Australia: A Pioneer in Sustainable Emissions Trading

Water Jan 1, 2001
Adam Ferguson

The Hunter River Valley has long been one of Australia's most productive regions — supporting numerous coal mines, huge electricity generators, and much of the country's agriculture. In the 1990s, the varied business owners who depend on the Hunter River for their livelihood came into conflict with one another when industrial discharges into the river made it too salty for fish and farms alike. By going with the river's flow and against the grain of traditional command-and-control conservation, the Hunter River Valley came up with a unique market-based approach to solving the problem in 1995. A decade on, the Ecosystem Marketplace considers what has made the Hunter River Salinity Trading Scheme (HRSTS) a success. "The Hunter is renowned for its full-bodied white wines, 'medium weight reds' and some excellent ports," boasts the tourism website of the Hunter River Valley in New South Wales, Australia. What the site neglects to mention, is that the Hunter River Valley's wines might be undrinkable if it weren't for a cutting edge emissions trading scheme that keeps salt from wrecking the region's "terroir". Launched in 2002, the Hunter River Salinity Trading Scheme (HRSTS), is a cap-and-trade system designed to limit the amount of salt discharged into the river by its many industrial and agricultural users. Since the scheme's inception, scientists, politicians, businessmen and farmers all agree that water quality in the Hunter River has improved dramatically. Indeed, the New South Wales Environment Protection Agency (NSW EPA) proudly proclaims that, "the river is now as fresh as many bottled mineral waters." But, as the NSW EPA readily admits, "It wasn't always like this."

Too Salty

The Hunter River catchment — an area of twenty-two thousand square kilometres east of Newcastle in New South Wales — is remarkable for both its productivity and its hydrology. A hub of Australian industry, the Hunter River supports an annual economy worth over US $4 billion. Its waters fuel twenty of the world's largest coal mining operations, three big electricity generators, much of the country's agriculture and, of course, an array of world- renowned wineries. The river is also abnormally saline due to naturally occurring salts in the local geology, a condition that is exacerbated by discharges from the industries operating along its banks. In particular, effluents emitted by coalmines and electricity plants have a high salt content. During coal mining operations, salty water collects in mine shafts and pits and has to be pumped out to allow mining operations to continue. Electric utilities, meanwhile, draw high volumes of water from the river to cool their generating systems. This heat then leads to high rates of evaporation, which in turn concentrates the natural salts in the water. Until the early nineties, the NSW Environment Protection Authority issued 'trickle' discharge licenses to mines and power stations. These licenses entitled the businesses to discharge limited amounts of effluent, but did not take the salinity level or flow rate of the river at the time of discharge into account. In part because the trickle licenses failed to take natural flow patterns into account, the Hunter grew increasingly saline during the 1980s as industry's demands on the river intensified. The issue came to a head in the early 1990s when conflict arose between river users. Primary producers who were irrigating their fields with river water during dry periods found that the water was so saline that it damaged their crops. Something, they argued, had to be done.

Back to Basics

Desalination plants, a pipeline to the sea, evaporation systems, an absolute cap on the development of mining operations — all were bandied about as possible solutions to the Hunter's salinity problems. All of these options, however, were considered either too costly, too impractical, or both. And so, instead, officials at the Department of Water Resources (now the Department of Infrastructure, Planning and Natural Resources) and the EPA decided to go back and look again at the science. What they discovered, in collaboration with several mining companies, was that an inverse relationship existed between salinity and water flow. In essence, during high flow periods, the rainwater naturally flushes the salt from the waterway. So it was that in January of 1994, bolstered by this research, the New South Wales Coal Association (now the New South Wales Mineral Council) proposed a series of trial discharges that would coincide with high flow periods. The effect these discharges had on the river's salinity levels was closely monitored in order to evaluate the river's ability to 'absorb' saline discharges during periods of 'high flow.' The trials were a success, demonstrating that the river could indeed accommodate higher concentrations of salt, but only if discharges were appropriately timed for periods of high flow. In 1995, then, the EPA revoked pre-existing 'trickle discharge licenses' and instituted new pilot regulations that, in essence, allowed the river to dictate when discharges of salty water were permissible and when they were not.

