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Environmental flow allocation and counter-cyclical trading in the River Murray System

Author

Listed:
  • English, Ben
  • Brearley, Taron
  • Coggan, Anthea

Abstract

Australia's climate is characterized by highly variable rainfall. As a consequence, many aspects of riverine ecosystems need both very wet and very dry periods to function effectively. This contrasts with water demands from industrial and agricultural sectors, which place a premium on access to a constant supply of water. This combination of demands suggests there could be considerable value in using water banking and trading mechanisms to reduce the social cost of achieving environmental objectives. In this paper, the concept of counter-cyclical trading is outlined and influences on its potential for reducing the cost of achieving environmental flow objectives evaluated. The potential value of using mechanisms to enable counter-cyclical trading across low and high flow years is evaluated using a simple model. The model combines aspects of the natural, engineered and economic systems in place. Broadly these are: the ecosystem requirements of natural systems (described in terms of the frequency of flow objectives); the nature of the current flow regime (inherent in a combination of climatic variation and the regulation of water flows through the system); and the nature of the water market (captured in the shape of the short run demand curve). The potential value of counter-cyclical trading is evaluated with specific reference to environmental flow banking and trading systems currently operating in the River Murray System. Risks associated with trading are briefly discussed, and some links are made in the context of the state of water market reform in the Murray-Darling Basin.

Suggested Citation

  • English, Ben & Brearley, Taron & Coggan, Anthea, 2004. "Environmental flow allocation and counter-cyclical trading in the River Murray System," 2004 Conference (48th), February 11-13, 2004, Melbourne, Australia 58407, Australian Agricultural and Resource Economics Society.
    • Handle: RePEc:ags:aare04:58407
    DOI: 10.22004/ag.econ.58407
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    References listed on IDEAS

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    1. Geoff Edwards, 2003. "Water Policy: Setting the Scene," Australian Economic Review, The University of Melbourne, Melbourne Institute of Applied Economic and Social Research, vol. 36(2), pages 193-202, June.
    2. Mike Young & Jim McColl, 2003. "Robust Reform: Implementing robust institutional arrangements to achieve efficient water use in Australia," Natural Resource Management Economics 03_003, Policy and Economic Research Unit, CSIRO Land and Water, Adelaide, Australia.
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    Cited by:

    1. Qureshi, Muhammad Ejaz & Connor, Jeffery D. & Kirby, Mac & Mainuddin, Mohammed, 2005. "Integrated assessment and management of stochastic water resources in the Murray Darling Basin," 2005 Conference (49th), February 9-11, 2005, Coff's Harbour, Australia 137944, Australian Agricultural and Resource Economics Society.
    2. Sarah Wheeler & Dustin Garrick & Adam Loch & Henning Bjornlund, 2011. "Incorporating Temporary Trade with the Buy-Back of Water Entitlements inAustralia," Centre for Water Economics, Environment and Policy Papers 1101, Centre for Water Economics, Environment and Policy, Crawford School of Public Policy, The Australian National University.
    3. Chi Truong, 2012. "An Analysis of Storage Capacity Reallocation Impacts on the Irrigation Sector," Environmental & Resource Economics, Springer;European Association of Environmental and Resource Economists, vol. 51(1), pages 141-159, January.

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