Learning from The Market: Ex-Post Water Access Entitlement and Allocation Trading Assessment Experience in Australia

Abstract

Australia, arguably more than any other OECD country has made a commitment to develop tradeable markets for access to water resources. The prime driver for this has been the development of a National Competition Policy, involving some monetary transfers of taxation revenue collected by the Commonwealth Government to State and Territory governments being conditional upon stepwise attainment of micro-economic reform goals. The focus of these National Competition Policy reforms has been in areas traditionally managed by State and Territory governments rather than the Commonwealth Government. The general aim has been to impose market disciplines on government enterprises associated with water, electricity, telecommunication, gas and rail. A ten-year reform programme has been put in place with three formal reviews. To gain access to these funds (billions of dollars), State and Territory governments have had to meet performance targets relating to aspects such as pricing, separation of regulation from service delivery, and the development of competitive markets (see Council of Australian Governments, 1994). In the area of water policy, States and Territory governments now are expected to allow water licences to be held separately from land title and traded via a market process. Progressive transition to integrated catchment management and full cost pricing that includes the cost of externalities is also expected. As a result, all States have introduced new water legislation and begun a process of water policy reform. New water markets are emerging and new arrangements being trailed. This paper focuses only on one dimension of this policy reform process, namely, ex-post experience in assessing the development and expansion of markets for water access entitlements and periodic allocations.2 Most attention is given to water trading in Australia's Murray Darling Basin. A recent evaluation of the pilot interstate water trading trial is used as a case study.