Water Markets and Addressing Water Scarcity: Lessons from the Australian Water Market

Nowadays, a wide range of Environmental Policy Instruments (EPIs) can be used to address pressing environmental challenges. All of these tools aim to tackle various specific issues and are implemented by governments in particular regions depending on the situation.

Currently, one of the most serious environmental risks is water scarcity, which affects billions of people every year. Many countries across the globe are impacted in different ways, yet water deficit poses an existential threat not only to humans but also to the fauna, flora and overall biodiversity of the area.

Furthermore, as more challenges are emerging, e.g., droughts are becoming more frequent due to climate change, the world population is rising, and industrial development is progressing, there is further exacerbation of this problem, leaving many areas struggling to meet their water needs.

In response to this issue, some countries have introduced Water Markets, particularly in regions where water is scarce or in high demand. This Environmental Policy Instrument, considered a market-based EPI, has become essential by enabling efficient water allocation through its flexibility and a market-driven approach to demand management.

As water resources have always been of great value, in this age, they are becoming even more essential than some of us think. Can we imagine a world without clean and accessible water?

Understanding Water Markets

As we know now, Water Markets can be one of the ways of trying to ensure there is enough water for everyone, but how do they work?

They are based on water trading, which involves buying and selling water licences. In these markets, water is treated as a valuable commodity that can be traded between various groups, such as farmers, industries, municipalities, or environmental groups, while trying to ensure that the water goes to those who need it most and when they need it. Moreover, those who want to sell the water rights are more motivated to save water and use it more efficiently.  

“As water assumes a value, it provides a huge incentive for water conservation and water savings.”
Quote by Brian Richter from Investing Our Way Out of the Global Water Crisis (The Nature Conservancy)

Around the world, this EPI is the most advanced in North America (e.g. California’s Water Market) and Oceania. However, the most comprehensive example comes from Australia, with the most active water trading being in the Murray-Darling Basin (MDB), which is the largest river system in the country. Australia’s experience offers a valuable insight that could allow future development of Water Markets in Africa, Asia, South America and Europe.

Australia’s Water Market

As mentioned before, water trading is particularly important and visibly effective in the Murray-Darling Basin, as around 40% of Australian farms are located in this area. Furthermore, this basin is home to various species of animals and protected wetlands, all of which create a vulnerable ecosystem which is really water-dependent. For these reasons, ensuring there is enough water for both the environment, the local community and business is crucial. Yet, what lessons can we learn from Australia?

To begin, the Australian water trade is praised for its positive impact on both the economy and the environment. Moreover, as this system has worked in this country for years, it’s regulated and transparent, allowing the water licenses to be traded depending on demand: agricultural and urban areas, as well as the whole ecosystem of the MDB, share the same water. The aforementioned quote by Brian Richter also demonstrates why it works, “as water assumes a value”, a smarter use of water is achievable, especially in times of crisis, e.g. droughts, which are becoming more frequent in Australia due to climate change.  

When it comes to other lessons that we can learn from Australia’s Water Market, we can also see some of its downsides. In the case of Australia, a rising level of salinity was observed, showcasing a negative impact. In the case of social impact, it’s still uncertain how the trading affects local communities, but some concerns are also mentioned, e.g. farmers leaving the Australian rural areas. Sarah Ann Wheeler, a prominent expert on Water Markets from the University of Adelaide, in her work “Assessing water markets around the world”, also pointed out four water issues that countries have to face, such as cultural values, as some of the rivers are of great importance to some indigenous communities. Thus, putting more focus on these issues seems to be of great importance for the future of Water Markets.

All in all, Australia’s Water Market shows that water trade can improve efficiency and help manage scarcity, but it’s not without its flaws. These lessons from the Australian Water Market can help other countries developing in water trade to further succeed in water conservation, address water scarcity and allow them to act during difficult times to meet everyone’s needs. 

Yet, what can we do to ensure there is enough water for everyone? Doesn’t water have value beyond just money?

References:

Image source: Lake Victoria embankment by Peterdownunder, website: Wikimedia Commons, https://commons.wikimedia.org/wiki/File:Lake_Victoria_embankment.jpg, licensed under the Creative Commons Attribution-Share Alike 4.0 International license.

Investing Our Way Out of the Global Water Crisis, website: The Nature Conservancy, https://www.nature.org/en-us/what-we-do/our-insights/perspectives/investing-our-way-out-of-the-global-water-crisis/.

Lai C. (2023), Water Trading Market: A Solution to Water Scarcity?, website: Earth.Org, https://earth.org/water-trading-market/.

Richter B. (2016), Water Share. Using water markets and impact investment to drive sustainability, The Nature Conservancy: Washington, D.C, https://www.nature.org/content/dam/tnc/nature/en/documents/WaterShareReport.pdf.

Wheeler S. A. and Xu Y. (2021), Introduction to Water Markets: an overview and systematic literature review, https://doi.org/10.4337/9781788976930.00010.

Wheeler S. A. (2021), Assessing water markets around the world, website: Global Water Forum, https://www.globalwaterforum.org/2021/11/16/assessing-water-markets-around-the-world/.

Written by Joanna Tobjasz