The Hunter River, north of Sydney, drains the largest coastal catchment in New South Wales, covering 22,000 square kilometres. River water is used for a number of competing activities that affect water flows including:
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extracting irrigation water for agriculture, which can leach natural salt into groundwater and rivers
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pumping collected saline water from the mining activities of over 20 coal mines
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using large volumes of river water in electricity generation for cooling, which increases the salinity concentration of remaining water.
These activities affect the river ecosystems as well as downstream users.
Variable flows in the Hunter River can result in highly saline water, which can exceed acceptable levels at times. The environmental impacts affecting the Hunter River are both short- and long-term in nature, restricting future developments. Because traditional regulatory policies were struggling to enhance the resource management and use, alternative solutions were investigated by the Environmental Protection Agency (EPA). The EPA, in conjunction with stakeholders, decided to run a salinity-trading scheme.
River salinity concentration depends heavily on rainfall and river-flow conditions. Under low flow conditions, high salinity discharges entering the river have a high impact on river salinity. However, as river flows increase, there is a peak of salinity levels as natural salts are picked up, but then a steep decline in salinity as the flow dilutes salt concentration. This means that under flexible management arrangements linking allowed discharges to current salinity levels, more saline water can be released into the river under high flow conditions, without compromising the water quality of the river.
Following community consultation with all affected parties, a cap on acceptable salinity concentrations was set. By using real-time monitoring at several points along the river, managers and trading scheme participants know the salinity levels of river water along the length of the river.
The water in the river is divided into blocks, based on the day a particular part of the river flow passes a designated point on the river at Singleton. The salinity level of each block is monitored.
Users wanting to add to the salinity of the water are allocated a proportional discharge ‘right’ for each water block. The proportion depends on the existing salinity of the water, ensuring that the cap is not breached. Saline discharges are monitored at the point of release.
Because salinity is already too high under low flow conditions, all saline discharges are prohibited at times of low flow. However, given that salinity levels are low under high flow conditions, restrictions on saline discharges are then relaxed. This provides users a level of flexibility in ensuring the cap is not breached.
Businesses wanting to discharge salt into the river must be licensed. The property rights to discharge salt into the river were originally allocated to existing users, free of charge, based on environmental performance, salty water by-product, employment and economic output of each licence holder. There are 1,000 salinity ‘credits’, with each credit allowing 0.1 percent of total salinity discharge per block of water.
The initial credits have different life spans, allowing 200 to be reissued every two years. This allows new entrants to participate in the market. The credits have a lifespan of 10 years and are issued by auction; any licence-holder can purchase credits for their own activities. An auction process not only facilitates free participation by existing and new business, but also allows the market to determine the price of salinity credits based on businesses’ willingness to pay for them. Proceeds from the sales offset the costs of the system.
Credits can also be traded between participants. All information needed to participate in the scheme is available on the internet, making trade between participants simple, open and transparent.
In this way, the structure of the market and the ability to trade encourages ongoing innovation and efficiency, while allowing for further development in the region.
The scheme was established as a pilot, which ran from 1995 to 2002. This allowed the scheme to be monitored and improved over time through consultation with participants. The full scheme was then enacted with property rights enshrined in NSW regulations, specifically the Protection of the Environment Operations (Hunter River Salinity Trading Scheme) Regulation 2002. This formalised the scheme, its property rights and rules, as well as penalties and enforcement.
There are a number of lessons to be taken from the Hunter River Salinity Trading Scheme:
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one of the strengths of the scheme is the active participation and backing of the community. Participants recognise that existing regulations were not achieving success, resulting in a broad acceptance of more radical solutions.
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most scheme participants are large businesses that are well informed with the resources to monitor salinity output and purchase credits. This may not be the case for all NRM situations, creating constraints on using comprehensive cap-and-trade mechanisms in many areas.
The Hunter River Salinity Trading Scheme is an example of a highly coordinated, well-resourced and successfully executed MBI. By taking an appropriate decision-making process, supported by detailed data collection, the Hunter River cap-and-trade mechanism is suited to the issue of salinity. The scheme has benefited from resourced and informed participants, and the community was engaged in consultation at all key points of the development process.
The scheme involves ongoing investment by state government departments and regulatory changes may be beyond the scope of regional bodies; however, as a process, the scheme is a benchmark for tailoring an MBI scheme to help solve a problem.
Since the commencement of the trial, salinity levels have rarely breached the 900EC cap and have more consistently remained below the cap level as shown in Figure 1.
Source: NSW Environment pdf. Accessed 17 January 2008 |