About the water market

The Australian water market is composed of several separate water markets, differentiated by water system or administrative boundaries. The scale of Australia's water markets varies greatly, from small unconnected water markets to extensive connected systems such as the Murray-Darling Basin, the largest water trading area in Australia.

Australia's water market involves the trading of a variety of water products within and between many separate water resources. These water products generally fall into the broad categories of water access entitlements A perpetual or ongoing entitlement to exclusive access to a share of water from a specified consumptive pool as defined in the relevant water plan.
 
Source: Schedule B(ii) NWI
and water allocations The specific volume of water allocated to water access entitlements in a given water year or allocated as specified within a water resource plan.
 
Source: Adapted from Water Act 2007
. Water trading provides opportunities for water resources to be allocated between competing uses.

Each state and territory maintains responsibility for the legislative and administrative arrangements for water rights and water trading.

The water market has a number of participants, including:

  • users/owners — irrigators, farmers, rural water utilities, irrigation infrastructure operators, industry, urban water utilities and environmental groups
  • intermediaries — brokers, conveyancers, solicitors, banks, money lenders and valuers
  • researchers — environmentalists, scientists, economists and hydrologists
  • government — Australian Government, state and local government and trade approval authorities
  • public — investors, community groups and general public

Improving the efficiency of the water market

An efficient water market is dependent on:

  • governments establishing clear water rights
  • an ability to undertake transactions in relation to those water rights
  • access to relevant market information

Each state and territory government has a water register for recording water access entitlements, including ownership details and transactions. Water trading relies on an efficient water register system in the same way that the property market relies on an efficient land titles register and the Australian Stock Exchange relies on an accurate share register. Efficient, accurate and comprehensive water registers are critical to a flourishing water market.

Through the National Water Initiative  (NWI), the Australian Government is working with the state and territory governments to develop a National Water Market System (NWMS) that will improve the efficiency of state and territory water registers, transactions and market information functions. This website, which provides access to water market information, is a part of the NWMS project.

Water market reform

Legislation governing water trade in Australia is currently going through a reform process at the national and state/territory levels. The aim of this reform process is to remove barriers to water trade, thus reducing market distortions and facilitating a freer trading process. Some of the key reform processes are outlined below.

Murray-Darling Basin Plan

The Murray-Darling Basin Plan is intended provide an integrated approach to managing the water resources of the Murray–Darling Basin in a way that can be sustained through time and in the national interest. The Basin Plan will provide a framework for setting environmentally sustainable limits (known as Sustainable Diversion Limits) on the amount of surface water and groundwater that can be taken from the Basin. These limits will be set based on the best available scientific knowledge, socio–economic analysis and cultural information.

The Basin Plan will identify, and seek to protect and restore, key environmental assets which are essential to the life of the rivers, their surrounding landscapes and the cultural values of the communities which depend on those water resources. The Basin Plan will also take into account the impact of this protection and restoration on individual communities, industries, regions and the wider economy.

The Guide to the Basin Plan was released on the 8 October 2010 for community discussion and feedback. The proposed Basin Plan will be released in 2011.

For more information see the Murray-Darling Basin Authority's website .

Compliance and enforcement

The Australian Government has committed $60 million over 5 years to improve water compliance and enforcement.

A national framework has been drafted, in consultation with the states. Final approvals are being sought on this and 5-year project plans, developed to strengthen each state and territory's compliance and enforcement activities. The plans include a review of water legislation, with the aim of ensuring that the penalties for water theft are consistent, and sufficient to provide a real deterrent. There would also be an increase in compliance monitoring. Once implemented, these measures should help to increase public confidence in the security of the water market.

Water market rules, termination fee rules and transformation

The Water Market Rules 2009 came into full force on 1 January 2010 and Water Charge (Termination Fees) Rules 2009 came into full force on 1 September 2009.

