Planning for climate change in Australian water policy: the missing framework for evaluating trade-offs

Australia’s water managers have long understood the challenge a variable climate poses for water planning and sharing. As this variability is increasingly exacerbated by climate change, what remains less clear is how water planning and decision-making must evolve to respond.

This is not for lack of effort. Over the past two decades, Australian governments have invested heavily in climate science, hydrological modelling and data infrastructure. Yet water planners continue to confront the same core difficulty that has defined the sector for decades: how to make legitimate, durable decisions in the face of competing values, extreme variability and deep uncertainty.

At its core, water policy and planning is about trade-offs. Climate change does not create this reality — it simply makes it harder and impossible to ignore.

Water policy is about balancing trade offs

Every significant water policy and planning decision involves balancing economic productivity, environmental protection, cultural values, social equity and fiscal constraint. These trade-offs are unavoidable. Despite decades of experience, Australia has no consistent or transparent framework for resolving them.

This is not constrained by the availability of scientific knowledge, data or modelling expertise. In fact, extensive technical work – often involving complex hydro-climate modelling – is often the starting point for policy development or infrastructure planning. However, the way this information is used to inform options and make decisions is typically less clear or consistent.

While the process is generally accompanied by some form of community engagement, there is a tendency to focus on explaining risks or proposing directions, rather than a systematic process of exploring genuine alternatives, engaging with options and helping stakeholders understand and resolve trade-offs. This creates the perception of policy agencies developing a preferred option in isolation, with outcomes influenced by political cycles and representation. When decisions are made, the logic behind them is not always explicit, comparable across cases, or durable over time.

Climate change exposes deficient policy processes

The impacts of climate change sharpen trade-offs in water policy. Climate change will alter water availability regardless of government positioning; choosing not to adjust frameworks now effectively defers those adjustments to crisis and disaster recovery contexts.

Higher temperatures increase water demand and evapotranspiration. A warmer atmosphere intensifies extreme rainfall without reliably increasing usable runoff. Droughts may become longer, more severe or arrive more often than historical experience suggests. These physical changes cascade through ecosystems, industries, infrastructure and communities in uneven ways.

The nature of climate risk is not uniform across Australia. In some regions — particularly parts of northern Australia — climate change may alter water systems in ways that increase groundwater levels or change recharge dynamics rather than simply reducing availability.

Although all aspects of water service provision are impacted, we are all conscious of the most acute planning challenge this creates - how to prepare for droughts that may be more severe, longer and frequent than those experienced in the past. Even in northern Australia, which may get wetter in the future, the risk of longer droughts or successive “failed” wet seasons present a major planning risk.

Historically, Australian water planning has designed systems to withstand a repeat of the worst drought on record. This approach — reserving water for critical human and environmental needs and allocating the remainder through predictable rules — has largely served the country well.

It has failed, however, when droughts have exceeded our limited historical records, as occurred during the Millennium Drought in the southern Murray–Darling Basin and across large parts of New South Wales in the Tinderbox Drought. At times, rapid declines in water availability have exposed structural weaknesses in allocation frameworks and produced outcomes that appeared inconsistent with stated priorities. For example, there have been instances of towns going close to running out of water in the same year as general security products continue to be used for agriculture.

Advances in paleo stochastic modelling have enabled a climate picture that vastly expands on the historical record. But having a clearer picture of the types of conditions we might face has also illuminated the deficiency in the ability of current arrangements to deal with future extremes.         

Commonly proposed responses all involve significant trade-offs

Proposed approaches to preparing for unprecedented drought tend to fall into familiar categories.

One is to adopt more conservative allocation rules, holding more water in storage for rare events. This imposes substantial economic and social costs (and some environmental costs) in most years, in exchange for mitigating the impacts of an event that may only happen rarely. In many cases, the extent of the mitigation is limited and the risk is never completely removed. A key driver of this is the fact that town water security in many places is not only based on water demand for consumption, but the volume of water needed to deliver it. When drought leads to low river flows, delivery losses (to seepage and evaporation) can be so great that storage releases are either infeasible or inadequate to maintain supply. Systems without headwater storages that are reliant on run-of-the-river flows can face the same issue, even if allocations are proactively reduced.

Another approach to managing drought is to transfer more water from consumptive users to the environment to build system resilience. Healthier ecosystems can delay drought impacts, but experience shows that this does not eliminate cease-to-flow events under extreme conditions. In 2018–20, environmental water in the northern Murray-Darling Basin was used more assertively than consumptive allocations — reflecting active management rather than failure — with little remaining when the drought peaked. Further, it is not the role of environmental water to combat droughts, rather to restore some of the environmental function lost through river regulation and development.

