Institutional impediments to groundwater trading: the case of the Gnangara groundwater system of Western Australia

Abstract

The development of a market in groundwater usage rights can be inhibited by constraints arising from the institutional context. Such impediments may reduce the potential gains from trade and may generate high transaction costs for prospective traders. We analyse the regulations and policies influencing groundwater transfers in a case-study area-the Gnangara groundwater system around Perth, Western Australia-and identify significant impediments to a groundwater market. Property rights are found to be conditional, temporary, and vulnerable to amendment. Regulatory approval is required for all transfers. Facilitating infrastructure is lacking, and price information is unavailable. Management area boundaries reflect land ownership and use rather than hydrogeological realities; the limitation of transfers to within these boundaries eliminates much of the potential for gains from trade. Over-allocation and weak monitoring also impede the development of a market. The current management system is likely to obscure unmet demand for water-rights transfers between users and usage-types.

The scope for collective action in a large groundwater basin: An institutional analysis of aquifer governance in Western Australia

“…While licensed allocation volumes are publicly available (with effort and knowledge) actual consumption certainly is not. Indeed, even the Department knows the actual water usage of only a small percentage of users (see Skurray et al, 2013). This has the effect of artificially separating appropriators from each other -rendering them mutually less visible in terms of resource use, and importantly reducing a sense of shared involvement.…”

“…Department is established -and its activities are based -in command-and-control principles, and its organisational culture reflects this (see Skurray et al, 2013). Committee has had its terms of reference extended for a year, to June 2009, during which time it will support the Department of Water in determining the most appropriate consultation and advisory mechanisms available to the department" (GSST, 2009, p. 113).…”

“…The proportion of public supply extraction increases with aquifer depth. The system is administratively divided into eight 'groundwater areas', the boundaries of which are largely based on land-ownership boundaries rather than hydrogeological realities (Skurray et al, 2013). The superficial aquifer is further divided into 51 subareas.…”

Lessons to Be Learned from Groundwater Trading in Australia and the United States

“…High transaction costs can be a significant disincentive to trade and they are likely to be particularly relevant when establishing new markets since they involve a change from historical systems of water management. Such costs can arise from the transaction itself or they can be generated by the institutional factors that are necessary in enabling trade (Skurray et al 2013;Garrick et al 2009). …”

“…In general, existing diversions can be reallocated or reduced through an administrative reallocation of water rights, information approaches or market-oriented policy approaches (Bennett 2008). Government managed 'command and control' approaches can be unpopular, while market based instruments are frequently regarded as politically neutral, and as an efficient means of managing water under conditions of scarcity (Skurray et al 2013). However, many countries are heavily influenced by political influences which means second-best policy approaches are often chosen when first-best policies are available (for example, see Crase (2011) for a discussion of the Australian water situation).…”