Recent years have seen the rapid development of a ‘cap and trade approach’ to rural water resources. A cap-and-trade approach sets a limit on the use of a natural resource by dividing up the resource so each user has a defined limit they can use; this is called a ‘permit’ or ‘right’. Using a cap-and-trade approach to rural water recognises that resources are scarce and riverine ecosystems require protection, and limits the use of water to within ecologically sustainable limits.
For water users, cap-and-trade approaches have a number of benefits, including:
- users can buy or sell water to meet their production needs through temporary trade
- permanent trades allow users to expand or contract their water-consuming businesses
- capping gives greater protection to the current reliability of all water entitlements.
Water markets were mainly developed to benefit irrigation farmers. The potential to use existing markets to trade environmental-water has only recently been explored. Few environmental water managers have been in a position to participate in water markets and test the potential to generate environmental benefits.
To date very little tradeable water entitlement has been acquired for environmental purposes—most environmental water is either ‘rules-based’, such as the first post-winter stream flows in Queensland, or is the water left over after the allocation of water resources to users.
However, as a reform commitment under the National Water Initiative, there is a growing trend to formalise the roles of ‘environmental water managers’. A number of ‘environmental water management’ organisations have now been established, most of which are regional or catchment management organisations. In addition to managing the release and distribution of environmental water, these organisations are increasingly being assigned responsibilities to participate in water markets to derive additional benefits from available environmental water entitlements[1].
The first area of potential for using existing water markets is the acquisition of new environmental water. Options include:
- purchasing from the existing pool of consumptive water entitlements to hold and use for environmental purposes
- purchasing water efficiency savings, including capital works to reduce evaporative losses from naturally ephemeral lakes and wetlands, or to reduce leakage from channel systems or improve on-farm irrigation systems[2]
- purchasing ‘options’ on irrigation water to be exercised only under negotiated water-supply conditions.
Environmental managers may be able to buy and sell environmental water entitlements on temporary water markets to optimise environmental benefits. Environmental water entitlements could be sold in years when it is not required for environmental purposes. These sales can fund environmental works or purchase water in future years to deliver greater environmental benefits.
Environmental water managers can negotiate greater flexibility for using their water entitlements to further optimise environmental outcomes. For example, in some regulated river systems, rules-based water can be ‘loaned’ to consumptive water users when it is not required, for paying back in subsequent years.
It may be possible to negotiate ‘carry-over’ arrangements with water storage operators so environmental water can be banked to deliver bigger environmental outcomes.
[1] Rules-based environmental water, or residual water, is available for environmental uses after consumptive water needs have been met and cannot be traded.
[2] Generally speaking such savings are likely to be more expensive than the market value of water entitlement. |