This piece appears in the May 2023 edition of Science Victoria magazine. All issues can be read online for free at rsv.org.au/Science-Victoria.
Victoria can simultaneously solve Melbourne’s future sewerage crisis whilst building a sustainable carbon credits sector.
A common sight for Melbourne’s residents in the 1850’s would have been carts full of “nightsoil” trundling down Flemington Road.1 Melbourne, or “Smelbourne” as it was known, subsequently built one of the world’s best municipal water systems, supporting the quality of life its residents enjoy today. Thankfully, we are no longer living in the Victorian era. But our generation has a duty to solve a new set of challenges.
A key risk facing Victoria is climate change, and we know that Victoria’s weather patterns are already changing. According to the Bureau of Meteorology State of Climate 2022 Report, rainfall in the north and west of the continent is above average, whilst rainfall in the southeast during winter months have been very much below averages2.
Why does this matter? Climate science tells us that the drying of the southeast of the continent is likely to get worse.3 Over the next thirty years and beyond, depending on the actions that are taken to reduce emissions globally, we can expect global temperatures to rise by 1.5˚C to 2.0˚C. With these values, it is key to note that these are global temperatures: with most of the planet covered in water, the actual temperature rises over land masses are likely to be higher than this averaged value. Victoria can expect less rainfall, higher temperatures, and, when rain does come, we are likely to see intense weather events. Recent floods are an indication of what we can expect in the future.
The good news is that Victoria has access to surplus water.
The bad news is that we are quite literally tipping it down the drain.
Currently around 140 billion litres of ‘secondary treated’ sewage water is discharged into Port Phillip Bay each year.4 We can expect this volume to grow: growth in population in Melbourne’s north, west, and inner city will translate into increased flows of Class C recycled water into Port Phillip Bay. It is projected that the north and west of the city alone will grow by 1 million in coming years.5
In a climate-risk era, water has increased economic, social, and environmental value. What role can Melbourne’s recycled water play in this environment?
One of the key challenges with water is how to shift it from one location where it is not needed, to one where it is needed. The Snowy Mountains Hydro-Electric Scheme demonstrated that from an engineering perspective this can be done. There are already pilots to build purple lines to transport recycled water to Melbourne’s southeast which will support the future sustainability of Melbourne’s golf courses. How can we scale this? And, most importantly, who pays?
Carbon credits may provide an avenue for funding.
It is worth noting from the outset that carbon credits are not a long-term solution to addressing climate change, but they play a part in Australia’s transition to net zero emissions. The passage of the Safeguard Mechanism legislation by the Australian Government will support the development of carbon credit markets.6
A key issue with carbon credits has been their integrity. There are some positive signs that a foundation for quality carbon credits is now being built. On the 29th of March 2023, the Integrity Council for the Voluntary Carbon Market (ICVCM) launched its Core Carbon Principles.7 ICVCM is part of a suite of regulatory measures that have been driven by Mark Carney, former Governor of the Bank of England, who is the UN Special Envoy on Climate Action and Finance.
ICVCM’s Core Carbon Principles aim to become the gold standard for carbon credits. It is likely that over time they will become the only standard. Voluntary carbon credits that do not align to global standards of integrity are not likely to be supported by financial system regulators.
Core Carbon Principles, combined with the Safeguard Mechanism, will create the environment that will support investment. Where will this investment flow?
It is likely that, as it currently stands, demand for carbon credits will flow into plantations on quality arable land. From a Victorian perspective, the development of carbon credit projects needs to acknowledge the science of climate change. In particular the drying of the southeast of the continent, as identified by the Bureau of Meteorology, raises the question on whether plantations will survive in times of water and heat stress.
This is where there is an opportunity for Melbourne’s surplus Class C recycled water.<sup>8</sup> Thanks to the Victorian Desalination Plant, the streams of recycled water that will flow through to Port Phillip Bay will be consistent and largely unaffected by droughts. The nutrients in the water, which threaten to overwhelm Port Phillip Bay, are an asset in terms of supporting sustainable growth of plants.
How then to structure opportunities? Three pathways are briefly considered.
The first opportunity is for Melbourne’s water corporations to support development of the necessary infrastructure to pipe water to farmers who wish to develop carbon credits. A key challenge is that farms that wish to develop carbon credits may not be conveniently located. The inevitable delay between developing infrastructure and the flow of income from carbon credits would result in additional debt burden on the Victorian Government which is already experiencing fiscal challenges.
A second option is a traditional Private Public Partnership (PPP). PPPs have been commonly used to build infrastructure, with Melbourne’s toll roads being well-known examples. A challenge with PPP models is that the development of carbon credits is not a single project to be delivered at a set time. The development of carbon credits will involve many projects, over many years. The investment return expectations of investors do not align with the likely revenues from carbon credits.
The third option is to consider the development of a modern mutual. Mutuals can be regarded as the ‘missing middle’ of Australia’s financial system. Historically, mutuals played a significant role in financing communities. Mutuals such as AMP, National Mutual, IOOF, Manchester Unity as well as scores of building societies and credit unions were a core fabric of Australia’s financial system. Today, for a variety of reasons including the sophistication of financial services, mutuals have largely disappeared from the finance sector. Where mutuals remain outside of finance, they have proved resilient to economic fluctuations. An example is the RACV, which has continued to develop new member services supported by its mutual structure.
The challenge is that creating new mutuals is not easy. There is potentially a role for the Victorian Government to play in facilitating the establishment of a modern mutual that would develop recycled water to support carbon credits. There are a number of models that can be considered to develop a modern mutual, with one being to simply use a standard corporation structure with shareholders that include the Victorian Government and Victoria’s largest carbon emitters. Given the land-use planning issues associated with carbon credits, a key stakeholder is local government.
A modern mutual has the potential to align with ICVCM’s Core Carbon Principles focus on sustainable development. We can imagine an agreement where a new mutual is provided with a long term 99-year licence to access Melbourne Water’s recycled water. With appropriate land-use planning support, a mutual can build the infrastructure to transport Class C recycled water to regions that develop carbon credits. The way in which solar is being supported through Renewable Energy Zones is an example of how legislation and regulation can support the development of regions. Class C recycled water would be used to support the development of carbon credits through plantations. The ability to access a stream of water even in drought conditions would ensure the integrity of carbon credits which would translate into higher market prices for Victorian carbon credits.
There is also an opportunity to maximise the social and environmental benefits that come from investment in carbon credits. The ICVCM Core Carbon Principles provide a framework to recognise sustainable development benefits. Indications in global carbon markets suggest that carbon credits that deliver biodiversity benefits attract a higher price. The ability to use surplus water to support biodiversity is perhaps the biggest benefit for Victoria. In 2020 the platypus was officially recognised as vulnerable in Victoria.9 Climate change represents a significant risk for the platypus which needs access to fresh water to breed. The infrastructure developed by a new mutual can provide a means to supplement existing water flows in times of environmental stress.
What role does the Royal Society of Victoria have to play in developing tomorrow’s water system? The RSV’s played a critical role in the original establishment of Melbourne’s municipal water system. As Victoria’s oldest science society, the RSV can play a role in designing the new structures to manage waste and water for the benefits of Victorians and the environment.
Gordon Noble is a Research Director at the Institute for Sustainable Futures, University of Technology Sydney.
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