Water Policy Reform
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Water Policy Reform

Lessons in Sustainability from the Murray–Darling Basin

Edited by John Quiggin, Thilak Mallawaarachchi and Sarah Chambers

Agriculture in the Murray–Darling Basin of Australia represents a controversial ‘policy experiment’ comprising large capital investments, innovation and enterprise across a hundred-year period. This book, which contains contributions from some of Australia’s foremost economic, social science and public policy researchers and writers, examines the evolution of public policy frameworks that transformed water management from initial exploitation for irrigation as a dominant single use to a dynamic multiple use resource system.
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Chapter 2: Water Markets, Property Rights and Managing Environmental Water Reserves

Lin Crase


Lin Crase INTRODUCTION It is not uncommon to encounter the view that the over-allocation of water resources in the Basin is directly attributable to markets and the individualistic incentives that attend them. However, what is often not recognized is that the over-allocation of water in the Basin can be directly traced to decades of failed government policy rather than water markets per se (for more on this see Chapter 1). Moreover, the negative view of markets belies the substantive comparative benefits inherent in market mechanisms. For example, the buyback of water rights via tenders has been consistently shown to outperform the wasteful and failed attempts to address overallocation by publicly contrived irrigation infrastructure initiatives (see, for example, Productivity Commission, 2010; Crase and O’Keefe, 2009). There are also important potential advantages to the use of markets in the management of environmental water reserves (see, for example, Bennett, 2010; Young, 2010). This is important because Keogh (2010) and the Productivity Commission (2010) have estimated that water buybacks and other recovery measures can be expected to deliver close to 20 per cent of all extractive water rights as an environmental reserve to help address the impacts of over-allocation. In addition, the Guide intimates that this reserve will increase to around 27 to 37 per cent of all extractive water rights as part of the Basin planning process. Against this background, the management of a water reserve of this magnitude and the potential for markets take on even greater importance. Amongst the major challenges...

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