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Removing Barriers to Facilitate Efficient Water Markets in the Murray Darling Basin – A Case Study from Australia

  • M Ejaz Qureshi
  • Tian Shi
  • Sumaira Qureshi
  • Wendy Proctor
  • Mac Kirby

    ()

    (CSIRO Sustainable Ecosystems, Australia)

Water markets have been seen as an effective way of addressing water scarcity and allocation issues. In this paper we discuss the role and characteristics of water markets in facilitating efficient water allocation. Administrative, regulatory and/or political barriers to effective functioning of water markets are reviewed with a focus on southern Murray-Darling Basin in Australia. A mathematical model is developed to estimate the costs of existing restrictions and the benefits from potential changes in the water markets (eg. removing barriers in temporary water market). The modelling results reveal that when expanding trade from intraregional only to interregional trade, mean annual net returns increased from $2,502 million to $2,590 million (i.e. an increase of $88 million). When the current volume restrictions, exchange rates, and trading charges are in place, mean annual net returns reduced from $2,590 million to $2,573 million (i.e. a reduction of $17 million). The exclusion of any state from the interstate water trading market imposes significant costs. If South Australia, New South Wales or Victoria withdraws from the market, it reduces net returns by $27 million, $31 million and $63 million, respectively, from water trading. In conclusion, the policy implications on strategies to removing market barriers are outlined to facilitate efficient and effective water trading.

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Paper provided by CSIRO Sustainable Ecosystems in its series Socio-Economics and the Environment in Discussion (SEED) Working Paper Series with number 2009-02.

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Length: 32 pages
Date of creation: Jan 2009
Date of revision:
Handle: RePEc:cse:wpaper:2009-02
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  1. John Freebairn, 2003. "Principles for the Allocation of Scarce Water," Australian Economic Review, The University of Melbourne, Melbourne Institute of Applied Economic and Social Research, vol. 36(2), pages 203-212.
  2. Easter, K William & Rosegrant, Mark W & Dinar, Ariel, 1999. "Formal and Informal Markets for Water: Institutions, Performance, and Constraints," World Bank Research Observer, World Bank Group, vol. 14(1), pages 99-116, February.
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  6. Heaney, Anna & Dwyer, Gavan & Beare, Stephen & Peterson, Deborah C. & Pechey, Lili, 2005. "Third-party effects of water trading and potential policy responses," Conference/Workshop Proceedings 31907, Productivity Commission.
  7. Mike Young & Darla Hatton MacDonald, 2000. "Interstate Water Trading: a 2-year Review," Natural Resource Management Economics 00_001, Policy and Economic Research Unit, CSIRO Land and Water, Adelaide, Australia.
  8. Bell, Rosalyn & Blias, Athena, 2002. "Capturing benefits from the removal of impediments to water trade: a modelling framework," 2002 Conference (46th), February 13-15, 2002, Canberra 125059, Australian Agricultural and Resource Economics Society.
  9. Mainuddin, Mohammed & Das Gupta, Ashim & Raj Onta, Pushpa, 1997. "Optimal crop planning model for an existing groundwater irrigation project in Thailand," Agricultural Water Management, Elsevier, vol. 33(1), pages 43-62, May.
  10. M. Ejaz Qureshi & Jeff Connor & Mac Kirby & Mohammed Mainuddin, 2007. "Economic assessment of acquiring water for environmental flows in the Murray Basin ," Australian Journal of Agricultural and Resource Economics, Australian Agricultural and Resource Economics Society, vol. 51(3), pages 283-303, 09.
  11. Rosegrant, Mark W. & Binswanger, Hans P., 1994. "Markets in tradable water rights: Potential for efficiency gains in developing country water resource allocation," World Development, Elsevier, vol. 22(11), pages 1613-1625, November.
  12. David Zilberman, 1997. "Allocation and Pricing at the Water District Level," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 79(3), pages 952-963.
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