Sharing the River Murray water sources was a big challenge in the early 1900s. When the British handed over governance to Australians, they adopted their systems. Water rights were directly tied to land rights. Irrigators, therefore, had to buy extensive parcels of land to access more water. This investment alone is costly and time intensive.
Water management in the old days entirely depended on engineering solutions regulate flow of rivers. The Australian government relied on constructing dams, locks and weirs, and water storage facilities within this period.
Such infrastructure ensured a stable water supply for use in towns and irrigation. However, water in the river systems was reduced considerably. Natural flooding patterns in the rivers were also disrupted, leading to the deterioration of the river and surrounding environments.
From 1960, Australia’s increasing population and agricultural irrigation overwhelmed water resources. Before 1990, water resources in the catchments were 100% allocated. Water harvesting options were limited. Similarly, the engineering solutions negatively impacted the environment, which created awareness.
Irrigators, therefore, had to develop new ways to move water rights among users. Some policymakers and irrigators decided on separating water rights from land rights.
Creation of water markets
Water markets were formed under two structural reforms. These markets are typical 'cap and trade markets. Caps were set on the total water volume consumed across the entire basin. The separation of water rights from land rights meant that water could be traded individually. The 1982 and 1983 drought further advanced the need for water markets. With the separation of water rights from land rights, water trading grew in South Australia, Victoria, and New South Wales.
Separating water rights from land titles was done in 1983, and private bodies traded entitlements and allocations. In 1989, trading spread through the irrigation districts, and private diverters within irrigation districts started trading in 1995.
New South Wales
New South Wales traded water allocations officially from 1983. Private diverters started trading amongst themselves in 1989 with intervalley allocation trading from 1991.
Victoria was somehow late in implementing water markets in 1987 but became widespread with newer laws in 1989. Trading entitlements within districts started in 1991, and entitlement trading between districts started in 1989. Even though these improvements were much welcome, trading was localized and restricted. Expansion only happened after 1990 with the growing markets.
National water reform
Expansion of water markets was rapid from the mid-1990s. Trading was growing rapidly throughout the Murray-Darling Basin (MDB). Many factors pushed for these water reforms. They include drought effects on farmers, the community and environment, awareness of environmental damage, and the need for economic transitions.
The government further set up initiatives that led to state-to-state entitlement trading. They further addressed MDB's wide cap on water extraction, increased entitlement reforms, and over-allocation in the basins. These government initiatives include;
- Murray-Darling Basin Agreement 1992
- COAG Water Reform Framework 1994
- National Water Initiative 2004
Within the late 1980s and early 1990s, environmental awareness increased. Australia was among the nations championing ecologically sustainable development. In 1992, the government set up the National Strategy for Ecologically Sustainable Development (NSED). The body oversaw the implementation of economic measures to address environmental problems, including water trading.
The microeconomic reform agenda came when there was increased awareness of environmental issues. Microeconomic reforms began with the introduction of the National Competition Policy. Under these reforms, markets must serve consumer and community interests.
With the growth of water markets, more brokers and intermediaries came into the market. The government, water brokers, and businesses introduced electronic trading platforms. The platforms primarily reduced transaction costs while providing price and market information.
Sustainable water markets
Purchasing water rights has been the primary channel for managing water scarcity since 2007. However, there is a need to improve water market efficiency. Farmers, communities, and the environment suffered from the millennial drought meaning there is a need for water resource management reforms. Some changes include the Water for the Future Plan, which aims at improving governance arrangements in the Murray-Darling Basin. The plan focuses on investing in irrigation infrastructure and buying back permanent entitlements to protect the environment.
Trading water rights
Entitlement holders can buy and sell water on the Murray-Darling basin temporarily or permanently. Water trading occurs in markets within or between catchments and river systems. The users can buy and sell water depending on their personal needs. Many irrigators gain massively from trading water.
How do water markets work?
There are many ways to trade water markets. These range from changing ownership or location of the water rights or both. There are further arrangements to facilitate water allocation leases and contract forwarding.
Water access entitlements are statutory or permanent rights to claim water from a source. Trading entitlements is a permanent trade. On the other hand, water allocation is the right to access a volume of water within a water year. An allocation is the water volume percentage extracted from a resource within the year.
In water markets, there are irrigation rights that allow holders to obtain water from an irrigation infrastructure operator (IIO). However, these rights are only tradeable within the irrigation network. Water delivery rights are also included to manage water delivery. These rights facilitate water access when required. These can be traded as delivery entitlements/shares.
Temporary and permanent trades
Water rights holders can choose when they want to buy or sell water. These trades can either be permanent or temporary. Permanent trades include the sale of water entitlements. Temporary trades involve the annual trading of water allocations. These trades can be conducted depending on the holder's business model.
Anyone with water entitlements is free to trade except for physical constraints or water supply system issues. Purchasing water rights is dictated supply and demand, so it differs across regions and right types.
Australia is the world-leading water market with a turnover of between $1 and $3 billion each year. Water markets have undergone numerous reforms to allow smooth delivery between resources and holders. These reforms constantly shape these water markets for efficiency. The constant changes have led to the sustainable growth of water distribution channels with more attention to the environment. The allocation and entitlement rights also ensure that the water distribution does not impact the flow of rivers.