Climate change and environmental water reallocation in the Murray–Darling Basin: Impacts on flows, diversions and economic returns to irrigation

• First and only model to analyse economics and hydrology impacts in detail for Murray Darling Basin.
• River flows are impacted more by climate change than by a policy change of lesser diversions.
• Returns to irrigation are impacted less by projected climate change than by the policy change.
• The impact of climate change is not shared equitably by the environment and irrigation.

SummaryIncreasing river environment degradation from historical growth in withdrawal is leading to reallocation of water from irrigation in many basins. We examine how potential reduction in irrigation allocations under a newly enacted environmental water plan for the Murray Darling Basin in Australia, in combination with projected climate change, impact on flows, diversions and the economic returns to irrigation.We use an integrated hydrology–economics model capable of simulating the year-to-year variability of flows, diversions, and economic returns to model three levels of reallocation (2400, 2750 and 3200 GL) under the historical climate, and under a dry, a median and a wet climate change projection. Previous assessments of the reallocation plan do not address climate change impacts, nor the impact of year to year variability in flows on economic returns.The broad results of this analysis are that estimated river flows and diversions are more sensitive to the range of climate change projections than to the range of diversion reallocation scenarios considered. The projected median climate change more or less removes from flows the gains to the environment resulting from reallocation. Reallocations only in combination with no climate change, or climate change at the wetter end of the range of projections, will lead to flows greater than those experienced under the water management regime prior to reallocation.The reduction in economic returns to irrigation is less than the reduction in water available for irrigation: a 25% reduction in the annual average water availability is estimated to reduce the annual average gross value of irrigated agricultural production by about 10%. This is consistent with expectation of economic theory (since more marginal activities are reduced first) and also with observations of reduced water availability and returns in the recent drought in the Murray–Darling Basin. Irrigation returns vary less across the range of climate change projections considered than across the range of reallocation scenarios considered.