to 1.6 percent of Australia’s gross domestic product. While some ques-
tion the logic of such assessments (i.e., does it make sense to assign a theoretical value
to crops never planted or harvested?), drought has clearly had a major effect on agri-
cultural output, as shown in Figure 5.4. The figures plotted here do not paint a picture
of uniform devastation. Some industries enjoyed good years in the past 10 years, while
others expanded production overall. Among the hardest-hit sector has been Australia’s
well-known sheep industry. By the end of the drought, sheep populations declined by
half, to 72.7 million, their lowest levels since 1905. The wool clip had fallen by 40 percent
(Wahlquist 2010). Sheep numbers had already been declining steadily since they peaked
in 1970 (at 180 million—there were 14 sheep for every person), but drought appears to
have contributed to an even steeper decline in the past decade.
Australia’s second-most-important livestock industry—cattle for beef and dairy—
also suffered during the drought, although its decline was not as precipitous as with
1. Throughout this chapter, costs are reported in Australian dollars. In 2010, it was roughly equivalent to the
US dollar.

Fi g u r e 5.4 Pr o d u c T i o n o F se l e c T co m m o d i T i e s i n au s T r a l i a , 1960–2009. The top graphs show the number of animals in millions, while the remaining
graphs report annual harvests in thousand tonnes.
Source: Data for 2008–2009 from Australian Bureau of Statistics, publication 7121.0, Agricultural Commodities, Australia, 2008–09, http://www.abs.gov.au/
AUSSTATS/abs@.nsf/DetailsPage/7121.02008-09 (download link for Publication tables, .xls). Data for 1961–2007 from the UN Food and Agriculture Organi-
zation, via UNdata, http://data.un.org/Explorer.aspx?d=FAO
Datasets > FAO Data > Crops or Livestock (custom queries for various agricultural commodities, filtered to show only Australia).

104 The World’s Water Volume 7
sheep. The number of dairy cows decreased 25 percent during the drought. Milk pro-
duction declined less due to higher milk production per cow, and the dairy industry
actually increased in value. Australia’s cotton production before the drought reached a
high of 795,000 tonnes in 2000–2001, valued at $1.8 billion. By 2007–2008, production
fell to just 133,000 tonnes, worth $254 million.
Crop production also declined during the drought. The widest fluctuations occurred
among annual crops, such as rice and wheat. Rice, which is especially water intensive,
saw the most dramatic declines. The start of the decade brought a record crop of 1.6 mil-
lion tonnes, worth $350 million. In 2007–2008, the rice harvest contracted to the small-
est levels on record, at 18,000 tonnes. Upon hearing suggestions that perhaps Australia
should not grow a crop that requires flood conditions in an arid country, rice farmers
are quick to point out that they achieve among the highest yields in the world, averaging
10 tonnes per hectare in 2006, and grow high-quality strains that fetch premium prices
on the international market. And, as an annual crop, rice fields can be fallowed during
dry years. Indeed, some rice growers took advantage of newly created water markets to
sell their meager water to downstream water users.
Dry years can mean a halving of Australia’s wheat production. Because it accounts
for 15 percent of the world’s total production, this can affect markets and food prices
globally (Berry 2008), raising the prospect of food shortages. Meanwhile, Australians
have discovered that grocery shopping and restaurant dining have become much more
expensive, especially the cost of fruits, vegetables, and meat.
Australia’s prominence as a global wine producer is also threatened by drought. In
recent years, Australia has become a major wine exporter, with exports valued at $3
billion per year. The country has become the number one supplier of imported wine
in England and lags only France and Italy in supplying the United States’ import mar-
ket. All of Australia’s grape growers rely on irrigation, and as water has become more
expensive, their profit margins have decreased. Wine industry groups have estimated
that 1,000 out of Australia’s 7,000 wine growers may leave the industry because their
vineyards are no longer profitable (Thieberger 2008). Research by CSIRO indicates
that climate change is likely to further stress Australia’s wine-growing regions, making
44 percent of viticultural areas unsuitable for grape growing by 2050. Others suggest
that people’s tastes will have to adapt along with a changing climate. In the meantime,
drought may end up benefiting Australia’s wine industry by driving up prices and qual-
ity. Paul Dalby of Australia’s Center of Excellence in Water Management says, “The
drought has increased grape prices overall because supply has dropped, wiping out a
glut of product that had been keeping prices low” (quoted in Beasley 2009).
The drought has accelerated major structural changes already under way in Aus-
tralian agriculture. The largest and smallest farms fared best during the drought. It is
estimated that the top 25 percent of producers remained profitable during the drought,
while small farms with under $100,000 in sales are buffered because some of their
income comes from off-farm employment. According to the director of the Australian
Farm Institute, Mick Keogh, mid-size “mum and dad farms” were the most vulnerable
to drought, as they are “too small to get the economies of scale they need, and too big to
leave the farm to work.” Mid-size farmers received the majority of the $4 billion in gov-
ernment drought relief since 2001 and were the most likely to quit farming altogether
(Wahlquist 2010).
During the worst years of the drought from 2001 to 2006, 10,636 families gave up
farming (Berry 2008). Many other farm families turned to other sources of income,