The Water Market Rules 2009 regulate a process known as 'transformation'. In areas where an irrigation infrastructure operator (IIO) holds a bulk water entitlement, the water market rules prohibit actions of an IIO that prevent or unreasonably delay irrigators from transforming all or part of their irrigation rights into separate statutory water access entitlements, allowing them to be traded outside the irrigation district. Transforming an irrigation right into a water access entitlement does not extinguish the irrigator's water delivery right, nor the associated obligations, including the requirement to pay network access fees and charges to the IIO.

The Water Charge (Termination Fees) Rules 2009 cap the termination fee that may be imposed by IIOs when an irrigator chooses to terminate their access to the IIO's irrigation network. The termination fees rules relate only to fees for terminating access to an irrigation network. Rules covering other regulated water charges are still under development.

These rules were made by the Minister following advice from the Australian Competition and Consumer Commission (ACCC). The ACCC have produced guides that explain the details for both irrigators and IIOs. See the ACCC's water page  for more information about water rules.

Unbundling of water rights

Historically, most states and territories bundledThe aggregation of individual rights into a single right. These might include, but are not limited to, land property title, water access entitlement, water allocations, water use rights, delivery rights, irrigation rights and works approvals. land property titles and associated water entitlements together. One of the National Water Initiative's objectives is to have a national water system in which water entitlements can be traded independently of land. This separation is known as unbundlingThe separating of historic water entitlements which bundled water, land, water use, delivery and works approvals, into separate entitlements or licences. land and water entitlements. Unbundling of land and water rights has been completed in many jurisdictions.

Several jurisdictions are currently going through the process of unbundling water instruments. This means that water rights are unbundled from each other, as well as being unbundled from land. A bundled water instrument may contain a combination of water access entitlements, water supply works rights and water use rights. An unbundled water instrument has only one water right. When trading water, it is important to note that unbundling of water rights is still being progressively implemented in some jurisdictions.

Impacts of water trading in the southern Murray-Darling Basin

On 10 June 2010 the National Water Commission released a report entitled Impacts of water trading in the southern Murray-Darling Basin: An economic, social and environmental assessment. The report looks at the period of 1998-99 to 2008-09, a decade marked by severe and prolonged drought.

Large increases in allocation and entitlement trading were recorded in this period. The Australian water markets reports show that water allocation trading in the southern Murray-Darling Basin (MDB) increased by 58%, from 1098 GL in 2007-08 to 1739 GL in 2008-09. In the same period, entitlement trading in the southern MDB increased by 116% from 500 GL in 2007-08 to 1080 GL in 2008-09.

The report Impacts of water trading in the southern Murray-Darling Basin found that water trading provided important economic benefits to regions and local communities. Sales of water provided a financial injection into many local economies.

According to the report, water trading in the southern MDB in 2008-09 is estimated to have:

  • increased Australia's gross domestic product by $220 million
  • increased gross regional product by over $370 million (indicating that water trading actually maintained productive capacity within the southern MDB), and
  • benefitted NSW (by an estimated $79 million), South Australia (by $16 million) and Victoria (by $271 million).

The report found that water trading provided benefits to irrigators by:

  • offering a mechanism to manage uncertainty around seasonal water availability
  • expanding options to cope with the impact of drought
  • providing an additional option for reacting to external changes, including industry changes, and
  • enabling irrigators to manage the differences in water demands across a variety of key irrigated agricultural industries (e.g. horticulture, rice-growing, dairying and mixed farming).

Comparisons of trade patterns and key socioeconomic indicators revealed no discernible link between patterns of water trading in or out of a region and changes in population, employment in agriculture or weekly household income. Views expressed in stakeholder consultations suggested that negative community perceptions of interregional entitlement trading are receding. Conversely, concerns about the costs of restrictions of entitlement trading are rising as irrigators seek more flexibility to manage the drought and commodity price fluctuations.

The report found that improved market performance could increase the benefits of trading.

For further information, see: Impacts of water trading in the southern Murray-Darling Basin