Water trading
Under the National Water Initiative (NWI), water trade is the transfer of water access entitlements (permanent) and seasonal water allocations (temporary) between different entities, for example, irrigators, environmental water managers, and water authorities (water infrastructure operators).
Water trading is important because it allows scarce water resources to be transferred to their most productive uses.
Water trading also allows access to water resources to be reallocated over time in response to:
- changing commodity prices
- changing environmental conditions (e.g. salinity levels, river health)
- changes to the size of cities and towns
- the changing availability of water.
Creating an environment in which individual water access entitlement holders are able to trade water quickly and easily will contribute to a more productive and efficient use of Australia's water over time.
Water trading terminology
A major difficulty in encouraging water trading is the lack of consistent definitions to describe water access entitlements, allocations and transactions. Each jurisdiction has different terminology and definitions for these concepts. For specific jurisdictional terms and definitions see:
Water trading and water reform
The 1994 Council of Australian Governments (COAG) water reforms required the separation of water rights from land - a necessary first step to expand trade in water. The reforms also sought to open up trading arrangements, including interstate trading.
COAG subsequently agreed in the National Water Initiative (NWI) to an 'expansion of permanent trade in water bringing about more profitable use of water and more cost effective and flexible recovery of water to achieve environmental outcomes'. This was primarily intended to expand the area of coverage and the volume of trade, and to overcome the barriers to some forms of water trade.
Progress
In its 2009 Biennial Assessment of progress against the NWI, the Commission found that good progress had been made by all states to ensure that they have the institutional, regulatory and administrative arrangements to enable trade in water.
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'This progress is delivering tangible 'on the ground' benefits. There is, however, a need for considerable further improvement. Further efforts to enhance market performance, promote competition and efficient investment, and develop a more seamless approach to market design, regulation and operation are likely to deliver further substantial national productivity benefits in the short and long term.' - 2009 Biennial Assessment - |
Some other findings include:
- Jurisdictions have progressed water markets to the point where very large volumes of water are being traded-and significant benefits are flowing to buyers and sellers both within and outside the Murray-Darling Basin. Movements in water have facilitated industry adjustment and economic development.
- The annual 4% limit on water entitlement trading out of an irrigation area is being reached in regions in several basin states, with a wide range of undesirable consequences. The Commission considers that the 4% limit has impeded the use of buyback programs to assist in returning overallocated water systems to sustainable levels of extraction; unfairly and arbitrarily penalised willing sellers of irrigation entitlements; distorted patterns of water trade out of irrigation areas (including interstate trade); inhibited desirable and necessary structural change; and complicated interstate collaboration in other areas of water reform.
- It is commonly thought that unbundling water from land is largely complete. However, the Commission finds that, while significant progress has been made in the process of unbundling, additional reform is required in most states.
- While there have been some improvements, delays in processing transactions, especially in water access entitlements, continue to undermine the efficiency and effectiveness of water markets. Public reporting of performance against COAG service standards is expected to drive improvements in trade processing times, both within and across jurisdictions, in the period ahead.
- Information provision for and confidence in the water market are improving with new information sources and expected web-based information aggregation, notably the annually published Australian water markets report, the development of a National Water Market System and the Bureau of Meteorology's Australian Water Resources Information System (AWRIS).
- significant efforts have been made to improve confidence in market intermediaries, in particular through the provision of better information about rights and obligations under consumer protection legislation by relevant authorities (for example, the ACCC).
- Water allocations and water access entitlements remain the most widely traded water products, while other instruments have been slow to develop. The development of a wide range of different products will enable better risk management and better matching to the particular needs of different water users (including irrigators, environmental water managers and urban water corporations). As Australian water markets further develop, such alternative and complementary products should be encouraged.
- Even though tagged trade was agreed as the preferred approach in relation to interstate trading arrangements, the introduction of tagged interstate entitlement trade has not been accompanied by an increase in interstate entitlement trade. The Commission considers that facilitating and promoting interstate entitlement trade is an important next step n water market reform.