Australia’s Millennium Drought: Impacts and Responses 105
taking jobs off the farm or searching for other ways to supplement their income. Farm
debt has tripled over the past 10 years, to the point where the average farmer owes
$400,000 (Byrnes 2007). The drought has also discouraged a generation of young,
would-be farmers. Today, only 29 percent of farm families expect their children to take
over the farm (Diamond 2005). A potential consequence of farm closures is to further
depopulate already sparsely settled areas, making it more difficult for the government
to maintain public services (Botterill and Wilhite 2005).
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Fire has always been a feature of the Australian landscape. For thousands of years,
Aboriginal Australians have practiced “firestick farming.” Land was burned to clear it of
tall, dry grass. New green grass that sprouted up in its place supported kangaroos and
wallabies, food sources for the native hunter-gatherers (Cathcart 2010, Diamond 1999).
Today, there are wildfires every year in Australia, but they are more widespread and
severe during drought years. The worst fires in Australia’s history have been associated
with droughts, such as the Black Friday fire of 1939 and the Ash Wednesday fire of 1983
(Lake 2008). Since 1851, fires have been blamed for more than 800 deaths and damages
of $1.6 billion.
Some of the most destructive fires in Australia’s history have occurred in the past 10
years. The Black Christmas fire that struck New South Wales in 2001 and 2002 is blamed
for the destruction of 121 homes. On the Eyre Peninsula, bushfires in 2005 were respon-
sible for 9 deaths and the loss of 93 homes. In 2009, dry conditions and an intense heat
wave contributed to the deadliest fires in Australian history. Beginning on March 7,
around 400 fires raged across 450,000 hectares (450 square kilometers) in Victoria, burn-
ing more than 4,000 homes and other buildings. Most tragically, what has come to be
called the Black Saturday bushfires claimed 173 lives and caused 414 injuries (Romsey
Australia 2010). The proximate causes of the fires were either arson or falling power
lines, but the 10-year drought contributed to their severity.
A panel of experts convened to prevent future disasters recommended against allow-
ing residents to rebuild destroyed homes or resettle in fire-prone areas. They recom-
mended a “large scale government buy back” of land in “areas of unacceptably high
bushfire risk” (Rintoul 2010), mirroring government efforts to buy back water entitle-
ments from irrigators to restore the health of rivers, described later in this chapter in the
section on water management in the Murray-Darling.
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In the 1930s and 1940s, there was a widespread fear that severe droughts could cause
“desert outbreaks” in Eastern Australia, what today would be called desertification.
Generations of experience would reveal the true causes of soil degradation: overgraz-
ing, deforestation, invasive rabbits, and unsuitable agricultural practices. Dry soils with
no vegetative cover are liable to be carried off by wind or rain, resulting in soil erosion
and dust storms. Melbourne was blanketed in dust in 1902 as thousands of tons of top-
soil from hundreds of kilometers inland blew past on its way out to sea. This would be
repeated in 1983 and again during the Millennium Drought.
On September 22, 2009, a massive cloud of dust 500 kilometers wide by 1,000 kilome-
ters long spread from the outback into eastern Australia. In Sydney, it darkened skies,

106 The World’s Water Volume 7
canceled flights, and forced people indoors for shelter from the hazardous air (Boston
Globe 2009). The Bureau of Meteorology reports that it was the worst dust storm since
the 1940s, with air pollution up to 10 times worse than ever recorded (O’Loughlin 2009).
Across New South Wales, there were reports of people being hospitalized due to asthma
(Riebeek 2009).
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The Millennium Drought has prompted unprecedented changes in the way Australia
manages water and has reinvigorated water reforms already under way by the states
and the Commonwealth government. Recent developments in water policy grant more
power to the national government and have accelerated the development of water
trading and other market-based initiatives. Institutional reforms have been aimed
at improving long-term water resiliency and mitigating the economic damage from
drought. Meanwhile, urban water suppliers faced with dwindling supplies imposed
restrictions and moved forward with projects to increase supplies, such as desalination,
water recycling, and stormwater capture, and to reduce demand by improving water-
use efficiency and changing water-use practices.
Water reforms have been influenced by the so-called neoliberal political philosophy
that favors fiscal conservatism and application of free market economics, causing some
to contend that economists have been given disproportionate influence over water
policy (Thompson and Price 2009, Lockie and Higgins 2007).Throughout the 1990s,
Australian policy makers pursued policies that focused on using economics and free
market ideals to improve public services. This followed on a wave of privatization of
government services, under the assumption that “when businesses compete, consum-
ers get the best deal” and that enterprises will be run more efficiently and at lower cost.
The water reform process has been closely tied to economic reforms designed to remove
restrictions on competition. The goal has been to promote “competitive neutrality,” the
idea that government should not enjoy an advantage over private service providers by
virtue of public sector ownership.

The Australian constitution vests most water management responsibility to the states:
“The Commonwealth shall not, by any law or regulation of trade or commerce, abridge
the rights of the States or of the residents therein to the reasonable use of waters from
conservation or irrigation” (Section 100 of the Australian constitution). Yet there has
been a trend toward consolidation of power, exemplified by the “new federalism” under
Prime Minister Bob Hawke in the early 1990s. Much of the water reform agenda has
been pursued through the Council of Australian Governments (COAG), an organization
consisting of the federal government, the six states and two territories, and the Austra-
lian Local Government Association, with a stated purpose to “develop and monitor the
implementation of policy reforms that are of national significance and which require
cooperative action by Australian governments” (COAG 2009).
Until the 1990s, state and federal government responded to drought with emergency
relief efforts and funding, in much the same way they did for other disasters, such as

Australia’s Millennium Drought: Impacts and Responses 107
cyclones, earthquakes, or floods. With the realization that drought was an inevitable
and recurring threat, governments at all levels agreed to a National Drought Policy in
1992, based on principles of self-reliance and risk management.
In 1994, the COAG agreed to the Water Reform Framework, a key goal of which was to
establish a market-based water management system by 2005. Elements of the Frame-
work included allowing prices to reflect the full cost of resources, ending most subsi-
dies, and making remaining subsidies more transparent. Conflicts of interest were to
be removed by taking regulatory functions away from agencies also involved with sup-
plying water. Lastly, trading and selling of water rights was to be introduced nationally.
Difficulties were encountered in implementing the ambitious reform package, in part
due to lack of cooperation between states, each having separate jurisdiction over por-
tions of watersheds and competing for the same resource (Thompson and Price 2009).
Disappointed by slow progress, governments made a new attempt to accelerate
reforms with the National Water Initiative (NWI) in 2004. Under the Initiative, signed
by all the states and territories between 2004 and 2006, states agreed to conduct water
reforms and move toward “integrated management of water for environmental and
public benefit.” The agreement built on the 1994 Water Framework, and its purpose
was to develop a more cohesive approach to the way that Australia manages, measures,
plans for, prices, and trades water. In December 2004, the Australian government cre-
ated an independent body, the National Water Commission (NWC), to oversee imple-
mentation of the NWI.
As a part of the NWI, the government also created a $2 billion Water Fund to invest
in water-efficiency upgrades (discussed later in this chapter). The largest of these pro-
grams, Water Smart Australia, was a competitive grant program funded at $1.6 billion.
Two smaller programs included Raising National Water Standards ($200 million) and
Community Water Grants ($200 million). The NWC was given responsibility for admin-
istering the latter programs, whereas Water Smart Australia has since been transferred
to the Department of the Environment, Water, Heritage and the Arts (Cull et al. 2010).
In January 2007, faced with growing water shortages and seeing a need for swift
action, Prime Minister John Howard announced the National Water Plan, extending
the powers of the federal government over water management and committing $10 bil-
lion to various water projects. The plan was called “hurriedly prepared and ambitious,”
launched during the administration’s last year in a bid to be seen as taking action on
water, which had proven vexing to many politicians (Connell and Grafton 2008, Wat-
son 2007). However, the plan was enthusiastically taken up by the newly elected Labor
Party administration of Kevin Rudd in 2008. Under the 2007 Water Act and amendments
passed by the Parliament in 2008, Australia established a new authority to manage the
waters of the distressed Murray-Darling Basin and restore water to the environment.
Further, the act committed the federal government to spending $12.9 billion, with the
majority of funds for infrastructure improvements and irrigation efficiency projects,
and to “buy back” water from irrigators and dedicate it to the environment.

