2012 AIF, D3S9 PPT Australia’s Markets for Water Resources and Pricing for Water Services by Will Fargher and Chris Olszak

8/2/2019 2012 AIF, D3S9 PPT Australia’s Markets for Water Resources and Pricing for Water Services by Will Fargher and Chris Olszak

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Water markets reform: lessons from theAustralian experience

Will Fargher

Director, Aither Pty LtdAustralia



Water market and pricing reform in Australia

Scarce and variable water supplies, competing users, legacy of government-led development

Inefficient water distributionand use outside

environmental limits

Inefficient and unviableinfrastructure investment

and service provision

Introduced markets forwater resources

Improved pricing for waterdelivery services



Increase efficiency of water allocation and use,increase private investment, protectenvironment

Decreasing level of government control

Benefitfrom

waterresources

centralcontrol

mixof markets,

planning, andregulation

uncontrolledaccessand use



Establishing water markets via ‘cap andtrade’ approach

1) Limit total extractions from water resource

Consumptivepool

Water for theenvironment

2) Limit/specify extractionsfor each user

3) Trade allows individual wateruse to be reallocated



Defining water rights and use conditions



Trade in water entitlements and allocations

Source: NWC



Entitlement and allocation trade: southernMurray-Darling Basin

0

200

400

600

800

1,000

1,200

1,400

1,600

1,800

G L t r a

d e

d

sMDB entitlement trades Entitlement trade to environment

sMDB allocation trades

Source: NWC



Relationship between allocation levels and prices:southern MDB

0%

20%

40%

60%

80%

100%

120%

0

200

400

600

800

1,000

1,200

P e r c e n

t a g e a l l o c a

t i o n

A v e r a g e a

l l o c a

t i o n p r i c e

( $ p e r

M L )

Average price Average allocation

2007-08 2008-09 2009-10 2010-11



Volume of water allocationand proportion traded

0

5

10

15

20

25

30

35

40

0

2,000,000

4,000,000

6,000,000

8,000,000

10,000,000

12,000,000

% o f a n n o u n c e d a l l o c a t

i o n

t r a d e

d

A n n o u n c e

d a

l l o c a

t i o n v o

l u m e s

( M L )

Allocations traded as % of announced allocations



Interzone water allocation trading 2008-09



Murray rice production and waterallocations

0

20

40

60

80

100

120

0

100,000

200,000

300,000

400,000

500,000600,000

700,000

800,000

900,000

P e r c e n t a g e w a t e r a

l l o c a t i o n

R i c e p r o

d u c t i o n

( t o n n e s )

Murray Valley production (tonnes)

NSW Murray General Securityallocations



Allocations to high security entitlementsover net allocation trade

0

20

40

60

80

100

120

E n

d o

f s e a s o n

a l l o c a

t i o n

( % ) ( y e a r )

NSW Murray High Security

Vic. Murray High Reliability Water SharesSA Murray

-100,000

-50,000

0

50,000

100,000

150,000

200,000

250,000

N e

t a

l l o c a

t i o n

t r a d e

( i n w a r d s

M L )

SA Murray irrigatorsVic Murray irrigators



Lessons from Australia’s water markets

• Can work in complex systems, including across boundaries

• Have enabled private investment and supported irrigation

• Large benefits to agriculture, urban areas and environment

• Require

- good water planning and effective cap on water extractions

- specifying, monitoring and enforcing entitlements

- water registers, metering and accounting

• While costly, these fundamentals support good water management

• can be introduced incrementally and participants learn quickly

2012 AIF, D3S9 PPT Australia’s Markets for Water Resources and Pricing for Water Services by Will Fargher and Chris Olszak

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