The water-energy nexus : a comprehensive analysis in the context of New South Wales

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Water and electricity are fundamentally linked. Policy reforms in both industries, however, do not appear to acknowledge the links nor consider their wider implications. This is clearly unhelpful, particularly as policy makers attempt to develop effective responses to water and energy issues, underpinned by prevailing drought conditions and impending climate change. Against this backdrop, this research has comprehensively analysed the links between water and electricity – termed water-energy nexus – in the context of New South Wales. For this purpose, this research has developed an integrated methodological framework. The philosophical guidance for the development of this framework is provided by Integral Theory, and its analytical foundations rest on a suite of research methods including historical analysis, inputoutput analysis, analysis of price elasticities, and long-term scenario analysis. This research suggests that the historical and inextricable links between water and electricity, in the absence of integrated policies, has given rise to water-energy trade-offs. In the electricity industry, water-intensive coal-fired power stations that dominate base-load capacity in the National Electricity Market has resulted in intra- and inter-jurisdictional water sharing tradeoffs. Intermediate and peak demand technologies, suchas gas-fired, cogeneration and renewables, however, would significantly reduce the industry’s water consumption and carbon emissions. Drought and climate change adaptation responses in the water industry are likely to further increase electricity demand andpotentially contribute to climate change, due to policies that encourage investment in energy-intensive technologies, such as desalination, advanced wastewater treatment and rainwater tanks. Increasing electricity costs due to water shortages and the introduction of emissions trading will futher increase water and electricity prices for end users. Demand management strategies in both industries will assist in curbing price increases, however, their effectiveness is lessened by investment in water- and energy-intensive technologies in both industries. The analysis also demonstrates that strategies to reduce water and electricity consumption of ‘other’ production sectors in New South Wales is overwhelmingly dependent on how deeply a particular sector is embedded in the economy, in terms of its contribution to economic output, income generation and employment growth. Regulation, demand management programs, and water pricing policies, for example, that reduce the water and energy intensity of agriculture and key manufacturing sectors are likely to benefit the wider economy and the Environment. The future implications of the water-energy nexus are examined through long-term scenario analysis for New South Wales for 2031. The analysis demonstrates how policy decisions shape the domain for making philosophical choices by society - in terms of the balance between relying on alternative technologies and market arrangements, with differing implications for water and electricity use, and for instigating behavioural change. Based on these findings, this research puts forward a range of recommendations, essentially arguing for reorienting existing institutional arrangements, government measures and industry activities in a way that would encourage integration between the water and energy policies. Although the context of this research is New South Wales, the findings are equally relevant for other Australian states, which share the same national water and energy policy frameworks. Further, the concepts and frameworks developed in this research are also of value to other countries and regions that are faced with the task of designing appropriate policy responses to redress their water and energy challenges.
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