A third option is investment in new infrastructure, which may involve more climate resilient water sources or pipelines to alleviate delivery losses. For many small and remote communities, however, the capital costs, operating expenses and workforce constraints of these enduring solutions are financially unsustainable without substantial support. In addition, supplying water to a town via a pipeline rather than a river creates the risk (perceived or actual) that the other values that come with a flowing river – environmental, cultural, economic and recreational – will be deprioritised.

Each of these approaches involves explicit trade-offs between costs, risks, short-term impacts and long-term outcomes. None can be resolved through science alone. They all also require productive collaboration across agencies, portfolios and jurisdictions, which remains an elusive prospect in Australian policy more broadly.

Australia has invested a lot in climate change science but little in policy innovation

Australian governments have responded to the challenge of climate change primarily through investment in science. National climate projections, modelling platforms and data portals are now world-class. This investment has been necessary and valuable.

Yet successive reviews of water reform have found that the binding constraint is not information, but governance and decision-making frameworks (if anything, the proliferation of climate information sources has resulted in confusion, making it harder for stakeholders to use and derive value from them). The challenge is not understanding climate risk but translating that risk into legitimate choices about who bears costs, when, and for what benefit.

The Draft National Water Agreement (NWA) reflects this tension. It contains numerous references to climate change — calling for water planning to be adaptive, responsive and resilient — yet provides little guidance on how governments should actually make different decisions in practice.

Climate change is acknowledged but largely treated as an additional consideration rather than a reason to modernise the way we consider trade-offs and make policy. The relevant National Water Initiative module, Considering Climate Change and Extreme Events in Water Planning and Management (2017), is largely a description of water and climate science projects that were in place at the time of writing. Should this module be updated through the NWA, it would be an opportunity to focus on effective processes for decision-making, covering understanding and communicating risk, adaptive management and decision-making under uncertainty. It may be more effective to ensure climate change is appropriately reflected in updated NWI Policy Guidelines for Water Planning and Management rather than a separate carve out.  

In addition, clarifying how state-level adaptation decisions interact with Basin-scale and cross-border water sharing arrangements will be critical. Without more explicit mechanisms for coordinating adaptation across jurisdictions, there is a risk of continued inertia (note that this issue not constrained to water policy).

No amount of climate modelling can help us answer values-based questions

There are really difficult questions that often underpin water policy and are rarely spoken out loud, at least by governments. These include:

• Should some communities be supported through periodic water system failure using emergency supplies, such as bottled water, if it’s more economically sustainable than permanent solutions?
• Should water sharing arrangements explicitly favour larger towns that cannot feasibly be serviced in emergencies over smaller towns that can?
• Should governments explicitly plan for structural adjustment or relocation of communities if their long-term viability is unlikely?
• Should all citizens receive the same level of water service at the same cost, regardless of location?
• Should we put a price on non-economic values (as the health industry does), to allow more transparent trade-offs?

These are inherently value-laden questions. Avoiding them does not remove the trade-offs - it merely shifts them into opaque political processes where judgement is more likely to be based on poor or mis-information, or interests other than those of the people most impacted. Ultimately, no framework removes the need for political judgement. Transparent processes can clarify trade-offs, but decisions will still require the courage to choose between competing interests and explain their choices.

If Australia had consistent, transparent frameworks for engaging communities on options and trade-offs with adequate evidence, climate risk and uncertainty would become another input rather than a paralysing complication. Climate information could be used to sensitivity-test the performance of options under plausible futures while explicitly weighing costs, risks, short-term disruption and long-term outcomes.

Governments can do better, without spending more

Structured decision-making approaches should not be seen as constraining political discretion, but as strengthening it. By making trade-offs explicit and comparable, they provide decision makers with clearer justification for difficult choices.

There are three things governments could do now, largely within existing programs and funding envelopes:

1. Invest in structured options analysis.

Water policy decisions can be strengthened by explicitly setting out genuine alternatives and explicitly comparing trade-offs between costs (indirect, direct, to governments and to different stakeholders), risks, short-term impacts and long-term outcomes. Decision-science approaches such as multi-criteria decision analysis, robust decision making and adaptation pathway planning provide tested ways to do this. This aligns with principle 1 of the Australia Government’s Principles for Australian Government policy makers, which appear to be followed infrequently.

It should be standard practice for governments to develop and assess options with communities, with trade-offs clearly laid out and an open invitation to challenge assumptions. It should be expected that different people and peoples will bring different values to the discussion and they should be documented with respect.

