National Water Initiative–The Economics of Water Management in Australia–An Overview - Water and Agriculture: Sustainability, Markets and Policies - page 8

Market-based instruments
Market-based instruments include pricing for cost recovery of water service
provision, consumption-based pricing, cost recovery for water resource planning and
management, and pricing for externalities. Typically in Australia, such prices are set by
state/territory governments or independent pricing regulators. Pricing is discussed further
below.
The NWI commits governments also to use, as far as practicable, market-based
mechanisms to allocate releases of unallocated water (NWI paragraph 72). Such releases
are not common in Australia, but a recent release in the Burnett River in Queensland
occurred using a tender scheme (www.sunwater.com.gov.au).
Water markets have been active in Australia for some time and there has been
considerable growth in trading activity over the last ten years. Most trade occurs in
seasonal allocations (temporary trade) rather than in entitlements (permanent trade). It is
common for 10-20 per cent of allocations to be traded within an irrigation district in an
irrigation season (Peterson et al. 2004).
To illustrate, Figure 2 summarises the volume of water traded on a temporary and
permanent basis in the Murray Darling Basin over the last two decades. While temporary
trade has increased over recent years, the permanent trade in water entitlements remains
small, at less than 1 per cent of diversions in 2003-04.

Figure 2. Murray-Darling Basin Water Entitlement Transfers in the southern connected basin
(provided by MDBC, November 2005 )

Murray-Darling Basin Water Entitlement Transfers - 1983/84 to 2003/04

1 200

1 100

1 000

900

800

700

Intrastate Temporary (GL)
Intrastate Permanent (GL)
Interstate Temporary (GL)
Interstate Permanent (GL)

600

500

400

300

200

100

0

Source : Courtesy of Murray Darling Basin Commission.