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Assessment of the potential costs and benefits of water trading across northern Australia

TitleAssessment of the potential costs and benefits of water trading across northern Australia
Publication TypeReport
Year of Publication2011
AuthorsNikolakis, WD, Grafton, RQ
Date Published03/2011
InstitutionCharles Darwin University
ISBN Number978-1-921576-41-6
Keywords6: Sustainable enterprises, costs and benefits, effectiveness, efficiency, equity, Northern Australia, Water trading

Water trading is at a formative stage in northern Australia, with few (if any) recorded trades at the time of writing. Markets have been effective in southern Australia and are seen as an effective tool to optimise economic, social and ecological values associated with water under the National Water Initiative (NWI).
For a water market to be effective there need to be low to medium transactions costs. The potential for high transactions costs is significant across northern Australia, a key reason being uncertainty over Indigenous rights and interests to water, which if not resolved could impose constraints on water markets. This suggests that there must be greater certainty around Indigenous involvement in water markets.
There is the potential in northern Australia for environmental impacts from trade. These impacts include: increased salinity in-stream; water logging from more on-farm use; saltwater intrusion because of reduced flows; and during the dry increased nutrient loads could threaten the health of rivers. These issues can be addressed through management efforts.
Efficiency is key aim of water markets. Any assessment of efficiency in the north must seek to integrate customary or ecological values, but it is acknowledged that this is complex as these values are intangible and difficult to quantify.
Issues of equity are important in the transition to water access rights. In the north, equity should be given increased prominence because there is a significant Indigenous population in the region who are subject to chronic socioeconomic disadvantage.
The concept of water markets can be politically contentious. While a slender majority of all respondents in our second study agreed that water markets would be useful in their region, they imposed conditions on how markets should operate. Respondents placed a high value on environmental and cultural assets, and Indigenous involvement in water markets was important.
Non market approaches may be more appropriate in some areas than markets. Markets are efficient in optimising the allocation of water where scarcity and competition exist. Markets may by themselves be incapable of achieving ecological or equity outcomes. A blend of approaches to allocating water may be more suitable.