It has been said that Australia rose to prominence on the backs of sheep. In the 19th
century and first half of the 20th century, agriculture formed the basis of the economy
and wool was the number one export. In recent years, agriculture has contributed to

108 The World’s Water Volume 7
only 3 percent of the nation’s economy (Hamblin 2009). Yet agriculture takes up 54
percent of Australia’s land and 65 percent of its human water use (Australian Bureau of
Statistics 2010b). In his bestseller Collapse (2005), Jared Diamond states that “only tiny
areas of Australian land currently being used for agriculture are productive and suitable
for sustained agricultural operations.” Behind his contention is the fact that 80 percent
of agricultural profits come from only 0.8 percent of the country’s agricultural lands and
that up to half of farms are unprofitable (DSEWPC 2002).
In effect, government subsidies, including low-cost water, prop up an industry that
would not otherwise be profitable. Diamond enumerates the environmental advan-
tages of phasing out unprofitable agriculture but acknowledges it would be a “first”
in the modern world if any government decided to do so. The debate on agricultural
water use and the extent to which government should “bail out” farmers struggling due
to drought illustrates the dilemmas of this policy decision. On the one hand are the
neo-liberal political ideals and policies idealizing the free market and competition. On
the other is Australians’ deep nostalgia for their agrarian roots and sympathy for hard-
working farm families.
According to the Australian Bureau of Meteorology: “The 1990s saw formal Govern-
ment acknowledgement that drought is part of the natural variability of the Australian
climate, with drought relief for farmers and agricultural communities being restricted
to times of so-called ‘exceptional circumstances.’ In other words, the agricultural sector
was expected to cope with the occasional drought, and relief would be available only
for droughts of unusual length or severity” (Australian Bureau of Meteorology 1999).
Changing attitudes have led to the gradual reversal of long-standing policies intended
to increase irrigation water use and foster settlement in rural Australia. “In 1992, the
Commonwealth government insisted that farming be considered a business—a cen-
tral element of which has to be the ongoing management of risk—and subsequently
removed farm welfare provisions from agricultural adjustment programmes” (Mercer
et al. 2007).
This new policy was bound to be unpopular with farmers. A female grazier in Central
Queensland told interviewers: “I think [the government’s position] is absolutely stupid.
It is a disaster. We haven’t created it. It is the same as the cyclone or earthquake. It is
the elements [that are] beyond us.” Another stated: “Everybody else gets assistance if
there is a flood or a fire. Why shouldn’t the farmers get assistance? We are feeding the
nation” (quoted in Stehlik 2005). It has been difficult for the government to maintain a
disciplined stance in the face of obvious suffering. Between August 2001 to September
2010, the Australian government spent more than $4.5 billion on “exceptional circum-
stances” payments to support farmers and small businesses affected by the drought
(Lloyd 2010). In 2007, the government doubled to $150,000 the amount it would pay to
a farmer to simply leave his or her land (Hamashige 2007).
Public pressure and Australian attitudes contribute to this difficulty. Despite the
fact that most Australians live in cities and suburbs, images of the outback and the
hard-working farm families are an important part of the Australians’ self-image. Linda
Botterrill, director of the National Institute for Rural and Regional Australia, cites as an
example cultural representations of the “real Australia” in the opening ceremonies of
the Sydney 2000 Olympics, and the popularity of television programs with rural set-
tings, such as McLeod’s Daughters, Flying Doctors, and Blue Heelers (Botterill 2003). As
desert specialist Mark Stafford Smith puts it, the “almost mythological place that the

Australia’s Millennium Drought: Impacts and Responses 109
outback has in the heart of urban Australia enables a small rural electorate to have a
disproportionate influence on the political process through the emotional ties of the
urban populace” (Botterill and Wilhite 2005).
The Australian government is investing heavily in infrastructure to improve agricul-
tural water efficiency, committing the largest portion of the $12.9 billion in the 2007
Water Act to infrastructure improvements and grants to support on-farm irrigation
efficiency. Not everyone agrees with the wisdom of investing in irrigation infrastructure.
A number of environmentalists and economists argue that much of Australia’s irrigated
agriculture harms the environment and is losing money, and that the country needs
less irrigated land. Savings from agricultural efficiency improvements are difficult to
quantify, and equivalent savings could frequently be obtained more cheaply by simply
purchasing water entitlements and retiring marginal lands (Collins 2008).
At the farm-field scale, many more farmers are now using water-saving manage-
ment practices, such as no-till planting and improved irrigation methods. Zero-till has
been described as a revolution in wheat farming in Australia in the past decade. Using
zero-till methods, farmers plant directly into undisturbed soil, leaving stubble from the
previous crop in place. This method conserves soil moisture and organic matter, allow-
ing farmers to achieve small but economic harvests with as little as 100 millimeters (4
inches) of rain (O’Neill 2010). Mick Keogh, executive director of the Australian Farm
Institute, says that cropping technologies such as minimum tillage have had a huge
impact: “In terms of labour and time, the technology is light years from where it was 20
or 30 years ago and with that comes flexibility” (quoted in Wahlquist 2010).
Drought forecasting is another strategy to help farmers improve water management
and farm income. The variability of Australia’s climate from one year to the next poses
challenges to farmers in deciding what crops to plant and when to plant them. For those
whose livelihoods depend on rainfall, it is troubling to find that “seasons are poorly
defined” and are not “fixed in either amplitude or timing” (Botterill and Wilhite 2005).
At the federal level, Land and Water Australia has conducted research to create monthly,
seasonal, annual, and longer-term forecasts to help farmers make better decisions
about planting and managing water (Land and Water Australia 2009). Colin Creighton,
the Managing Climate Variability coordinator at Land and Water Australia, says, “Our
research success will mean the agricultural sector can make better decisions on dryland
production mixes and practices by linking their on-farm decisions to risk analysis and
predictions for key attributes such as plant-available water, frost frequency, heat events,
and forage availability.”
The Australian government is also sponsoring research to develop drought-resistant
varieties of important crop species. These efforts are not new: Australia’s wheat industry
burgeoned after introduction of early-maturing and disease-resistant Federation wheat
in 1901. Today, CSIRO’s Plant Industry division has an annual budget of $84.4 million
and 700 staff at nine facilities around the country. Recent research there has focused on
developing the world’s first drought-tolerant strain of wheat, Australia’s most important
export crop. Progress has been slowed by the size and complexity of wheat’s genome—
there is no single gene that controls for drought tolerance (O’Neill 2010).
Government and corporate researchers, working in a public-private partnership
dubbed “Graingene,” have so far released two varieties, Drysdale and Rees. These are
sold by the agribusiness company AWB and are protected by Australian intellectual
property law, making it illegal for “any unauthorized commercial propagation or any

