1. water Water Trading: Supporting resilient regional communities
strengthening
Australia’s
Penny Fiddes | National Water Commission
markets
Canberra evaluation forum
19 April 2012

2. Overview Water policy in brief Role of water markets
Benefits, achievements, results
Lessons learnt
Future challenges

3. Short history of water policy in Australia
Scarcity & variability
Historical focus on securing supply
Subsidised economic + demographic growth
Diminishing and negative returns
Economic + environmental concerns
Focus on efficiency + productivity
Climate change, growing population + food security
New challenges + opportunities

4. The National Water Initiative
SECURE WATER ACCESS ENTITLEMENTS
PLANNING
MARKETS
REGULATION
society
environment
economy

5. 8 interrelated elements of water management
NWI Architecture
Objective
To achieve a nationally compatible market, regulatory and planning based system of managing surface and groundwater resources for rural and urban use that optimises economic, social and environmental outcomes.
8 interrelated elements of water management
Water access entitlements and planning
Water resource accounting
Best practice water pricing
Urban water reform
Water markets and trading
Knowledge and capacity building
Integrated management of environmental water
Community partnership and adjustment

6. Establishing water markets
1) Limit total extractions from water resource
2) Specify extractions
for each user
Consumptive pool
3) Trade allows individual water use to be reallocated
Water for the environment

7. Phases of water policy in the Murray Darling Basin
historical
developments
Phases of water policy in the Murray Darling Basin
Phases of water policy in the Murray Darling Basin
Exploratory phase 1 2
Expansionary
or development phase 3
Maturation or scarcity phase 4
Transition to sustainability
1900
1980s
1994
2007
European settlement
The origins of water markets
Phases of water market development
The emergence of water markets
Water market broadening & expansion
Water markets in transition and beyond

8. i water Pre-water reform NWI reforms entitlement reform
Water access entitlement
Water right
Water allocation
Pre-water reform
Water right
Delivery share
Water use licence
NWI reforms
Land

9. i water seller buyer trading Water allocation Water allocation
Water access entitlement
Water allocation
Water access entitlement
Water allocation
seller
buyer

10. i water seller buyer trading Water access entitlement Water allocation
Water allocation trade
is temporary transfer of water

11. i water seller buyer trading Water allocation Water allocation
Water access entitlement
Water allocation
Water access entitlement
Water allocation
seller
buyer
Water entitlement trade
is the permanent transfer of water rights

12. i
role
of water markets
Efficient allocation of scarce resources Decentralised decision making about water distribution and use Indicate scarcity of resource through prices Ensure water moves to highest value uses Facilitate flexible water use and production decisions

13. i i
growth
in trade
Southern MDB to

14. Extent of water trading
Proportion of irrigators who traded (temporary) water allocations in the last 3 years:

15. i Benefits of water markets
Success story in the southern MDB Moving water to its highest value use Puts a scarcity value on water Manage changing seasonal conditions Enable response to longer term trends

16. i individuals water trade benefits Flexibility
in production and use decisions
Options
to ensure water availability
Risk management
trade can insure against drought
Income
through allocation sales
Capital management
trade can facilitate debt management

17. i individuals benefits to
Water trading is at the centre of farm operations at Lake Powell Almonds
Lake Powell Almonds
Robinvale, Victoria

18. economy
benefits to the
interzone
water allocation trading
Significant

19. SA NSW VIC 2008/09 Lower Darling SA Murray Murrumbidgee NSW Murray
15GL
SA Murray
Lower Darling
Murrumbidgee
NSW Murray
VIC Murray
Goulburn
103GL
3GL
199GL
VIC
3GL
106GL
15GL
57GL
40GL
22GL
2008/09
Net exporter
Net importer

20. SA NSW VIC 2009/10 Lower Darling SA Murray Murrumbidgee NSW Murray
VIC Murray
Goulburn
103GL
59GL
199GL
96GL
VIC
15GL
3GL
6GL
106GL
30GL
15GL
57GL
49GL
40GL
40GL
79GL
22GL
2009/10
Net exporter
Net importer

21. SA NSW VIC 2010/11 Lower Darling SA Murray Murrumbidgee NSW Murray
VIC Murray
Goulburn
63GL
51GL
181GL
VIC
128GL
260GL
79GL
140GL
70GL
2010/11
Net exporter
Net importer

22. i
Economic benefits
Water trading helped maintain production during the drought
Alleviated the economic cost of drought for regional gross domestic production in the southern MDB

23. Industries and communities
benefits to
Industries and communities
Inward water allocation sales and water allocation prices, NSW Murray and Murrumbidgee, to 2010–11

24. i flexibility in production
Rice production, rice prices & water allocation price, Murrumbidgee to
Rice (kilotonnes)
Water allocation price ($/ML)

25. i flexibility in production
Wine grape production and prices, and water allocation price, SA Murray to
Water allocation price ($/ML)
Wine grape production (kilotonnes)

26. i
Economic benefits
Gross value of irrigated agricultural production and water use in the MDB, to

27. i Environment benefits to
Markets have enabled purchase of water for environmental
flows
-Commonwealth purchased more than 1,200 GL
Water trading found to have had no negative impacts on
environment

28. i benefits – urban water
Water purchases to secure urban supplies are facilitated by water markets
(e.g. Adelaide, Bendigo, Ballarat and Canberra)

29. i lessons learnt about water markets Water markets are
Can deliver significant
Several universal
effective
benefits
prerequisites
Incremental development
Interventions
Conflicts of interest
is appropriate
to address third party impacts should be managed carefully
need to be addressed

30. i challenges future Existing markets
Groundwater entitlement and planning arrangements Trade approval processes Resolving conflicts of interest Availability and quality of market price information Allocation announcement processes Improving confidence in market intermediaries

31. i Future challenges Formative markets outside the MDB
Trading less developed
Opportunity to get fundamentals right
Water planning, unbundling less advanced
Low priority
The fundamentals for trading = good water
management
Resource assessments, effective water planning
Implement effective trading systems and
institutional arrangements now – avoid legacy
issues

32. i
Recent assessments
3rd Biennial Assessment Australian Water Markets Report Impacts of Water Trading report in the sMDB ABARES Survey of Irrigation Farms in the MDB

33. i NWC report launch Copies are available online at www.nwc.gov.au
or can be ordered at:
publications/bookshop

34. water trading Supporting Water Australia’s markets strengthening
resilient
communities