‘Sub-Prime’ Water, Low-Security Entitlements and Policy Challenges in Over-Allocated River Basins: the Case of the Murray–Darling Basin

Environmental policy is often implemented using market instruments. In some cases, including carbon taxing, the links between financial products and the environmental objectives, are transparent. In other cases, including water markets, the links are less transparent. In Australia’s Murray–Darling Basin (MDB), financial water products are known as ‘entitlements’, and are similar to traditional financial products, such as shares. The Australian water market includes ‘Low Security’ entitlements, which are similar to ‘sub-prime’ mortgage bonds because they are unlikely to yield an amount equal to their financial worth. Nearly half the water purchased under the Murray–Darling Basin Plan for environmental purposes is ‘Low Security’. We suggest that the current portfolio of water held by the Australian Government for environmental purposes reflects the mortgage market in the lead-up to the global financial crisis. Banks assumed that the future value of the mortgage market would reflect past trends. Similarly, it is assumed that the future value of water products will reflect past trends, without considering climate change. Historic records of allocations to ‘Low Security’ entitlements in the MDB suggest that, in the context of climate change, the Basin Plan water portfolio may fall short of the target annual average yield of 2075 GL by 511 GL. We recommend adopting finance sector methods including ‘hedging’ ‘Low Security’ entitlements by purchasing an additional 322–2755 GL of ‘Low Security’, or 160–511 GL of ‘High Security’ entitlements. Securing reliable environmental water is a global problem. Finance economics present opportunities for increasing the reliability of environmental flows

The effect of wind and solar power generation on wholesale electricity prices in Australia

Our paper investigates the effect of wind and utility-scale solar electricity generation on wholesale electricity prices in Australia over 2010-2018. We use both high frequency (30-min) and daily datasets for the Australian National Electricity Market (NEM). We estimate autoregressive distributed lag models (ARDL) to decompose the merit order effect of wind and utility-scale solar PV generation over time and across states. We find that an extra GW of dispatched wind capacity decreases the wholesale electricity price by 11 AUD/MWh at the time of generation, while solar capacity by 14 AUD/MWh. The daily merit order effect is lower. We show that the wind merit order effect has been increasing as a function of dispatched wind capacity over time. Despite of this, wholesale electricity prices in Australia have been increasing, predominantly driven by the increase in natural gas prices. Our findings further strengthen the evidence of the merit order effect of renewable energy sources, with important implications for the current energy policy debate in Australia

"Is the concept of a green economy a useful way of framing policy discussions and policymaking to promote sustainable development?"

In the Viewpoints section, academics, practitioners and experts share their perspectives on policy questions relevant to sustainable development. In this issue, experts address the question: “Is the concept of a green economy a useful way of framing policy discussions and policymaking to promote sustainable development?