Australian water markets involve the buying and purchasing of water. These markets allow the allocation of scarce water resources to the highest practical usage. These markets are divided into water systems or administrative boundaries and vary from small to extensive. The biggest water market in Australia is the Murray-Darling Basin, while the smallest is the unconnected markets. State and territorial jurisdictions handle water rights and water trading legislation and administration.
How do water markets work?
There are specific ways in which water rights should be traded. It may involve changing ownership or location of the water rights, or both. However, specific arrangements are required for particular forwards, contracts, and leases. Most water rights are exchanged in water markets through a water market specialist.
Water entitlements
Water entitlements are permanent or continuing rights to use a water source. Trading these rights is known as ‘permanent trade’. The water market is similar to any free market, and it determines the financial value of water entitlements.
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Water allocations
Water allocations represent the volume of water users can access within a particular water year. The water year starts on 1st July and ends on 30th June. Water allocations change depending on the amount of rainfall, inflows into the water storage, and amount of water in storage. Any changes in the system might shift the allocations throughout the year.
Such measures allow people to determine how much water they will receive at a particular time. Basin state governments can also use the allocations to manage the available water in different climatic conditions.
Water usage
Water usage is the amount of water used from the time of allocations. A water entitlement holder may receive an allocation and use it as they want. Some may use a portion of their budget, maybe 30% or 95%, throughout the year.
Equally, according to territory rules, some may carry over their usage to the incoming water year. When using their allocation, individual entitlement holders must consider the climate, rainfall, crop cycle, and business plans.
Irrigation rights
Irrigation rights allow an irrigation infrastructure operator (IIO) to supply water to an individual. Trading these rights should be done within available irrigation networks through a water market specialist. The CIO’s responsibility is to set and maintain an irrigation network’s trading rules. The trading rules ensure the operation, maintenance, and accounting of the network’s irrigation trades. The irrigation infrastructure owns or operates water service infrastructure to deliver water for irrigation only.
Water delivery rights
Water delivery rights ensure the smooth management of water delivery. With these rights in place, users can adjust access to water delivery infrastructure as required. These delivery rights are tradeable and are known as delivery entitlements or delivery shares.
Benefits of water markets to users
Water markets provide water users with the flexibility of trading water rights. They can buy and sell water in specific periods to adjust to the climate, agricultural input, and commodity market changes. Users can invest in agriculture and plan for business activities.
A water market specialist can use these markets to assist farmers in increasing production and communities’ access to water during drought periods.
Benefits of water markets to the environment
Environmental water holders can sell allocations through water markets. If the water supply exceeds the ecological capacity, they can sell these allocations to users who need them. Water delivery in the environment improves through trading when traders supply water through various catchments. When the trading is conducted at zero prices it is known as a ‘transfer’.
Benefits of water markets to the economy
Communities and states benefit when businesses and individual rights holders sell their rights. Water markets generate billions of dollars yearly which benefits the economy. Water markets also influence water prices through supply and demand parameters. These include climatic conditions, water availability, and agricultural produce demands.
Australian water markets
Extensively developed Australian water markets are found in the Murray-Darling Basin. The southern basin has most of the active water markets explicitly.
Some emerging water markets are in Tasmania, Queensland, Southern Victoria, Western Australia, Southeast South Australia, and Coastal NSW.
Governance of water markets
Each state and territory government has to set its own rules on water trading. The Water Act of 2007 provides rules for water trading and related activities at the commonwealth level. Regulations under this act are considered higher than territory and state rules. A water market specialist can use these as a framework to oversee water trades.
Rules under the Water Act 2007 ensure;
- Reduction of unnecessary water trade barriers.
- Increased transparency in water markets.
- Protection against adverse effects of water trading.
Australia’s water markets are extensive, and many other rules govern the operations. We have the Basin Plan Water trading rules and Basin State Water trading rules which directly impact the access and use of water allocations. Water charge rules and water market rules may also help traders bypass any restrictions imposed by the Irrigation infrastructure operators. Additionally, specific laws protect foreign water rights owners within Australia.