Developing Environmental Service Policy for Salinity and Water: Experiments with Regulations and Markets Linking Watersheds with Downstream Water Users

Shortfalls in water supplies are perhaps the greatest practical NRM policy concern in Australia today, looming larger in many minds than the great international debates on greenhouse gasses, climate change and biodiversity. Because forest land cover uses more water than any other, wide expansion of upstream tree plantations can significantly reduce water yields upon which downstream urban, agricultural and wetlands depend. We consider the economic efficiency and equity (profitability and distributional) consequences of upstream land use change. The ‘environmental services’ of concern in our study are the mean annual quantities and qualities (volumes and salt concentrations) of water flowing from upper parts of a catchment to the downstream interests holding entitlements to that water. We consider the presence or absence of high salinity concentrations (C) in a tributary to the water supply of urban and other high-security users; the presence or absence of policy and/or markets giving strong incentives for upstream tree plantations (P); and the presence or absence of a policy that water entitlements (E) must be purchased from existing entitlement holders before new upstream tree plantations are allowed. A factorial experiment examining all eight ‘yes/no’ combinations of these conditions is defined to explore the associated distributions of upstream and downstream impacts.