Accounting for change

Issue 19 | Autumn/Winter 2007

Professor Jayne Godfrey.

Recent rains have brought a tinge of green to suburban nature strips in Melbourne, but have done little to expunge years of drought crisis from the Australian psyche.
Professor Jayne Godfrey says the impact of water issues on each of these dimensions has led to a realisation that water accounting - the forensic examination of our national aquatic balance sheet - is critical to the development sound public policy.

Water accounting has the potential to radically transform water policy, and the resourcing of the water industry. This change will be achieved only through fundamental changes to the nature and integrity of data underpinning decision-making and by presentation of this data in a format, context and time-frame that facilitates effective, informed decision-making.

Water accounting involves recording, reporting, and interpreting data relating to water transactions, transformations and events. In this context, I use the expression 'water transactions' to include transactions such as sales of water or trading of water rights or entitlements.

An important element of water accounting often overlooked in debate over water policy is the transactions that result from so-called water transformations. Water transformations involve a change in the state of water, including through natural events such as evaporation and precipitation and do not involve transactions between multiple parties. These events include such matters as climate change or drought and long term trends can be clearly elucidated through water accounting.

With good water accounting, much more information about water will be reported, so that water users, including the public, will be better able to discern hyperbole from fact. Good water accounting facilitates assessments of the economic, environmental and social impacts of water policies. Misapproriaters of water will be held accountable, and better public policy outcomes should be achievable.

Quite appropriately, then, water accounting development is one of the eight areas of major water reform identified under the National Water Initiative. The Initiative states:

"the outcome of water resource accounting is to ensure that adequate measurement, monitoring and reporting systems are in place in all jurisdictions, to support public and investor confidence in the amount of water being traded, extracted for consumptive use, and recovered and managed for environmental and other public benefit outcomes."

The national Water Accounting Development Committee (WADC) was established in February 2007 to develop water accounting standards for Australian water authorities, regardless of political persuasion or geographic location, and for other organisations with a keen interest in water issues. Given the immense importance of water to all aspects of our lives, this committee has a significant direct and indirect responsibility for contributing to sound public policy outcomes. Furthermore, this responsibility extends across a wide range of seemingly diverse issues.

Water accounting will enable sound economic and environmental assessments of decisions, such as whether to build a dam or to fund consumer purchases of tanks. It will undoubtedly be used extensively in lobbying on all manner of decisions relating to water, such as differential water pricing in urban and rural regions; where infrastructure upgrades will occur; and where irrigation may take place.

Transparency and accountability will increase, and with it will come an increased reckoning. Better decision-making and greater confidence in future decision-making should also result.

Water accounting standards will lead to economic accounts revealing the value of marketable instruments relating to water and the profits or losses on trading or on holding those instruments when market values change. Environmental reports might provide a similar accountability for environmental status; revealing degradation or improvements as a result of water transactions, transformations or events.

Similarly, social reports are likely to report changes in social costs and benefits as water moves between various jurisdictions, such as states and regions. Information in these accounts is likely _to be used extensively to increase awareness of water issues; to redistribute the scarce commodity (water); and to influence economic, environmental and social outcomes.

At present, much of the information that we will require to be reported under water accounting standards exists in databanks of organisations such as the Bureau of Meteorology and state water authorities. Ideally, a broad range of data would be collected within a type of "water data warehouse". However, there are still many questions over what data should be collected and how it should be reported.

Many parties who are charged with making important decisions about water allocations, infrastructure or pricing require data to be categorised, reported, and analysed to have something meaningful to work with. That will be a crucial role of water accountants applying water accounting standards.

Given the importance of water to economic, social and environmental debate during a period of severe drought at a time of heightened awareness of climate change and in an election year, the politics of water accounting will be vigorous. There will be consequences for each and every one of us.

Professor Jayne Godfrey is Deputy Dean (Research) of the Faculty of Business and Economics, and Vice-President of the Monash University Academic Board. She is also a member of the Water Accounting Development Committee.

The views expressed in this article are personal, and do not necessarily reflect the views of the Water Accounting Development Committee or any other organisation with which she is affiliated.