Introduction 1 2 Water trade and irrigation in the southern Murray-Darling Basin 3 Irrigation water sources and irrigation districts 3 Water entitlements and seasonal allocations 5 Utility charges 6 Quantities of water traded 8 Water trade prices 9 Constraints on water trading 11 3 Overview of the modelling approach 19 Development of a water module within TERM 20 Incorporating water trade 23 Model simulation 27 4 Long run effects of reduced water availability with trade 29 Macroeconomic effects of water trade 29 Further analysis of a specific case 30 Model design considerations 39 5 Short run effects of reduced water availability with trade 43 IV CONTENTS A Irrigation industry data B Simulations Experimental framework Simulation details C Examples of regulatory arrangements affecting water trade Regulatory arrangements in selected districts Water trading across subdistricts in the Goulburn-Murray D Data tables and simulation results References BOXES 2.1 Trading water upstream 2.2 Trading water between rivers 3.1 Regional CGE modelling of water trade and use 3.2 TERM's water module 3.3 The price of water entitlements and seasonal allocations 3.4 Water substitution assumptions 3.5 Illustrative gains from trade in water 3.6 Trade experiments conducted using TERM FIGURES 2.1 Major Irrigation Districts in the Murray-Darling Basin 2.2 Average weekly prices per megalitre for seasonal allocations in major irrigation districts 2.3 Average monthly prices for trade in water entitlements, Goulburn-Murray Water and Murray Irrigation 3.1 Irrigation areas and statistical divisions A.1 Major irrigation districts in Australia CONTENTS V TABLES 2.1 Seasonal water allocations and usage 2.2 Examples of utility charges, 2000-01 2.3 Net New South Wales trade in seasonal allocations 2.4 Net trade in water entitlements, by state 2.5 Congestion constraints on major supply networks 4.1 GDP and GRP effects of trade after water availability reductions of different magnitudes 4.2 GDP and GRP effects under different trade and water availability experiments 4.3 Net water trades among industries in the southern MDB 4.4 GRP and GDP effects under different trade experiments 4.5 Changes in regional primary factor use 4.6 Sectoral differences in value added from expanded water trade 5.1 Reductions in water availability compared to 1996-97 5.2 GRP and GDP effects of 1997-98 water availability under different trade experiments 5.3 GRP and GDP effects of 1998-99 water availability under different trade experiments 5.4 GRP and GDP effects of 1999-2000 water availability under different trade experiments 5.5 GRP and GDP effects of 2000-01 water availability under different trade experiments 5.6 GRP and GDP effects of 2001-02 water availability under different trade experiments A.1 Net water consumption for selected industries, 1996-97 A.2 List of regions and their irrigation companies A.3 Irrigation scheme entitlements in the southern Murray-Darling Basin, 2001-02 A.4 Ratios of gross trade in seasonal allocations to total allocations, and trade in entit...
A key feature of water policy reform in Australia has been the separation of water access entitlements from land titles and the establishment of markets for water. However, the separation of water entitlements from land failed to account for a number of characteristics that were implicit in the joint right. This has given rise to a number of third party effects as water is traded in an incomplete market. This paper describes four third-party effects of water trade; reliability of supply, timeliness of delivery, storage and delivery charges, and water quality and examines policy responses to address these effects. The discussion draws on the concepts of exclusiveness and rivalry to determine the applicability of property rights and other solutions to the thirdparty effects of trade. It is likely that many of the third-party effects of trade discussed in this paper do not warrant policy intervention at the national or state level, but intervention at the local level may be warranted. The costs of addressing some third-party effects may outweigh the benefits. Where there are significant gains from trade, the existence of these third-party effects should not been seen as a reason to impede trade.
The Productivity Commission The Productivity Commission, an independent agency, is the Australian Government's principal review and advisory body on microeconomic policy and regulation. It conducts public inquiries and research into a broad range of economic and social issues affecting the welfare of Australians. The Commission's independence is underpinned by an Act of Parliament. Its processes and outputs are open to public scrutiny and are driven by concern for the wellbeing of the community as a whole. Information on the Productivity Commission, its publications and its current work program can be found on the World Wide Web at www.pc.gov.au or by contacting Media and Publications on +61 3 9653 2244.
In this paper, we use TERM‐Water, a bottoms‐up regional computable general equilibrium model of the Australian economy, to examine the regional effects of expanding trade of irrigation water in the southern Murray–Darling basin. We find that water trading dampens the impact of water allocation cuts on gross regional product (GRP). The benefits of introducing trading within irrigation districts are greater than those of a further expansion of trade between regions. Permitting trade of seasonal allocations allows irrigators to reallocate water in reaction to climatic conditions and water availability; and it is this flexibility that enables GRP reductions to be minimised.
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