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Governments are developing policy to reallocate water to environmental uses in many of the world's major river basins developed for irrigation. These policies can place considerable pressure on the irrigation sector to adjust, and may be perceived to conflict with food security and rural development goals. This paper reviews the literature examining opportunities to reduce irrigation district and third party externalities associated with rapid adjustment to water reallocation, with emphasis on recent water reform in the Murray-Darling Basin (MDB), Australia. We focus on opportunities to improve joint environmental and regional economic outcomes, by targeting and sequencing policy instruments operating at different scales.
International Centre for Economic Research (ICER);
Water markets in Australia's Murray-Darling Basin (MDB) and the US west are compared in terms of their ability to allocate scarce water resources. The study finds that the gains from trade in the MDB are worth hundreds of millions of dollars per year. Total market turnover in water rights exceeds $2 billion per year while the volume of trade exceeds over 20% of surface water extractions. In Arizona, California, Colorado, Nevada, and Texas, trades of committed water annually range between 5% and 15% of total state freshwater diversions with over $4.3 billion (2008 $) spent or committed by urban buyers between 1987 and 2008. The two-market comparison suggests that policy attention should be directed towards ways to promote water trade while simultaneously mitigating the legitimate third- party concerns about how and where water is used, e specially conflicts between consumptive and in situ uses of water. The study finds that institutional innovation is feasible in both countries and that further understanding about the size, duration, and distribution of third-party effects from water tra de, and how these effects might be regulated, can improve water markets to better manage water scarcity.
Governments in Australia are purchasing water entitlements to secure water for environmental benefit, but entitlements generate an allocation profile that does not correspond fully to environmental flow requirements. Therefore, how environmental managers will operate to deliver small and medium-sized inundation environmental flows remains uncertain. To assist environmental managers with the supply of inundation flows at variable times, it has been suggested that allocation trade be incorporated into efforts aimed at securing water. This paper provides some qualitative and quantitative perspective on what influences southern Murray-Darling Basin irrigators to trade allocation water at specific times across and within seasons using a market trans- action framework. The results suggest that while irrigators now have access to greater risk-management options, environmental managers should consider the possible impact of institutional change before intervening in traditional market activity. The findings may help improve the design of intervention strategies to minimise possible market intervention impacts and strategic behaviour.
John Wiley & Sons, Inc.;
A key challenge in managing semiarid basins, such as in the Murray-Darling in Australia, is to balance the trade-offs between the net benefits of allocating water for irrigated agriculture, and other uses, versus the costs of reduced surface flows for the environment. Typically, water planners do not have the tools to optimally and dynamically allocate water among competing uses. We address this problem by developing a general stochastic, dynamic programming model with four state variables (the drought status, the current weather, weather correlation, and current storage) and two controls (environmental release and irrigation allocation) to optimally allocate water between extractions and in situ uses. The model is calibrated to Australia's Murray River that generates: (1) a robust qualitative result that "pulse" or artificial flood events are an optimal way to deliver environmental flows over and above conveyance of base flows; (2) from 2001 to 2009 a water reallocation that would have given less to irrigated agriculture and more to environmental flows would have generated between half a billion and over 3 billion U.S. dollars in overall economic benefits; and (3) water markets increase optimal environmental releases by reducing the losses associated with reduced water diversions.
In Australia's Murray-Darling Basin the Australian and state governments are attempting to introduce a system of water management that will halt ongoing decline in environmental conditions and resource security and provide a robust foundation for managing climate change. This parallels similar efforts being undertaken in regions such as southern Africa, the southern United States, and Spain. Central to the project is the Australian government's Water Act 2007, which requires the preparation of a comprehensive basin plan expected to be finalized in 2011. This paper places recent and expected developments occurring as part of this process in their historical context and examines factors that could affect implementation. Significant challenges to the success of the basin plan include human resource constraints, legislative tensions within the Australian federal system, difficulties in coordinating the network of water-related agencies in the six jurisdictions with responsibilities in the Murray-Darling Basin, and social, economic, and environmental limitations that restrict policy implementation.
International Centre for Economic Research (ICER);
The paper provides an integrated framework to assess water markets in terms of their institutional underpinnings and the three 'pillars' of integrated water resource management: economic efficiency, equity and environmental sustainability. This framework can be used: (1) to benchmark different water markets; (2) to track performance over time; and (3) to identify ways in which water markets might be adjusted by informed policy makers to achieve desired goals. The framework is used to identify strengths and limitations of water markets in: (1) Australia's Murray-Darling Basin; (2) Chile (in particular the Limarí Valley); (3) China (in particular, the North); (4) South Africa; and (5) the western United States. It identifies what water markets are currently able to contribute to integrated water resource management, what criteria underpin these markets, and which components of their performance may require further development.
