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Establishing a policy and governance structure to encourage environmental water trade: lessons learned from Australia

Congress: 2008
Author(s): Anna Wilson
The University of Melbourne

Keyword(s): Environmental Water; water markets
AbstractIn Australia water was historically seen as an abundant resource, with government policy focussed on encouraging expansive irrigation developments. The environmental impacts of these previous water policies are now apparent and policy makers are grappling with how to restore and protect the environment without jeopardising rural industries and communities, or urban water supply. Traditionally government regulations and central authorities have defined how water resources can be used in Australia. In many catchments existing water resources are fully allocated and the economic and environmental costs of augmenting supply have increased sharply. As a result, recent government reforms have concentrated on developing a more efficient allocation system, by treating water as an economic good and using market instruments to reallocate scarce resources among competing users promoting higher valued water use. However, to date providing water for the environment is still mostly managed using the traditional regulatory approach with limits imposed on the extent to which it can be involved in the water market. As a result society may be missing out on the opportunity to utilise market mechanisms to maximise social welfare on a broader scale. Furthermore, water markets may have a role to play in managing risks to the environment associated with increasingly unreliable water supply by providing flexibility and allowing for more adaptive management. However, in Australia there are still considerable policy and governance issues that need to be addressed before the water market can be successfully utilised to achieve these benefits for the environment: • The approach to allocating water between consumptive users and the environment varies between state jurisdictions, irrespective of the fact that many of these jurisdictions are hydrologically connected. Allocations to the environment rely on an estimate of water needs based on knowledge of water ecosystems’ requirements. The objective of these environmental flow determinations is not often transparently reported, and therefore the marginal value of additional or reduced water provision for the environment is difficult to ascertain. An understanding of this is required if transparent and consistent environmental management decisions are to be made using the water market. • A variety of legislative mechanisms (resource caps, environmental entitlements and operational rules) currently provide for the environment, many existing concurrently, in some form, in individual river systems. The impact of decreased water availability and increased supply variability, under these differing mechanisms, will present significantly differing risk for the environment. • A variety of authorities and organisations currently provide water for the environment in hydrologically connected water resources. The lack of a clearly specified environmental water manager, kept separate from the water resource planning and allocation process is constraining the potential for effective environmental trading. This paper briefly discusses the benefits of the environment entering the rural water market in Australia and explores why it has been slow to do so. In particular it focuses on current governance arrangements that may be constraining effective environmental trade and considers potential policy changes that could facilitate increased environmental involvement in the water market. The paper discusses how differing governance arrangements are adding to uncertainty in the market, making it difficult to determine if environmental water objectives are being met and limiting the development of a transparent and accountable decision making process for environmental trading.
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