Figure 16: Development of Murray Darling Basin water entitlement transfers Source: Young (2010)
Box 6: Australian experience in the role of water markets in facilitating rapid adaption to a shift to a drier climatic regime
Recently, Australia’s Southern Connected River
Murray System experienced a rapid shift to a drier regime that has demonstrated both how difficult and how important it is to specify water rights as an entitlement only to a share of the amount of water that is available for use and not an amount. At the time that this shift occurred, the plans that were in place assumed that inflows would continue to oscillate around a mean and that known water accounting errors in the entitlement system could be managed. As a result, when a long dry period emerged,
stocks were run down and managers
decided to use environmental water for consumptive purposes on the assumption that more water could be made available to the environment when it rained again.
After four years of drought, and as the drought moved into its fifth, sixth, seventh and now eighth year, plans had to be suspended and new rules for the allocation of water developed (National Water Commission 2009). A new Basin Plan is now in the process of development and will seek, amongst other things, to deal with an acute over- allocation problem. In parallel with these changes,
considerable investment has been made in the development of the scientific capability to assemble the knowledge necessary to prevent these problems from re-emerging.
Another key feature of the system now being used in all Basin States is the definition of entitlement shares in perpetuity and the use of water markets to facilitate change. All water users now understand that they will benefit personally if they can make water use more efficient. As a result, a vibrant water market has emerged and significant improvements in the technical efficiency of water use have occurred. In this regard, Australia was lucky its entitlement system and the associated administrative processes had been developed in a manner that facilitated the
rapid development of the water market
possible (see Figure 16). Among other things, this included a much earlier commitment to meter use and established governance arrangements that prevent people from using more water than that allocated to them and the unbundling of water licences so that equity, efficiency and environmental objectives can be managed using separate instruments.