Australian Water Association;
Inter?basin delivery of water refers to the process of moving water from a source basin (catchment) to a recipient basin. The approach has been controversial at times because of both perceived and actual impacts on the source basin and the receiving basin. There are examples of negative impacts arising from schemes in this country and overseas. Rigorous controls and assessment processes are available for determining how Inter?basin deliveries can be achieved sustainably. These need to be applied meticulously in determining when and how inter?basin delivery can occur. AWA believes that inter?basin deliveries are a legitimate means of accessing water, and
should be considered equally with all alternatives, including non?supply options such as demand management and water conservation. If well researched, planned, implemented, monitored and adapted in response to unforeseen issues, inter?basin delivery can be a successful water supply strategy.
Asian Development Bank;
The primary audience for this report is management and staff working in water resources agencies in Asia, particularly those in river basin organizations (RBOs) in their various forms. The roles and responsibilities of RBOs vary considerably and are evolving as pressures
on water resources are becoming more severe. Although this report seeks to share knowledge about the fundamentals and application of water
rights and allocation, it attempts to do so with a practical focus.
Rural Industries Research and Development Corporation (RIRDC);
This report examines changes in the Victorian Murray Valley that could be attributed to water trading. It considers the patterns of water trade and the views of irrigators and community members in three case study regions. In an effort to distinguish these changes from rural change that would in any case have occurred, the report also considers the factors that motivate decisions about trading water. The report is for people who want to understand how water trading is changing irrigation industries and communities. For policy makers and others with a broad interest, Part One bases its findings on observations in three of the most important water trading regions in the southern Murray-Darling Basin. For those interested in particular regions, each of these regional experiences is described in the case studies that form Part Two of the report.
John Wiley & Sons, Inc.;
Water trading in Australia is enabled by much historical institutional development, which had other objectives at the time that it was implemented. After 2 decades of institutional reform to enable water markets in the Murray Darling Basin, active markets are reallocating surface water entitlements among irrigation users. However, permanent water trading is currently limited in terms of the volume traded and reallocation among uses. Given these limitations, this paper seeks to assess the success of surface water markets in the Murray-Darling Basin by comparing current practice against the six desirable characteristics for water markets suggested by Howe et al. (1986). Overall, it is argued that, despite the relatively low rate of reallocation, the market performs well against most criteria but that ongoing evolution of institutional arrangements is critical for improved success.
Ecologic, Institute for International and European Environmental Policy;
This paper was prepared as a conceptual framework to stimulate discussions on the role and applicability of tradable permits in water pollution control among participants of the Technical Seminar on the Feasibility of the Application of Tradable Water Permits for Water Management in Chile (13-14 November 2003 in Santiago de Chile). In Chile, water pollution is a major problem. Until recently, existing regulations to control water pollution consisted mainly of non-market based instruments. Innovative instruments are now being explored via a recent national law for tradable emission/discharge permits. The instrument of tradable discharge permits is one of several market-based instruments used in water management and pollution control. Tradable discharge permits are actually among the most challenging market-based instruments in terms of both their design and implementation. Experience to date with tradable discharge permits for water pollution control has been limited and mainly comes from several regions of the US and Australia. The paper at first introduces tradable permits as part of an overall taxonomy of economic instruments in the field of water management. In this context, three fundamentally different fields of application of tradable permits systems relating to water are presented: tradable water abstraction rights, tradable rights to water-based resources and tradable water pollution rights. The remaining of the paper deals exclusively with the latter category, i.e. tradable water pollution rights, their role and applicability in water pollution control.
Murray-Darling Basin Commission;
In the face of a mounting salinity threat the Murray-Darling Basin Ministerial Council has developed a draft Basin Salinity Management Strategy which has recently been released for consultation. The Strategy will build upon the success of the Salinity & Drainage Strategy (S&D Strategy) which has operated since 1988. In reviewing the S&D Strategy after ten years the Murray Darling Basin Commission undertook a Salinity Audit of the Basin which was published in 1999. That Audit found that, whilst salinity had been contained in the Lower Murray for the time-being, the increasing outbreaks of dryland salinity around the margins of the basin and groundwater responses to clearing in the Mallee zone would result in a steady rise in river salinity for many rivers in the Basin. This would threaten the viability of those rivers at risk as a source of water for irrigation and urban uses. The ecological health of those rivers is also threatened. The paper describes the features of the Basin Salinity Management Strategy and the important elements of transition from the 1988 S&D Strategy from an irrigation perspective.