110 The World’s Water Volume 7
sale, conditioning, export, import or stocking of propagating material” (CSIRO Plant
Industry 2010). Another potential obstacle faced by plant breeders is that the Austra-
lian public is generally untrusting of genetically modified (GM) food, and several states
have placed moratoriums on growing GM food crops. GM cotton, however, introduced
in Australia in 1996, made up 95 percent of the cotton crop in 2010 (GMO Compass
2010).
Companies have also developed products that reduce evaporation from water sur-
faces such as farm ponds. Products in use in Australia include specially made shade
cloths that float on top of water; a variety of floating, modular devices that are effective
(and expensive); and monolayers, which are chemical films that float atop water. These
chemicals need to be reapplied frequently and are less effective when wind disturbs the
water surface (Short 2007). Some members of the public have also expressed concern
about the safety of introducing these new, patented chemicals into the environment
and food supply. Agricultural extension services recommend other practices that are
more natural, such as planting trees as windbreaks or adding compartments to farm
ponds to reduce the surface area when it is less than full.
The government has also invested to improve the measurement of water deliveries
to irrigators. In many locales, measurement was impossible due to lack of measure-
ment devices and staff. According to writer Michael Cathcart: “During the 1990s, I met
irrigators who confessed to jamming their meters or to secretly pumping directly from
the river in the dead of night” (Cathcart 2010). A portion of the government’s spend-
ing under the National Water Plan has been to improve water metering. In 2008, $417
million was dedicated to begin building the Australian Water Resources Information
System, which will employ 120 hydrologists and information technology professionals
(Woodhead 2008). Accurate water metering is also a prerequisite to creating working
water markets.
A great deal of international attention has focused on water trading in Australia. The
creation of water markets has been the government’s most important strategy for deal-
ing with drought and restoring the environment in the Murray-Darling River Basin, as
described in the following section.
Water Management in the Murray-Darling
The Murray River Basin in southeast Australia covers one million square kilometers (14
percent of Australia’s area), a size equivalent to France and Spain combined. It is home
to 39 percent of the nation’s agricultural production and 85 percent of the irrigated area.
The watershed also contains 30,000 wetland areas, 16 of which are recognized under
the Ramsar Convention (an international treaty signed in Iran in 1971 governing the
protection of wetlands of international importance, especially as waterfowl habitat).
Due to overextraction and drought, the Murray River failed to flow to the sea in 2002. For
decades prior, the poor health of the river and the growing environmental movement
led to calls to restore the river through better water management.
In response to evidence that the river system was overallocated, governments and
irrigators agreed in 1992 to cap diversions, preventing more water from being taken out
of the rivers. The “Murray-Darling Cap” was meant to allow greater environmental flows
(which farmers dismissively called “duck water”), but it became clear that restoring the
health of the river would require much bigger cuts (Cathcart 2010). In 2002, a group of
prominent environmentalists released a series of statements including the Blueprint for

Australia’s Millennium Drought: Impacts and Responses 111
a National Water Policy, calling for a halving of withdrawals from the river (Cosier et al.
2003).
In 2006, flows on the Murray fell to unprecedented lows, prompting the adminis-
tration of Prime Minister John Howard to come up with a plan. He tasked the Basin
Authority with setting “sustainable diversion limits,” the level of consumptive water use
in the river system in line with restoring the health of ecosystems. The result, a draft
plan released in October 2010, calls for cuts of 22 to 29 percent in water use in the basin
by cities and farms. Water expert Sandra Postel called it “perhaps the boldest water
reform of this type ever proposed” and one that “few in the world have had the courage
to undertake: asking farmers and communities to adapt to a future with less water in
order to restore failing rivers, lakes, and wetlands” (Postel 2010).
The Commonwealth government has committed $12.6 billion over the next 10
years to ease the transition. About half of the funds ($5.8 billion) are targeted toward
water-efficiency projects, for example, improving on-farm efficiency by installing drip
irrigation. This approach has been criticized on several grounds. On the one hand,
such subsidies are at odds with the stated goals of the National Water Initiative of full-
cost pricing of resources and eliminating subsidies, leading some to call water policies
“schizophrenic” (Crase 2009). Others point out the unfairness to irrigators who have
already invested in on-farm efficiency improvements and will not benefit from govern-
ment payments, while those who lagged behind receive assistance.
Reaction to the Basin Plan among farming communities has been overwhelmingly
negative, as farmers already stressed by years of drought are worried about future cuts.
The plan reflects the growing political power and influence of the environmental move-
ment in the face of what Australian economist Lin Crase has described as “the long-
standing vested interest from irrigated farming to maintain the status quo,” and ability
to “cushion its constituents from the impacts of any reallocation of the resource” (Crase
2009).
Water Markets
Market mechanisms have been explored as a way to reallocate water use in the Murray-
Darling Basin, beginning in the 1980s when water trading was introduced in the state of
South Australia. Among the obstacles to more widespread trading was that entitlements
(the quantity of water a farmer has a right to use) were not always well established or
well documented. A second barrier was the inability to measure water deliveries and
extractions in rural districts. Further, the Murray-Darling Basin is divided among four
states, each with separate jurisdiction over water allocation, and often competing for
use of the same resource.
Reforms in the mid-1990s and again in the mid-2000s dealt with some of these issues,
clarifying and documenting entitlements and permitting interstate water trading. A key
provision of the 2007 Water Act was to give the Australian Competition and Consumer
Commission expanded powers to develop and enforce water charges and water-market
rules. The government moved to expand water markets “based on the premise that
trading provides economic benefits to buyers and sellers, and to society as a whole, by
reallocating scarce water resources to higher valued uses” (NWC 2010).
As the thinking went, the “discipline of the market” would drive up the cost of water,
forcing irrigators to use it efficiently and reduce waste. A farmer with a tradition of
using water is granted a water-access entitlement that he can lease or “transfer” for six

