We are getting there, comrades. We’ve done more than half of the paper. Starting about here, I understood less of what I read. I have a lot of non-rhetorical questions, so if you have explanations, I’d love to hear them.
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I didn’t follow the first sentence. It seemed to be contrasting how the shares-based system considers flows in their rivers (physical!) with how others (us? do we fall into rules-based?) consider the flows (theoretical!). Like, we name pieces of the flows going by as “environmental” water. I guess so, sortof. My first thought was that we name some water “project water” because it is only in the river at that time of year because it was stored by a project dam. But I don’t strongly recognize the behavior of parting out river flows by theoretical names. Well, maybe we do. And we would fix that if we changed to a shares-based system. Because then we’d get real practical about the chunks of water going by, no doubt because someone bought them or could buy them and they would finally be worth something!
Then I burst out laughing, because when we pay a whole lot of attention to the physical nature of water flowing by, the number one part of that flow, the most important “hands off” piece is… conveyance water. Carriage water? Really? That will be a new way of thinking, because I don’t hear about carriage water much. When I do, it is a side requirement of a water transfer. For all I know, the people who run the rivers here think about carriage water night and day, but I don’t hear about it. I hear about water required to meet salinity standards in the Delta. Maybe we keep the rivers full enough that the carriage water requirement is always fulfilled, making it less central to water policy.
(Additional reflection convinces me that I am being provincial, only considering the conditions I am used to. I vaguely remember that the Murray-Darling River ran dry in their drought. Were that happening here, carriage water would become very, very important.)
The rest of this section was best conveyed by Figure 2, which explains a lot. This whole section also states that some parts of water allocations are properly done by rules, based on values. Policy-makers who hope to dodge the policy fights by choosing a process (the market!) instead of an outcome are going to be disappointed. We are going to have to define “broad society priorities”, even with this process.
On the public record 
Agree that Figure 2 is key to understanding this section. Briefly, the proposal is that rules govern how we administer the lowest levels of, for example, flow in a stream. Rules also govern how we manage the highest levels – flood. In between, we have the proposed share system. This makes sense.
Since I’m reading this from the standpoint of an interested outsider, I’ll mention for your amusement that when I first read about conveyance water I thought that its use was for barges and the like – an important economic factor. Further reading tells me that it’s linked to how you transport other water from place to place. I’m glad I didn’t continue misunderstanding. Perhaps it’s the water that would normally be lost to evaporation, leaks, ponding, and the like when moving one volume of water from point A to point B. I’ll use that as a working definition as I continue to read.