2. Use climate modelling to evaluate policy options, not expect it to produce them.

In the heavily studied water systems of southern Australia, the broad nature of climate risks to water management outcomes is well understood. The precise magnitude and timing remain uncertain, but this is a product of inherent uncertainty in earth systems, not insufficient effort. This type of information is generally more than enough to commence discussions about exposure, vulnerability and resulting climate risk, and to develop options to mitigate risk, adapt to change and build resilience. More detailed climate and hydrological modelling is most valuable after policy options have been developed. Used well, modelling becomes an input to sensitivity analysis, testing how different options perform across a range of plausible futures.

This reverses the prevailing approach, which often seeks to use climate modelling to project potential futures and then design policy responses to those projections. Given the irreducible uncertainty in future climate conditions, this approach has failed time and time again, and will continue to. Accounting for uncertainty and exercising caution with the use and communication of uncertain model output is key to effectively integrating insights from climate models into policies for risk mitigation. Stress-testing options is a more effective and honest way to account for uncertainty.

3. Rebalance investment between science and policy capability, integrate science and policy programs, and support innovation.

Australia’s investment in water and climate science has been substantial and largely successful. Investment in policy capability and innovation has not kept pace. Investing in, and retaining, specialist water policy expertise in government departments, supporting experimentation with new decision frameworks and procuring integrated science–policy programs are critical to closing this gap.

While we have outstanding public science institutions in Australia, like CSIRO, investment in science should not be an exception to the Commonwealth Procurement Rules, which are designed to support value for money, competition and innovation. Climate modelling is fast becoming cheaper and more accessible, and governments are missing the opportunity to engage new thinking and more agile response.

There is an opportunity for the Commonwealth to lead

The 2026 review of the Water Act, if done well, provides an opportunity to reconsider the value-add of the Commonwealth Government in Australian water policy. The vast majority of the Commonwealth’s investment in water policy and management over the past 20 years has been through the Basin Plan, which should be at the point where the dedicated institutions – the Murray-Darling Basin Authority and the Commonwealth Environmental Water Holder – are able to deliver and periodically improve the plan, and optimise the Commonwealth’s water portfolio – as a business as usual function of government.

If this could be achieved, the Commonwealth’s water policy function could increasingly focus on longer-term, system-level policy problems that sit outside of the busy, largely reactive roles of state government agencies. State agencies often struggle to engage in long-term problems because they also have to respond to the problems of today. This is where the Commonwealth can add value. Such a role would need to be backed by a capability with sufficient experience and skills across the many aspects of water policy, science and management.

Climate change is one input to a challenging policy environment

Australia has invested heavily in climate science, hydroclimate modelling and data infrastructure, particularly in the major surface water systems of the south-east. However, the depth and coverage of this information remains uneven across the country. In many regional, remote and groundwater-dependent systems, the behaviour of water resources under climate change is less well understood and monitoring networks are more limited.

While we do not lack science, data and modelling capability in the well-studied southern water systems, we do lack transparent, durable processes and frameworks making hard choices about water in the face of competing values and uncertain futures.

The challenges outlined in this article draw together the themes explored across this series: risk, equity, governance, investment and legitimacy. Climate change does not change the nature of these problems — it makes resolving them unavoidable.

Continuing the conversation

The issues raised in this article sit at the centre of Australia’s next phase of water reform. Climate change has not created new trade-offs in water policy, but it has made existing ones harder to avoid and more consequential if left unresolved. How governments choose to confront these trade-offs — openly, consistently and with legitimacy — will shape outcomes for communities, industries and environments for decades.

The Commonwealth’s work to refresh national water policy under the National Water Agreement provides an opportunity to move beyond principles and guidance, and to consider whether current decision-making processes are fit for purpose in a non-stationary climate. While the Agreement rightly emphasises adaptability and resilience, delivering on those ambitions will depend on the existence of transparent and durable frameworks for evaluating options, engaging communities and resolving value-based choices.

These questions will be central to discussions at the AWA National Water Policy Forum in March, where policymakers and practitioners will be grappling with how national reform settings translate into decisions on the ground. We encourage readers to come to the Forum ready to engage on how water policy can better support legitimate decision-making under uncertainty — not just better data or modelling.

As with the other papers in this series, this article is intended as a conversation starter. We welcome perspectives from across the sector, including where readers agree, disagree, or see alternative ways forward. Readers are encouraged to engage with the national water policy refresh process, to bring these issues into policy discussions, and to get in touch with the authors or matthew.coulton@ricardo.com in relation to the series as a whole.