112 The World’s Water Volume 7
months to another water user. Policy makers and economists talk of “willing buyers”
and “willing sellers”: a farmer is motivated to trade when he believes he can make more
money by selling his water entitlement rather than using it himself. Trades are usually
handled through brokers, such as Adelaide-based Waterfind. Entitlements can also be
sold outright, in which case the irrigation block is stripped of its water. The “unbun-
dling” of water from the land has been a key reform at the state level—previously
licenses allowed for only certain uses (e.g., irrigating a particular parcel of land). The
result of reforms has been to make trading faster and easier; irrigators can now buy and
sell water over the phone or even via text messaging.
Although economists admit that freer trade will not benefit everyone, they argue that
“gains will outweigh losses on average and that, if necessary, losers can be compensated”
(Quiggin 2006). But water markets by themselves do not necessarily benefit the environ-
ment. In order to restore water to ecosystems, the Australian government in 2008 com-
mitted $3 billion to buy back water from the overallocated Murray-Darling. It created
the Commonwealth Environmental Water Holder to purchase and retire existing water
rights and dedicate water to instream flow or to refill lakes and wetlands (Postel 2010).
As of 2009, the government had already purchased 766 billion liters worth of entitle-
ments. The Basin Authority estimates that water buybacks and efficiency improvements
can save up to 2 trillion liters per year, or up to two-thirds of the reductions needed to
meet restoration goals. Buybacks have become the main element in the government’s
efforts to restore aquatic ecosystems. Australia’s decision to use buybacks as a strategy
partly reflects the limited power granted to the federal government by the Australian
constitution; with regard to water, the government’s powers are generally limited to
taxation and spending. However, when compared to alternatives such as desalination
or funding water-efficiency upgrades, analysts have called buybacks “the cheapest and
most feasible mechanism for dealing with over-allocation problems” (Crase 2007).
To date, water trading has received broad support from politicians, environmental-
ists, and the agricultural community in Australia, but it is not without detractors. Gen-
eral concerns raised by human rights campaigners condemn markets as a corporate
takeover of water. Taxpayers wonder whether the only way to guarantee river flows is
to spend billions in taxpayer dollars. If water is a public good, why should the public
have to pay to keep rivers flowing? Another concern is that water trading could activate
unused water rights (called “sleepers”), worsening the problems that markets were to
help resolve (Quiggin 2006).
Many have also expressed concern about the effects of water trading on rural com-
munities, frequently focused on the concept of “stranded assets” (NWC 2010). Within an
irrigation district, each subscriber’s payments help fund operations and infrastructure
maintenance. When individuals sell entitlements, there are fewer subscribers in the
district, placing a greater financial burden on the remaining irrigators. Government
regulators have attempted to mitigate such “third-party effects” of trading by setting
caps on the amount of water that can be sold outside of an irrigation district. For
example, Victoria and New South Wales set a 4 percent annual limit on the volume of
water entitlements that could be traded out of a district. Such limits to trading proved
unpopular with irrigators, and were removed at the beginning of the 2009–2010 season.
Regulators have also contemplated adding “termination fees” to compensate irrigation
districts for lost revenue and help manage the stranded assets problem.
University of Queensland economist John Quiggin writes that “the idea of stranded

Australia’s Millennium Drought: Impacts and Responses 113
assets may be extended further, to encompass social infrastructure such as schools,
hospitals and banking services.” Some economists have dismissed this argument,
arguing that “sunk costs” should be disregarded in investment decisions. Regardless of
this logic, it is small consolation to a farmer who has recently invested in laser leveling
and drip irrigation. Quiggin argues that transitioning to a sustainable rural economy
will involve adjustment costs, and “the appropriate response is to mitigate those costs
rather than to prohibit trade altogether” (Quiggin 2006). Throughout the reform pro-
cess, there has been pressure on government to mitigate the negative effects on rural
communities. For decades, official policies encouraged irrigated agriculture that is now
seen as unsustainable, and some argue that it is only fair to compensate those dealing
with the results of these policies. “The persuasiveness of the stranded assets argument
and the accompanying hysteria about water leaving agricultural districts undoubtedly
explains the return to favor of engineering solutions in policy circles. After all, renovat-
ing irrigation districts and subsidizing on-farm capital investments is hardly likely to
draw criticism from the agricultural sector” (Crase 2009).
Critics have also raised concern about manipulation of water markets and hoarding
by “water barons.” A recent series of articles have focused concern on the involvement
of large international investors getting involved in the Murray-Darling’s water markets.
Regulations were written so that markets are not limited to bilateral trades among
bona fide water users. In other words, third parties—even those who have no intention
or ability to use Murray water—can participate in the market. This increases a mar-
ket’s “liquidity” and efficiency, increasing the chance that one can make a transaction
quickly, rather than waiting for a willing buyer or seller to appear. However, it also sets
the stage for speculation, market manipulation, and instability. Andrew Gregson of the
New South Wales Irrigators Council told the Sydney Morning Herald, “We don’t have a
problem with investment, or indeed, speculation in the water market. We are concerned
about market dominance. It’s a recently developed, relatively fragile market” (Circle of
Blue 2010).
In a review of the Murray-Darling water trading scheme, the NWC concludes that
water trading has played a role in reducing financial hardships to farmers during the
drought: “Although water trading out of a region may in some cases accelerate existing
social and economic changes, without the financial cushioning effects of water trad-
ing the impacts of the drought would undoubtedly have been worse” (NWC 2010). The
government audit found that trading resulted in the movement of water within regions,
as well as transfers between states and regions, with the volume of trading increasing
in 2008–2009 to the point that nearly one in four water deliveries consisted of traded
water.
Since trading was initiated in 2001, it has contributed $370 million in the Southern
Murray-Darling Basin. From 2001 to 2006, the value of agricultural production in the
region increased by 2 percent despite a 14 percent reduction in water use. This appears
to be driven by a decrease in area cultivated in rice, and by slight increases in higher-
value crops such as vines and citrus. Not all regions benefited, however; the rice-grow-
ing region along the Murrumbidgee River saw decreases in water use and declines in
agricultural output. On a national scale, the benefits of trading appear to have exceeded
the costs, with analysts concluding that water trading contributed an additional $220
million to Australia’s gross domestic product. The NWC has concluded that water trad-
ing can play an increasingly important role in mitigating the future impacts of drought,

114 The World’s Water Volume 7
climate change, price fluctuations of agricultural commodities, and diversion limits
imposed by regulators. In fact, the Commission is so confident in the benefits of trad-
ing that it has recommended expanding the system of water markets to the nation as a
whole, and for the government to move forward quickly with further reforms to make
water trading faster, easier, and more efficient.

