National Water Initiative–The Economics of Water Management in Australia–An Overview - Water and Agriculture: Sustainability, Markets and Policies - page 9

The increase in temporary trade in the Murray Darling Basin since the early 1990s
has been due to a number of factors, including:
a widening of trading rules in 1994 to allow trade for the first time out of irrigation
districts;
the decision in 1995 to cap diversions in the Basin;
irrigators becoming more accustomed to the 'culture' of trading and gaining confidence
in the market; and
a long period of relatively dry years since 1994-95.
Temporary trade was an important factor in ameliorating the effects of recent drought
conditions experienced in the Basin. Irrigators who could have faced large economic
losses because of reduced water allocations could trade with those with more flexible
production systems.
Peterson et al. (2004) estimated that allowing intra- and interregional trade in annual
allocations more than halves the economic cost of reduced water allocations in the
southern MDB.
Markets have also been used to purchase water to meet environmental needs. The
Murray Darling Basin Ministerial Council recently agreed to explore options to obtain
entitlements from the water market to help meet the recovery of 500 gigalitres of water
for the six significant ecological assets under the Living Murray initiative (30 September
2005, www.mdbc.gov.au).
Regulatory-based instruments
The regulatory framework underpinning water management in Australia ranges from
licensing regimes for water access, water infrastructure and water use; environmental
rules governing water extraction in catchments (such as cease-to-pump rules when
streamflow reaches a certain level); rules for seasonal allocation of water; and trading
rules within and between water systems. Regulatory mechanisms rely heavily on the
legislative and administrative architecture which give them authority, and on the
institutional arrangements which give them effect on the ground (e.g., agencies to
undertake licence approvals, approvals for trades, and enforcement). It is also worth
recognising that many regulatory requirements - once established - rely heavily on self-
regulation by water users across the vast expanse of rural Australia. Improved water
measurement, metering and monitoring is expected to help to improve governments'
capacity to achieve compliance with regulations.
Planning-based instruments
In most states and territories, water resource planning is the primary vehicle for
describing the resource in a water system, and addressing the competing needs and values
of water users (including the environment) in that water system.
The NWI commits governments to develop statutory water plans as a means to assist
governments and the community to determine water management and allocation
decisions to meet productive, environmental and social objectives (NWI paragraph 36).