Downstream benefits vs upstream costs of land use change for water-yield and salt-load targets in the Macquarie Catchment, NSW

The net present value (NPV) of downstream economic benefits of changes in water-yield (W) and salt-load (S) of mean annual river flow received by a lower catchment from an upper catchment are described as a 3-dimensional (NPV,W, S) surface, where dNPV/dW > 0 and dNPV/d(S/W) < 0. Upstream changes in land use (i.e. forest clearing or forest establishment, which result in higher or lower water-yields, respectively) are driven by economic consequences for land owners. This paper defines conditions under which costs of strategic upstream land use changes could be exceeded by compensations afforded by downstream benefits from altered water-yields and/or lower salt loads. The paper presents methods, and preliminary calculations for an example river, quantifying the scope for such combinations, and raising the question of institutional designs to achieve mutually beneficial upstream and downstream outcomes. Examples refer to the Macquarie River downstream of Dubbo, NSW, and Little River, an upstream tributary.