Climate change, mitigation and adaptation: the case of the Murray–Darling Basin in Australia

in which the Murray Darling Basin plays a central role, this cost seems
reasonable.

The simulations undertaken in this study have a number of further implications
for the pattern of adaptation to climate change and for the substitution and
complementarity relationships between adaptation and mitigation. One change
in land use patterns is of particular interest, since it is the opposite of what
would be expected on the basis of a deterministic analysis. Deterministic
analysis suggests that, as scarcity leads to an increase in the shadow price of
water, allocations should shift to horticultural crops, where the average ratio of
output value to water input is higher.

A state-contingent analysis yields the opposite conclusion. Horticultural crops
generally require a consistent supply of water, regardless of seasonal conditions.
Climate change is associated with an increase the frequency of droughts, when
the shadow price of water is very high. This price change favors ‘opportunity
cropping’ activities, in which irrigation is used in years of high water availability
(Wet states in the model used here), and is replaced by dryland production
activities in years of low water availability (Drought states in the model used
here). In the present model, some opportunity cropping activities use irrigation
water only in the Wet state. Others use irrigation water in Wet and Normal
states, but not in Drought states.

Table 3 provides estimates of the amount of water used in horticultural and
broadacre production activities and the states of nature in which such production
activities require use of irrigation. As water becomes scarce, producers adapt by
reducing the area allocated to production activities that require irrigation in all
states of nature, and increasing allocations to activities with flexible state-
contingent water use. This adjustment is particularly important in the
‘adaptation only’ case.³

³ Failure of the Wet state may lead to water requirements for horticultural production that are

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