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One of the most significant NRM reforms in the last 10 years is the development of a market for water, via a cap-and-trade approach. ‘Capping’ sets a limit on the use of a natural resource. The process involves deciding the limit and issuing users with a defined ‘permit’ or ‘right’ to use the resource. The holders of the rights can trade them in a formal market. A cap-and-trade approach can allow economic growth within sustainable limits.
The cap-and-trade approach to rural water resources has had a significant effect in the Murray Darling basin, where historic water allocation has exceeded sustainable limits, affecting both consumptive water entitlements and the health of the Murray Darling river system. To address these issues:
- a cap was introduced in the mid-1990s to limit the use of water
- rights to water use were progressively formalised
- water markets were phased in to give greater flexibility to irrigation-based enterprises and to realise economic gains by allowing water to move to highest value uses.
‘Environmental water’ does not always have to be used for environmental purposes—wetlands and floodplains do not necessarily need water every year. Selling environmental water in temporary water markets has been used to raise funds.
Existing water markets for natural resources can be used to achieve environmental objectives. However, creating the right policy and statutory environment is important.
The NSW Murray Wetlands Working Group (MWWG) is a pioneer in using water markets to benefit the natural environment. Formed in 1992, the MWWG was established to address the continuing loss and degradation of wetlands in the heavily regulated Murray River catchment in New South Wales. The MWWG covers over 1,000 wetlands. The group combines science with community-based action and management of specifically targeted wetlands.
The MWWG is incorporated under NSW law, with a broad membership of independent landholders and representatives from community groups, local government, non-government organisations and NSW Government agencies. MWWG is a small organisation with an operating budget of around $500,000 per annum, but it owns significant assets—both water entitlements and funds from water sales.
The MWWG has accumulated a significant portfolio of water products with over 32 gigalitres (or 32 trillion litres) in annual water entitlements. This has mostly been achieved by publicly funded investment in significant water savings projects including the following examples:
- installing a flow regulator at the channel entrance to Moira Lake in the Barmah Millewa forest. This flow regulator has restored a natural wetting and drying regime to the lake, which had become permanently wet due to unseasonally high, regulated summer flows. Drying out the lake before summer reduced annual evaporative losses from the lake by two gigalitres. Consistent with the rules of the Murray Darling Basin ‘cap’, these savings were converted into high-reliability water, managed for environmental purposes by the MWWG.
- lining key irrigation channels operated by Murray Irrigation, resulted in reduced seepage losses, transferring 30 gigalitres of medium-to-high reliability water to the MWWG.
The Water Administration Ministerial Corporation of NSW holds this water in trust on behalf of the MWWG.
A key function of the MWWG is to manage environmental water to optimise benefits for wetlands and floodplains in the NSW Murray River, Billabong Creek and the Edward Waakool anabranch.
MWWG can respond to both opportunity and need for environmental water. Working closely with the Murray Catchment Management Authority and relevant NSW Government agencies to prioritise competing needs, the MWWG can provide additional water in a wetland to protect bird breeding, provide water for trees in a particular area or water a wetland that has lacked water for a prolonged period. The MWWG also funds research into issues such as salinity and acid sulphate soils associated with restoring ephemeral watering patterns to lakes and wetlands of the Murray River. This has not only helped to inform the MWWG’s own activities, but also those of NSW Government agencies and the Murray Darling Basin Commission.
The MWWG has progressively led innovative water trading for environmental and economic benefits.
Irrigation farmers also benefit from tradeable environmental water. If irrigation farmers require water in years when the environment does not, trade can benefit both parties. The reverse can also apply—in wet years irrigators may benefit from selling their water for environmental purposes. This initiative has been a significant factor helping secure the support of irrigation farmers for MWWG activities.
The MWWG raises significant funds (up to $4 million annually) from the sale of environmental water, and has flexibility in the way it can use the proceeds from water trading. The proceeds of water trade have been used in a number of environmental projects, which include the following:
- the installation of flow regulators was used to restore wetlands to an ephemeral state.
- wetlands mapping to identify, survey and map individual wetlands for inclusion on the MWWG wetlands database.
- MWWG’s Wetland Incentive Scheme is a grants program providing assistance of up to $10,000 to landholders or community groups for wetland rehabilitation projects. The scheme provides financial assistance for on-ground works such as fencing, revegetation or minor earth works; studies aimed at informing better wetland management and wetland education and awareness activities.
- the Natural Wetland Rehabilitation and Investigations Program is another grants program for projects over $10,000. It covers wetland rehabilitation projects, research to improve knowledge about Murray wetlands, and to inform better management. This program contributed $100,000 towards research into acid sulphate issues in Murray River wetlands, undertaken by the Murray Darling Centre for Freshwater Ecology.
- negotiations are being undertaken to return a privately owned wetland to a natural state in return for a permanent water entitlement for irrigation purposes.
The MWWG takes a conservative approach to managing its funds, recognising that opportunities for trade only occurs in years when the environmental benefits of using water are limited. |