Drought-induced water shortages have renewed focus on the water needs of Australia’s
growing cities. The Australian government has been working with states and territories
to reform urban water management, with the goals of enhancing water-supply security,
adapting to changes brought on by climate change, and decreasing overall water use.
A number of these programs are being developed through the Council of Australian
Governments—a coalition of federal, state, and local governments.
To date, most urban water suppliers have been reluctant to purchase water from
irrigators to augment their supply. For example, Sydney has pursued expensive desali-
nation, recycling, and a dam-raising project ahead of purchasing cheaper water from
irrigators served by the Tantangara Dam (Collins 2008). While transfers from agriculture
are feasible for many of Australia’s cities, and are in many cases cheaper and more envi-
ronmentally friendly than the alternatives, a range of government policies discourage
such transfers (Quiggin 2006). Other reasons put forth are Australians’ sympathy for
farmers, and the reluctance of politicians to disrupt the status quo in the absence of
a strong demand from the electorate. Ultimately, however, water suppliers have only
two options for dealing with shortages: to increase supply or to decrease demand. The
ways in which Australia’s urban water suppliers have moved forward with both of these
strategies are described in the sections that follow.
Recycling and Desalination
The use of reclaimed water, or recycled water, has become more common in the past
decade. Water recycling refers to reusing treated wastewater. Depending on the level of
treatment, water may be suited for nonpotable use, in irrigation or for flushing toilets.
In other cases, highly treated water is suitable directly for drinking (called direct potable
reuse). An example of the latter is the $90 million water recycling facility under con-
struction in Geelong, Victoria, toward which the Australian government is contributing
$20 million. The facility expected to produce 2,000 million liters a year of potable water,
enough to supply about 10,000 homes, or about 5 percent of the city’s annual water use.
At the plant, sewage undergoes conventional wastewater treatment, followed by ultra-
filtration, and passes through two rounds of reverse osmosis membranes. In pilot tests,
the water removed all pathogens and viruses and passed all government regulations
for Class A drinking water (Barwon Water 2010). Despite reassurances that the recycled
water is fit for drinking, recycled water in Victoria will be distributed via “purple pipe”
for watering gardens, washing cars, and flushing toilets. The public has been slow to
accept direct potable reuse, causing suppliers to discharge recycled water to surface
reservoirs or aquifers or to create “dual reticulation” systems like the one in Victoria.
Drought has encouraged more cities to consider desalination as a new source of
water supply. In 2006, the city of Perth opened the Kwinana Desalination Plant, the

Australia’s Millennium Drought: Impacts and Responses 115
first seawater desalination plant for urban water supply in Australia. A second plant is
already under construction in Perth. A number of other plants are either being planned
or already under construction in Sydney, Melbourne, Adelaide, and on the Gold Coast.
Together, the country’s five largest cities are spending $13.2 billion and installing suffi-
cient capacity to meet 30 percent of their current water needs (Onishi 2010). As of 2009,
there were a total of 46 desalination plants in Australia with a capacity of at least 10,000
liters per day, and by the year 2013, the total capacity is expected to double (Hoang et al.
2009).The government has also dedicated $20 million over five years to create a desali-
nation research center in Perth and a center for research on water recycling in Brisbane
(DSEWPC 2010).
While the official government policy is that 100 percent of water infrastructure and
delivery costs should be passed on to customers through water rates, the Australian
government has provided millions in incentives and subsidies for the construction of
desalination and water recycling plants. Desalination is among the costliest of water-
supply options, and critics contend that investments in water conservation and effi-
ciency are far less expensive. To finance construction, suppliers have been forced to
raise water rates, passing on the expense to customers. Others oppose desalination for
its environmental impact. Up to half the cost of operating desalination plants is for the
purchase of electricity. And because most of Australia’s electricity is produced from coal,
desalination contributes to the emission of greenhouse gases.
Restrictions
Australian cities’ demand management efforts have been largely successful; between
2002 and 2008, per-capita urban water use declined by 37 percent (Kendall 2010).The
predominant approach that cities have used to limit water demand has been to impose
water restrictions. Restrictions can be either permanent or temporary, and they may
subject certain uses to an outright ban or put in place rules to promote efficiency. An
example of one such rule is requiring hoses to have a nozzle with a shutoff trigger.
Another category of rules discourages watering by making it more inconvenient and
time-consuming, for example, by banning sprinklers but allowing buckets for hand
watering. Table 5.1 shows the drought stages in the Australian Capital Territory (ACT),
home to Canberra, which is Australia’s capital and eighth-largest city (ACTEW Corpora-
tion Limited 2010). Stages are tied to reservoir levels and water-supply outlooks; man-
agers announce progressively greater restrictions as supplies dwindle.
Temporary restrictions are the most common urban drought management policy,
and they have been implemented by nearly all municipalities across Australia over the
past decade. Although the restrictions vary widely, authorities typically first target out-
door water uses that are most visible and consumptive, such as lawns, gardens, swim-
ming pools and spas, car washing, and washing hard surfaces. Permanent restrictions
have often grown out of temporary ones, as some districts decide to keep certain rules
in place even after the drought has ended. To date, permanent restrictions have been
put in place in cities in Victoria, South Australia, and the ACT. The most typical perma-
nent restriction is on daytime sprinkler use, which utilities estimate have resulted in
savings of 4 to 9 percent (Chong et al. 2009).
Restrictions on outdoor water use have made it harder to keep recreational areas
green and attractive. This has been blamed for a number of social ills, including “loss of

