The role of water markets in helping irrigators adapt to water scarcity in the Murray-Darling Basin, Australia

Abstract

Australia has the largest water market in the world in the Murray-Darling Basin region, and serves as a leading example to other countries examining demand instruments to manage water scarcity. Water trade has become a key risk-management tool for managing scarcity, particularly during severe droughts. Although water scarcity resulted in the market reallocation of water between different users and uses (including urban uses) in a relatively effective and efficient manner, water markets have always been rather controversial. Despite production advantages, there is community concern about negative social impacts arising from water trade. There is ongoing debate over the environmental impact of water markets. Arguably, climate change and water management are two of the most important policy challenges facing Australia. Access to water markets and political investments aided consumptive, social and environmental water use that avoided catastrophic outcomes.