Water Trading
Water trade is the term given to the buying and selling of water entitlements. Trading markets are currently defined by planning frameworks. The largest relevant planning framework active in Australia is that for the Murray-Darling Basin. Within this framework it is currently possible, for example, for a Queensland irrigator to buy surface water from South Australia (though market factors make it more likely trade would shift water entitlements in the opposite direction).
A resource limitation is required in order to create buying and selling capacity. In regulated systems this relies on government policy to cease the issuing of any further entitlements. From this point, water users must purchase existing entitlements in order to meet their needs. This has a number of implications:
- Water entitlements will typically move to the high value uses;
- Sleeping licences, those which have been issued but are not yet used are activated;
- The price of water will fluctuate depending on availability and demand.
In Australia, groundwater trade is developing independent of surface water trade, although market creation and planning principles apply. Current management approaches generally assume groundwater and surface water resources are hydraulically isolated. As a result, independent groundwater management and surface water management are applied simultaneously across a connected resource. This results in discontinuity of water access entitlements across the resource, inequitable implications of water constraints across the resource, and limits opportunities for management of aquifers (with river connectivity) as active components of the river system.
Water trading across a connected resource would essentially have the capacity to transfer a licence from groundwater to surface water and vice versa, with the aim of increasing the beneficial use of the water. Development and activation of such a single water market would require a robust administrative framework. A resource limitation (such as an embargo on new licences) is also required in order to create buying and selling capacity. In the absence of such a framework, trade would tend to activate sleeping licenses and possible accelerate over-use. At the broader scale, trading between groundwater and surface water within a framework of total resource sustainable yield (based on a catchment-wide water balance) would expand buying and selling markets. If a trading market is enforced across both over-allocated and developing areas, there is the opportunity to redistribute entitlements to less stressed areas.
There are currently a number of issues that impede the development a single water market, even at the local scale. These mostly relate to differences in groundwater and surface water access entitlements and their administration. In particular there are currently frequent incompatibilities in:
- Definition and relative securities of surface water and groundwater entitlements;
- Cost structures;
- Ownership of infrastructure;
- Physical capacity of infrastructure to deliver water to where it is to be used;
- Reporting and monitoring;
- Management plan objectives (ie between groundwater plans and surface water plans);
- Institutional administrative structures;
- Understanding of flow dynamics and dependent ecosystems (Fullagar, 2004).
Relevant Links
MDBC Water Trading
DEH Market-based opportunities to improve environmental flows
References
Fullagar I, 2004. Rivers and Aquifers: Towards conjunctive water management. Workshop Proceedings, Adelaide 6-7 May, 2004. Bureau of Rural Sciences.