116 The World’s Water Volume 7
participation in sports and associated impact on community health, community pride
and spirit; rise in antisocial behaviour, and a loss of employment” (Chong et al. 2009).
Australia’s professional sports leagues have been latecomers to water conservation.
After three years of deliberation, the Australian Football League and Cricket Australia
have agreed to standards for synthetic turf, and they began constructing the first syn-
thetic turf oval in Wyndham City, Victoria, in February 2011 (Edwards 2011).
The Australian public has been generally supportive of water restrictions. A 2008
survey of community attitudes toward water restrictions found that most Australians
understood the need for restriction but noted that attitudes may change as restric-
tions become more severe or long-lasting, such as total outdoor watering bans that last
an entire summer. Indeed, an engineering study conducted for the ACT government
quoted complaints from elderly customers who had difficulty “hand watering during
early morning or late evening times, particularly during winter” (Hughes et al. 2008).
In practice, some restrictions are difficult or impossible to enforce, and they rely on
the cooperation and goodwill of the public for their success. One Melbourne resident
explained people’s cooperation as a sense that “we’re all in this together.” Others have
suggested that this kind of social cohesion and cooperation is part of the Australian
character. “Mateship” is a traditional term for friendship but also connotes a code of
conduct stressing equality. The public’s overall acceptance clashes sharply with the
rhetoric of some politicians, who describe restrictions by water suppliers as “draconian
impositions on individual freedoms”:
Table 5.1 Water Restrictions in the Australian Capital Territory
Stage 1 Stage 2 Stage 3 Stage 4
Target annual
reduction
10% 25% 35% 55%
Sprinklers and
irrigation
Alternate days,
7–10 a.m. and
7–10 p.m.
Drippers only,
7–10 a.m. and
7–10 p.m.
No reticulation
Hand-watering
gardens and
lawns
No restrictions Alternate days,
7–10 a.m. and
7–10 p.m.
No watering
lawns; watering
plants alternate
days, 7–10 a.m.
and 7–10 p.m.
Graywater only
Swimming pools No emptying or filling;
topping up allowed
No topping up, emptying, or filling
Car washing Once a week, or
at commercial
car wash
Once a month,
or at commercial
car wash
Only at commer-
cial car washes
No car washing
Window cleaning Only with bucket
or high-pressure,
low-volume
cleaner
No window cleaning
The term reticulation refers to the use of piped irrigation systems, including sprinklers and drip irrigation
systems (drippers).
Source: ACTEW Corporation Limited 2010, Wikipedia 2010.

Australia’s Millennium Drought: Impacts and Responses 117
The simple fact is that there is little or no reason why our large cities should be
gripped permanently by water crises. . . . Having a city on permanent water restric-
tions makes about as much sense as having a city on permanent power restric-
tions. (Prime Minister John Howard, July 17, 2006)
I think Melbournians have had a great amount of goodwill in saving water but
I think, with the Government threatening to introduce some very draconian
measures that the Government is at risk of eroding community goodwill. (Louise
Asher, member of the Victorian Legislative Assembly, Shadow Minister for Water)
(each quoted in Chong et al. 2009)
So far, in spite of Australians’ dislike for “pollies” (politicians), they have for the most
part gone along with restrictions ungrudgingly. Perhaps cooperation is related to aware-
ness of environmental issues; 98 percent of Australians participate in recycling pro-
grams, a far greater proportion than in either Europe or the United States. Melbourne
authorities have sought to prevent water restrictions from becoming “an avenue for
expression of neighbourhood disputes” by designing an enforcement program to mini-
mize risks (Chong et al. 2009). For example, meter readers wear “water patrol” vests;
even though they do not have authority to issue fines, their presence creates commu-
nity confidence and provides a visual reminder of restrictions. When a neighbor calls to
report a violation (a so-called “dob in” call), the city first sends an educational letter to
the alleged violator. Only a second call results in a site visit. Melbourne authorities have
recently stopped accepting such calls altogether, requiring complainants to fill out a
witness form and provide written details of the violation.
Some states have deputized “water inspectors” to issue penalties to water wasters.
On-the-spot fines range from $100 to $500 but are generally not issued until the second
or third offense. Perhaps surprisingly, a government review of the program found little
opposition to fines among community representatives (Chong et al. 2009). There is
also anecdotal evidence of community policing, which unfortunately has led to a few
instances of confrontations, violence, and even one death (Australian Broadcasting
Corporation 2007).
Communicating information to customers on restrictions is obviously of prime
importance. Utilities have communicated with customers mainly through mailings or
inserts in water bills on restrictions, via the utilities’ websites, and using public adver-
tising. Messages encouraging compliance with restrictions are generally included in
a broader campaign to promote water conservation and efficiency. Hence, messages
about restrictions are accompanied by information on rebates for water-efficient appli-
ances and devices, showerhead exchanges, and more general educational information
(Chong et al. 2009).
Some analysts have urged greater use of economics, emphasizing the use of price
incentives for conservation, rather than prescribing when and how people use water.
One economist noted that “water restrictions are a relatively limited and inefficient
method of rationing demand, imposing inconvenience costs and allocative efficiency
costs and also involving significant enforcement costs” (Hughes et al. 2008). Water pric-
ing, some argue, is a better economic tool, and that approach has also been tested in
Australia.

118 The World’s Water Volume 7
Water Pricing
Among other reforms passed during the Millennium Drought, the National Water Com-
mission has created a set of nationwide principles for pricing urban water. The national
guidelines require utilities to put water rates for all types of customers on a rational
footing, removing pressure on politicians to underprice water to win favor with voters.
Reformers have stressed that consistent pricing policies would lead to efficient water
use and help create more-efficient and viable markets for water trading between juris-
dictions (NWC 2010). Under the NWI, the national government has directed state and
local administrations to use best practices in water pricing. Broadly, rates should be set
to recover costs (including mitigation of environmental harm) while precluding exces-
sive profits by monopoly service providers.
The new policy, finalized in February 2010, stipulates that all municipalities should
move to full-cost pricing of water, or “upper bound pricing,” in which all aspects of
water service delivery and infrastructure are covered by ratepayers, rather than through
subsidies or transfers from other government revenues. Policy makers have acknowl-
edged that, especially in rural areas, “some small community services will never be
economically viable but need to be maintained to meet social and public health obliga-
tions” and will require continued subsidies, but these are to be publicly disclosed and
transparent (DEWHA 2010).
The new pricing policies are intended to promote efficient, sustainable use of water
and continued investment in infrastructure. The policy requires consumption-based
pricing (the more you use, the more you pay) but stops short of requiring tiered rates.
Many Australian cities charge two-part tariffs, where users pay a connection fee as well
as volumetric water charge, but tiered rates are much less common in Australia than in
other industrialized countries. Under tiered rate structures, customers pay increasingly
high rates when their consumption increases to higher levels. Such rates are intended to
make water service affordable to everyone while charging a premium to big consumers
and discouraging waste.
The concept of “staged” scarcity pricing has also been promoted by the NWC and
backed by a study from the Australian Bureau of Agricultural and Resource Economics
(Hughes et al. 2008). Water rates are currently set by regulators to match estimates of
the costs of running the water system. Suppliers lack the ability to quickly change prices
to send economic signals for conservation when supplies are low. With scarcity pricing,
water prices would go up when supplies are low, for example, by tying rates to reservoir
levels. Government economists argue that scarcity pricing is more flexible and less
costly than imposing restrictions, but they acknowledge that it raises equity concerns
and that attention should be paid to how such schemes may affect the poor. Potential
ways to address these concerns are through subsidies to low-income families, or rate
designs in which the lowest tier of consumption is made very inexpensive or even free—
a practice that has been implemented in other countries.
Labeling and Education
In 2006, Australia introduced the Water Efficiency Labelling and Standards (WELS)
Scheme to promote water-efficient appliances and fixtures. Backers emphasize the
program’s financial savings and greenhouse gas reductions as well. The program’s web-
site declares: “By 2021, Australians could save more than one billion dollars through
reduced water and energy bills by simply choosing more efficient products.” As of July

