Outlook Since the 2016 state of the environment report, the pressures of climate, development and management, and the resulting state and trends of surface waters, groundwater, water quality, ecological processes and species populations have mostly deteriorated. Although the per-person use of water has decreased in most parts of Australia, this has mainly been due to water supply shortages. Much of Australia has seen a return to drought conditions, with widespread rainfall deficiencies accompanied by high maximum and minimum temperatures. The variable climatic conditions have had a significant impact on the quantity and quality of surface-water and groundwater resources, and flow-on impacts on urban water supplies, irrigated agriculture, rural societies and economies, inland water environments, and Indigenous water values and cultural flows. There has been increased dependence on groundwater and an increase in widespread water restrictions in many regions of Australia. Some progress has been made towards more equitable sharing of water between consumptive, environmental and cultural purposes. However, the implementation of water management plans to facilitate this has been only partially effective, particularly in the Murray–Darling Basin. By 2020, the Australian Government had recovered approximately 2,000 gigalitres of water entitlements in the Murray–Darling Basin and reallocated them towards environmental purposes. From 2016 to 2020, there were several major negative trends: The millennium drought (2001–10) was followed by another major drought from 2017 to 2020 in New South Wales and Queensland. Major fish deaths occurred in the lower Baaka/Barka – Darling River in 2018–19. After the major drought that was followed by the catastrophic 2019–20 bushfires, with subsequent heavy rains, high levels of ash and sediment entered many catchments in 2020–21. Groundwater resources are threatened by multiple stressors. Per- and poly-fluoroalkyl substances (PFAS), derived from firefighting foam, are contaminating water supplies (particularly surrounding airforce bases). The multitude of impacts negatively affecting the quality and quantity of water, and the increased competition for water between users is in many ways a foretaste of what may be experienced regularly under projected climate changes. The projections for Australia reported in the 2020 State of the Climate report (BOM & CSIRO 2020) are for more heat extremes; more time in drought; more intense, short-duration storms; continued decrease in cool-season rainfall; and a longer fire season for southern and eastern Australia. All of these have been experienced over the years since the 2016 state of the environment report and especially during the 2019–20 summer. The likely effect of these impacts will be less water available for agriculture, urban water supplies and ecosystems in coming decades, especially in southern Australia, including areas around Adelaide, Melbourne and Perth. With surface-water resources predicted to become more limited, groundwater resources will run the risk of being overexploited. Therefore, more reliance will need to be placed on climate-resilient water sources, such as desalination, recycling, and stormwater capture. On the demand side, it will be necessary not only to manage demand but to challenge customers’ expectations of the availability, quantity and quality of water. To achieve this, it will be necessary to build water literacy: an understanding of what is realistically sustainable water use, and an openness to the use of ‘grey’ water. Reduced water availability will affect the quality of the limited water resources, leading to increased costs of water treatment, degradation of aquatic ecosystems, and loss of habitat for flora and fauna, followed by a decline in populations. In response to greater climate variability, water resource managers will need to make a paradigm shift from a stationarity mindset with planning undertaken on the basis of the worst conditions on record to a risk-based approach that seeks to identify and predict the prevailing hydroclimatic conditions, and can be agile in response to greater variability. The increased competition for water resources will make it essential to develop and implement water management plans that recognise and equitably share the available water between consumptive users, the environment and cultural practice. In the 12 months since June 2020, there has been significant improvement in water status across much of the country. A good wet season in northern Australia resulted in the replenishment of many water storages and the recovery of some groundwater levels. In the Murray–Darling Basin, storage levels have seen significant increases, groundwater levels have shown signs of recovery, and the Menindee Lakes have reached their highest level in 4 years. However, south-east Queensland is continuing to observe below-average rainfall, and storage levels are remaining low. The impacts of these recent changes will be fully considered in the 2026 state of the environment report. Indigenous knowledge and approach Indigenous people’s world view has a place in future assessments to ensure that the outlook is inclusive and informed; research for this report found that we are lacking critical data to make the required assessments, especially on Indigenous inland water challenges. Indigenous people refer to the spiritual and physical landscape within which they exist as Country. Relationship with Country does not separate the individual features of the landscape such as water, land and sky. Thus, water is not just one element of the landscape but an integral part of the whole. Indigenous people have been surviving on this land for at least 65,000 years and more likely up to 100,000 years – caring for Country, maintaining cultural obligations, adapting to conditions, and carrying out cultural business and governance. Inland waters are very significant across the many landscapes and bioregions of Australia. The in-depth knowledge of Country and water is bound by thousands of generations of knowledge passed from generation to generation. This knowledge and world view are rarely used or accessed by non-Indigenous management practices. The 2021 state of the environment report seeks to change the way this knowledge is captured and considered. Indigenous knowledge and ways of knowing and being, seeing Country through Indigenous eyes and methodologies, provides a different perspective in water management and perceptions of value. Indigenous knowledge can serve a broader vision of sustainability for all Australia. The underlying message is ‘look after the water and the water will look after you’. With decreasing health of Country, Indigenous people seek a larger role in managing its recovery back to health, through methodologies that have stood the test of time – Indigenous people might say since time immemorial, day one of the Dreamtime. Impacts Impacts on environmental and economic values Under a changing climate, the environment will be subjected to greater stresses of longer periods of drought, which will reduce and degrade aquatic ecosystems. This will reduce habitats for flora and fauna, which will affect breeding and populations, as well as potentially reducing species refuges. Long periods of low streamflows will increase the risk of blue–green algal blooms and fish deaths. In regional areas where the economy relies on tourism and, in particular, ecotourism, this will have an adverse effect on the local economy. The drying-out of wetlands and increase in area of acid sulfate soils will affect the quality of water and soil. More frequent and severe bushfires will severely impact water supply catchments and cause water quality problems, particularly if the fires are followed by large rainfall events. This may increase the cost to water utilities through both the need for higher treatment levels and damage to water treatment plants. Low water availability for agriculture will affect economic viability as a result of reductions in cropping and the need to reduce livestock levels. A shortage of water will result in increased water market activity, with associated increases in prices paid for water. However, in response, agricultural businesses are working to adapt to the impacts of climate change by increasing reliance on climate-resilient water sources, and changing farming practices and crop varieties to improve potential yields. These trends are likely to continue through the application of new technologies and management practices (Hatfield-Dodds et al. 2021). The need to rely on more costly desalinated water to meet urban water supply needs may result in an increase in residential water bills. Impacts on wellbeing A more frequent occurrence of severe events such as droughts and floods will affect the wellbeing of people who experience these events. Those affected by drought will experience the economic hardship of not being able to produce crops and livestock, which will also impact those who provide services to agribusinesses. Floods will cause loss of property and livelihoods, and loss of services. An increased frequency of extreme events will also affect wellbeing because people will have less resilience due to shorter recovery periods. Degradation of aquatic ecosystems, with the associated loss of flora and fauna and the increased occurrence of events such as fish deaths, will affect the wellbeing of those living nearby and the many members of the wider Australian community who care deeply about the environment. These changes will affect Indigenous people the most, given their spiritual connection with the environment.