History of Australian water markets
The fundamental reforms that enabled water markets to develop in Australia commenced in the 1980s with the introduction of limited water trading in Victoria, and the introduction of the National Competition Policy in the early 1990s.
The adoption of nationally agreed water reform packages in 1994 and 2004 facilitated the expansion of water markets across connected valleys and eventually state borders in the Murray-Darling Basin.
Today, our water markets are internationally recognised as Australia’s water reform success story. A market now boasting an annual turnover of between $1 and $3 billion is allowing water to move to its most economically productive uses. Trading generates economic benefits valued in hundreds of millions of dollars annually.
Key features of Australian water markets
The price of water is an important input into an irrigator’s business decisions. The ability to sell or buy water in response to the price of water and commodities allows flexibility for water users. This flexibility allowed many businesses to continue operating through the millennium drought.
Australian governments have established regulatory frameworks to reduce barriers to water trade. Commonwealth legislation under the Water Act 2007 (Water Act) and the Basin Plan Water Trading Rules sets out high-level principles and requirements to promote water trading in the Murray Darling Basin. Other trading rules that apply at the state or local level, including in water resource plans, operate concurrently with the Basin Plan water trading rules.
The Basin Plan water trading rules are part of a broader package of reforms under the Water Act aimed at improving water market outcomes, including water market and charge rules. The Australian Competition and Consumer Commission is the relevant enforcement agency for the water market and charge rules. The Murray-Darling Basin Authority enforces the Basin Plan Water Trading Rules.
It is important to note that water for critical human needs, such as drinking water for towns, households and stock animals, is protected in water resource plans.
Water needed to sustain agreed environmental values is given statutory recognition and environmental water holders can participate in water markets.
How water markets operate in Australia
Access to shared water resources are regulated by states and territories through water access entitlements, which are a tradable asset.
Prices for water are determined by the market and are influenced by supply and demand drivers, such as water availability, climate conditions and demand for different agricultural commodities. Water can be traded on a temporary or permanent basis.
Water trading rules made under the Water Act confer different rights, responsibilities and obligations to holders of tradeable water rights, infrastructure operators, governments and trade approval authorities. These rules operate together to facilitate the continued development and operation of water markets in Australia. Entitlements of the same class, including environmental water holdings, are subject to the same carryover rules, allocations, restrictions and fees and charges. In order for the market to operate most effectively, there should be minimal restrictions on water trade. The Basin Plan water trading rules provides for a person to trade a water access right free of specified conditions and restrictions.
Regardless of the size of the market, all water markets offer benefits to irrigators by adding flexibility to business decisions.
Locations of water markets
Water markets in Australia are dispersed, defined by their hydrological connectivity and operating with varying degrees of maturity.
The most highly developed and active water market is within the regulated southern connected Murray-Darling Basin. The water market in the northern Murray-Darling Basin is characterised by unregulated rivers or rivers regulated by single storages. Outside the Murray-Darling Basin region, new water markets have emerged in Tasmania, Western Australia, Northern Territory and northern Queensland.
The Australian, state and territory governments have made a commitment to adhere to the National Water Initiative principles to enable the emergence of new water markets.
More information on the development of water markets in Australia is available on the former National Water Commission website.