Water markets and water trade
The Australian water market is a composite of many separate water markets, each defined by water system and administrative boundaries, and of varying size, activity, and connectivity with each other. Interstate water trading activities are concentrated in the southern Murray-Darling Basin (MDB).
There are two main forms of water trade:
- permanent trade refers to trade in water access entitlements, the perpetual or ongoing property right to exclusive access to water. Permanent trades are largely driven by longer term business or financial decisions.
- allocation trade (or temporary trade) refers to the trade in seasonal allocations and is largely driven by short-term factors, such as water availability and production decisions in any given year. The distinction between water access entitlements and water allocations is analogous to owning a house as opposed to renting it.
In 2009-10, 1949GL of entitlements were traded at the national level, representing about 7 per cent of total entitlements on issue (by volume). 7374 trades were executed. 2495GL in water allocations were traded in 2009-10.
An integral part of Water for the Future, the Australian Government's national plan for securing the long-term water supply of all Australians, is making water markets work more effectively. Market mechanisms play an important role in allocating water between competing uses, delivering water to where it is most valued, and encouraging efficient use of water. The water market has been critical in helping farmers and others manage the marked reductions in water availability.
The Australian Government is pursuing a number of initiatives to improve the functioning of water markets. This includes working with Basin states to remove barriers to water trade, and develop a National Water Market System that will assist in the efficient management of water registry, transaction and market information functions. Basin states have also agreed to implement, and report on, faster processing of water trades.
The Australian Government is also introducing water market, charge, and trading rules under the Water Act 2007 (the Act). These rules will improve the water market by freeing up and setting rules for trade, and by ensuring appropriate price signals.
Rules under the Water Act
The Act provides for water market, charge and trading rules to be made to regulate the water market and water charges across the MDB. The rules aim to free up trade, encourage the efficient use of water and water service infrastructure, and improve pricing transparency and consistency across the Basin.
Under the Act, the Minister for Sustainability, Environment, Water, Population and Communities is required to seek, and have regard to, advice from the Australian Competition & Consumer Commission (ACCC) in making the water market and charge rules to apply in the MDB. The Murray-Darling Basin Authority (MDBA) is required to obtain and have regard to advice from the ACCC on the water trading rules. The Act requires the ACCC to monitor compliance with and enforce the water market and charge rules. The MDBA is responsible for monitoring and enforcing compliance with the water trading rules under the Basin Plan.
- Water market and termination fee rules
- Water planning and management charge rules
- Water infrastructure charge rules
- Water trading rules - the water trading rules are being developed under the Murray-Darling Basin Plan . The Guide to the Basin Plan, containing the MDBA's proposed trading rules, was released on October 8, along with the ACCC's advice on the trading rules .
- Water market intermediaries (which include water brokers and exchanges) play an important role in the market by bringing buyers and sellers together, reducing search costs, improving information flows and assisting in obtaining regulatory approvals. The ACCC publishes guides which may assist water market intermediaries and their customers in understanding their fair trading obligations under the Competition and Consumer Act 2010.
Related information
Subscribe to the Water Matters newsletter
For up-to-date information about the Water for the Future initiative.