Cutting Edge Cooperation

Under the new scheme, the Hunter was divided into three sectors — lower, middle and upper — according to the hydrological realities that governed the different reaches of the river. During a high flow period, the lower sector passes approximately 2000 mega-litres a day, the middle sector approximately 1800 mega-litres, and the upper sector only 1000 mega-litres. Twenty-one monitoring stations set up along the river gauge when each sector is in 'low flow', 'high flow' or 'flood flow'. Using these readings, it was determined that, during periods of 'low flow,' no salt water discharge would be allowed, whereas during periods of 'high flow,' a limited discharge would be allowed, and during periods of 'flood flow,' unlimited discharge would be permitted. The 'Total Allowable Salt discharge' was calculated so the river's salt concentration would not exceed a target of 900EC (salt concentration is measured by the electrical conductivity of the river water) in the lower and middle sectors and not above 600EC in the upper sector, with participants in the scheme coordinating their discharges so as not to exceed the maximum levels of salinity. Discharge rights were licensed through the division of one thousand 'Discharge Credits' between participants in the scheme depending on environmental performance, employment, salty water by-products, and economic output. Each of the thousand credits represented 0.1% of the 'total allowable discharge' and license holders could only discharge salt in proportion to the number of credits they held. According to the EPA, salinity in the Hunter never exceeded the target of 900EC during the seven-year pilot program despite the discharge of 59, 203 tons of salt between 1995 and 2002. Indeed, the river ran cleaner than it had in decades. Based on the success of the pilot, the government of NSW made the salinity trading program permanent in 2002 and The Hunter River Salinity Trading Scheme (HRSTS) was born.

Key Elements

Now, when the river flows, so does a sophisticated stream of information between credit holders. Companies involved in the HRSTS have been trading discharge credits on a website where deals blink against a lime-green background — a virtual trading floor that is open 24 hours a day, 365 days a year. The site, operating since 2002, allows each participant to maximize their salt discharges or credit sales in accordance with the river's capacity. "Unfortunately," explains Simon Smith, EPA Deputy Director of Environment Protection and Regulation Division, "the Hunter River doesn't keep business hours. Periods of high flow — the only time when discharges may be made — can come at any hour as well as on weekends. If companies can't obtain the credits they need during the high-flow period, they can't discharge, or they risk heavy fines if they do. We needed an exchange system that would be available 24 hours a day, every day." Real time data and trading, say architects of the HRSTS, are just two of the many elements that have been critical to the program's success. Equally important, say those at the EPA, is an innovative credit allocation scheme. To create a market demand under the new scheme, the pre-allocated credits that were issued in 2002 were assigned different life spans. Two-hundred of the river's one-thousand salinity credits thus expire every two years. Two-hundred new credits are then sold to the highest bidder, thereby allowing new businesses to buy into the existing market by acquiring credits at public auction. By designing a system based on a solid scientific understanding of the natural and economic forces at play and then underpinning it with legislative and technological support, industries and farmers in the Hunter River Valley believe they have created a scheme that can cap emissions and achieve sustainable water quality in the Hunter without capping new industry. In order to maintain this flexibility and maximize efficiency, managers of HRSTS say the program is still evolving. There has, for instance, been an increase in the river flow thresholds to help prevent salt discharge during dry periods when irrigation is most likely to occur, and the scheme now contains additional rules that discontinue the sale of credits if too many are traded into one sector of the river.

Benefits All Around

"Before the scheme, Coal Mining and Electrical Generation were looked down upon by the community because of the impacts they had on the river", says Mitchell Bennett, Head of Regional Operations at the NSW EPA. With the advent of HRSTS, that now has changed, says Bennett. Putting a cost on the Hunter's ability to absorb salt has "stimulated industry to be more innovative with water use and come up with cleaner operating practices", says Bennett. "Companies like National Power and Macquarie Generation have undertaken water sharing in an attempt to reduce their discharge costs. The salt content in water pumped from underground mines isn't a problem for open cut mines and can be re-used to wash dirt out of coal and for dust control". Three years into the program, HRSTS is self-financed, with participants paying an annual fee to cover the AUD $580 000 annual maintenance costs. "Coal mining and electrical generation no longer contribute to a salinity problem in The Hunter," says Glen Evans, General Manager of The Hunter Central Rivers Management Authority. While there have been complaints from some areas of industry about the increased costs imposed by The Hunter River Salinity Trading Scheme there has been no cry from the consumer. National Power's Environmental Officer, Sam Barber, points out that "at the end of the day, if production costs go up, so do the costs for services and it is the consumer who foots the bill." But with consumers happy so far, it appears there is no need for alarm. The users-pay principle, then, is seemingly one that consumers in the Hunter Valley are prepared to accept in light of the program's tangible benefits. And that, as much as anything, say conservationists, is a feat to which Australia's wine connoisseurs should raise a glass of Hunter Valley Semillon. Adam Ferguson is an Australian freelance writer and photojournalist who can be reached at Last Modified 4/14/05