WATER TRADING

Trading is used in Chile, Mexico, Peru, the USA and Australia to control and allocate water use. It requires the separation of water rights from land title so that water rights can be separately traded.

Water allowance trading in Australia

In 1994 the Council of Australian Governments (COAG) put together a Water Reform Framework to deal with 'concern about the state of many of Australia's river systems', which required each state to separate water and land titles and enable water trading to occur. Ten years later, in 2004, a National Water Initiative was agreed to by most state governments. It included four objectives:

• more secure water access entitlements

• protection of environmental assets

• expansion of water trading between districts and states

• water conservation in cities. (DAFF 2005a)

A National Water Commission was established to achieve these objec­tives. Today the water market in Australia involves the annual trade of some 1000 GL (1000 billion litres) of water and is thought to be worth from $200 to $300 million a year. Trades can be temporary or perma­nent. In New South Wales temporary water entitlements cost $50-$100 per megalitre (ML) and the cost of a permanent general security enti­tlement is between $550 and $3000 per ML (Martin 2005; Wahlquist 2005a).

The 'primary objective of water allocation within rural Australia is the promotion of economic growth'. The idea is that water trading will enable those who can make the most money out of the water to buy it and for those who make less money out of it to sell it, rather than use it on 'low value' crops. It is also hoped that having paid so much for the water, users will have an incentive to improve water efficiency through the use of different practices and new technologies.

Australian states

In Victoria, water rights were separated from land title and made trans­ferable in 1989, even before the COAG 'reforms': 'water is now an asset with a dollar value' (ENRC 2001: ch 4). The government has since set up the Watermove exchange to facilitate trade and establish a weekly price based on offers from buyers and sellers. Trades may also be private arrangements or undertaken through a broker or stock and station agent. There is also a national Internet water exchange, Waterexchange, which covers trades in regulated and unregulated water and in groundwater. Trading is mainly between agricultural irrigators. The government is required to review allocations every 15 years to take account of issues like climate change (Hodge 2005d).

In the Wimmera-Mallee area in Victoria, a 'Sales-Ior-Savings' pro­gramme began in 1989. Water use in the catchment is capped but new allocations can be made if developers pay the authority to undertake 'works (such as piping or lining of channels) that lead to water savings through reductions in evaporation and/or seepage'. The water saved by these works is then allocated to the developer (ENRC 2001: ch 4).

In South Australia, water rights are separated into water-holding allocations and water-taking allocations. Water-holding allocations are based on a share of the total allocation - based on available flow at the time - and have been allocated on the basis of land ownership. These are tradeable, but have to be converted to water-taking allocations before the water can be taken from the waterway. Conversion requires a permit that involves a hydrogeological assessment of the water diversion (DWLBC 2003).

The Murray-Darling river system

Water use from the Murray-Darling river system, which covers four states - Queensland, New South Wales, Victoria and South Australia - and the Australian Capital Territory, is subject to a cap and trade system.

In 1995 a moratorium on new diversions of water from the Murray- Darling Basin was imposed and in 1997 the amount of water that could be diverted from the river system was capped. The cap varies according to climatic and hydrologic conditions. There are periodic auctions of water rights that can then be traded (NCEE 2004: 31; Quiggan 2001: 75).

Security of entitlement

In New South Wales water rights have been over-allocated. In the Murray-Darling Basin, if all rights were exercised they would exceed the maximum capacity of the catchment. The state government therefore introduced the Water Management Bill in 2000, which defines water rights in a way that is supposed to protect the river. The two main categories of water entitlements - general security and high security - provide dif­ferent levels of certainty depending on water flow. A third category is only relevant in situations of high flow.

General security entitlements, which make up some 90 per cent of entitlements, vary according to the level of river flow.

High security water entitlements give the holders guaranteed access to their full entitlements 'in all but the most severe droughts'. They are granted to urban water suppliers and to electricity companies, and can be bought by farmers growing grapes and fruit trees. These entitlements cost around double the cost of general security licences (Crase et al. 2000: 305; Quiggan 2001: 88; Wahlquist 2005b).

US water banks

In the USA, water banks are a fairly recent development. Most of the western states have them, although only about half have been set up under specialised legislation. Their aim is to ensure that water is used for the highest value purposes. The banks act as an intermediary or broker between buyers and sellers (Clifford et al. 2004; Evans 2004: 1). The aims of water banks include:

• creating reliability in water supply during dry years

• creating seasonal water reliability

• ensuring a future water supply for people, farms, and fish

• promoting water conservation by encouraging water-right holders to conserve and deposit water rights into the bank

• acting as a market mechanism

• resolving issues of inequity between groundwater and surface­water users

• ensuring compliance with intrastate agreements of instream flow. (Clifford et al. 2004: 3)

The term 'bank' is used both for the institution which runs the water market and for the physical storage of water, which may be in the form of reservoirs on the surface or underground storage in aquifers. Groundwater banking is a particularly recent phenomenon and doesn't yet occur much. It involves injecting excess surface water into the ground during times of plenty and extracting it again during times of drought (Clifford et al. 2004: 5).