Market improvements needed to achieve water policy objectives

According to the Productivity Commission there is scope for markets to play a greater role in improving the efficient use of water, including for environmental purposes.

In a final report released today — Rural Water Use and the Environment: The Role of Market Mechanisms — the Commission suggests that governments should give greater recognition to the integrated nature of water resources and use markets to more efficiently allocate water among competing users.

Water for environmental purposes can be obtained cost effectively through purchasing a range of water products from willing sellers on the open market, including, but not limited to, water entitlements. This can often be more cost effective than investing in new infrastructure works:

‘Saving water via major infrastructure works is often costly compared with other options and may reduce water available to other users’, said Commissioner Neil Byron.

Markets can also be used to achieve other environmental goals, such as managing salinity, but need to be targeted to location and scale — no ’one size’ fits all.

Unless accounted for, climate change, farm dams, vegetation and land-use change, groundwater extractions or changes in irrigation management have the potential to undermine efforts to achieve environmental goals and affect the reliability of existing entitlements. Governments should press ahead with the National Water Initiative, especially refining and clarifying property rights, undertaking further research on water systems and improving water accounting.