Australia’s Millennium Drought: Impacts and Responses 119
2006, all products in the following categories must carry a WELS rating label (like the
one in Figure 5.5): faucets (with some exceptions), showers, toilets, urinals and flow
controllers, clothes washers, and dishwashers.
Key components of the program include a labeling scheme, product testing, and
enforcement. Besides helping to reduce domestic water consumption, it also allows
manufacturers to showcase their most water-efficient products. Australia has become
the world leader in the labeling of water-efficient appliances. Similar systems have been
adopted in the United Kingdom, New Zealand, Singapore, and Hong Kong. The program
has influenced the United States’ WaterSense program and has prompted discussion
about creating a similar scheme for the European Union (Benito et al. 2009).
Rebates are not offered through the WELS program, but many local councils and
water authorities give rebates for WELS-registered products with specific star ratings.
The Australian Department of Climate Change and Energy Efficiency maintains the Liv-
ing Greener website (www.livinggreener.gov.au), where residents can search for rebates
and other assistance available in their area.
In addition to rebates, some utilities offer direct installations, usually of toilets, the
biggest indoor water use. For example, Sydney Water offers a Toilet Replacement Service
that takes up to $370 off the cost of installing a modern, efficient toilet. The program is
designed to make it easy for low-income residents and renters to participate in the pro-
gram. Participants choose from among three different four star–rated, water-efficient,
dual-flush toilets, each of which is installed with a 10-year warranty. Residents can
choose to make a single payment or have the cost spread out over several water bills.
Fi g u r e 5.5 Wels (Wa T e r eF F i c i e n c y la b e l l i n g a n d sT a n d a r d s ) ra T i n g la b e l .
Source: Courtesy of Caroma, http://www.caroma.com.au

120 The World’s Water Volume 7
Conservation Incentives
Many Australians have taken advantage of government incentives to purchase water-
efficient appliances and fixtures in the past 10 years. According to a report by the
Australian Bureau of Statistics, 251,000 households received a rebate or incentive in
2009–2010 for washing machines and dishwashers. These were followed closely in pop-
ularity by water-efficient taps and showerheads (225,000). The market for dual-flush
toilets was not as robust (32,800), probably because they have already been installed
in 86 percent of households. Over the past decade, the market penetration of water-
efficient products has increased substantially (Australian Bureau of Statistics 2010a), as
shown in Figure 5.6.
With drought-imposed water restrictions, interest in rainwater and graywater use has
grown. Graywater refers to household water that has been used in sinks, showers, and
the laundry (toilet water is referred to as blackwater). As of the late 1990s, graywater
reuse was illegal in every state in Australia, although it was already widely used in many
households (Marshall 1997). Today, graywater use has become more common and
ranges from fully plumbed systems to simply placing a bucket in the shower to catch
runoff for watering flowers.
As recently as the early 1990s, rainwater tanks were a common sight in Australia,
where as many as 16 percent of homes had tanks and 13 percent relied on them even for
drinking water. However, they had mostly disappeared by the 2000s. The drought and
water restrictions renewed interest in rainwater tanks, and utilities and state govern-
ments began encouraging residents to install rainwater tanks, often with the offer of a
financial rebate or incentive.
The National Rainwater and Graywater Initiative promotes these technologies and
provides financial incentives to residents. Rebates can range from $150 to $1,500 for the
installation of a rainwater tank, depending on the size of the tank and whether it is con-
nected to the house’s plumbing. Because the cost for an average tank is around $4,000,
Fi g u r e 5.6 ho u s e h o l d s W i T h Wa T e r -sa v i n g P r o d u c T s , 1998–2010.
Source: Australian Bureau of Statistics 2010a

Australia’s Millennium Drought: Impacts and Responses 121
it is a substantial investment for residents, yet 104,600 people received a government
rebate in 2009–2010 alone.

Heavy rains and flooding in the austral spring of 2010–2011 prompted journalists to
declare an end to the Millennium Drought. The nation’s largest newspaper, the Aus-
tralian, confidently declared, “Fresh Hope for Nation as Drought Breaks” (Lloyd 2010).
Indeed, high rainfall across southeastern Australia refilled dams and restored river
flows across Queensland, New South Wales, southwestern Victoria, and parts of South
Australia. However, Australia’s National Climate Center was more cautious, stating that
“Australia’s wettest September on record is not enough to clear long-term rainfall defi-
cits” (National Climate Center of Australia 2010). Although rains restored soil moisture
and give irrigators at least a temporary reprieve from drought, water suppliers’ troubles
have not ended, as the rains were not sufficient to restore all of the country’s depleted
reservoirs and aquifers. And, as history shows, droughts return.
Also worrisome, climate scientists warn that climate change will continue to worsen
the risk of droughts, as temperatures rise and precipitation and water availability
decrease. Some Australians speak of having already experienced a “step change” in cli-
mate and of being among the first nations to experience the negative consequences of
global warming. How well Australia manages water will largely determine how well the
country adapts to a warmer, drier, and more uncertain future.
The Big Dry will be remembered as the longest and most serious drought in Austra-
lian history. It has had a lasting effect on Australians’ attitudes toward water, climate
change, and the environment. It has profoundly affected rural economies, stimulated
changes in the agricultural sector, and prompted critical thinking about how to mod-
ernize Australian agriculture and make it sustainable. The drought has set off a building
spree of desalination plants on the nation’s coasts and has increased Australians’ aware-
ness of water conservation. It has turned the humble rainwater tank into a fixture of
more and more homes and has made newfangled dual-flush toilets the norm. Finally, it
has set Australian water management on a new course, the success of which will not be
fully understood until the next major drought.
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