New research busts myths about water markets

Posted 16 December 2016

Murray RiverWater markets – not physical infrastructure – might be the key to averting a global water crisis, argues an Australian National University researcher.

UNESCO Chair in Water Economics and Transboundary Water Governance Quentin Grafton used the successful marketisation of the Murray-Darling Basin to support this theory in a recent paper

“The achievements of MDB water markets show that marketisation can be designed to increase efficiency, maintain equity and fairness over access and use, and improve environmental outcomes,” he wrote.

Grafton noted the marketisation of water had been held back by “misunderstandings” and “concerns”.

“Water markets have long been promoted as one of the most efficient ways to reallocate water by economists, but have also been subject to much criticism due to their possible social, economic and environmental impacts,” he wrote.

For water markets to succeed in meeting these broad goals, Grafton and his co-authors argued – in a related journal paper – that three things needed to be in place: appropriate property rights, hydrological information, market rules and design.

“To achieve these objectives requires: (1) market regulation and oversight based on transparent and measurable goals; (2) the integrated involvement of the market sector, governments and civic society; and (3) an appropriate meta-governance structure that bridges institutional and landscape scales,” the researchers wrote.

“Effective water resource management is also impossible without a concerted multidisciplinary effort involving hydrologists, engineers, economists, lawyers, planners, scientists, agronomists, environmentalists and climatologists.”

While admitting the benefits from marketisation experienced in the MDB might not apply everywhere, Grafton concluded that water markets could improve agricultural water management in areas where alternative solutions were no longer viable.

“The standard prescription to meet growing water demand has traditionally been investments in water supply including major dams, weirs, canals, pumps and other physical infrastructure,” he wrote.

“But in many parts of the world, the challenge of meeting water demands by increasing supply is no longer possible or only possible at much greater cost than in the past.”