Integrating rural and urban water markets in south east Australia: Preliminary analysis

The conference paper, 'Integrating rural and urban water markets in south east Australia: Preliminary analysis' by Gavan Dwyer, Paul Loke, David Appels, Susan Stone and Deborah Peterson, was presented to the OECD Workshop on Agriculture and Water: Sustainability, Markets and Policies Adelaide, 14-18 November 2005. The trade of water in Australia is constrained and generally limited to irrigators, with other industries and households excluded. A regional general equilibrium model of the Australian economy (TERM-Water) is used to undertake a preliminary analysis of the effects of expanding the trade of water in south east Australia to include both irrigators and urban users. The focus is on the urban centres of Adelaide, Canberra and Melbourne, and the major irrigation districts in the southern Murray-Darling Basin and Gippsland. Losses from a hypothetical reduction in water availability to gross regional product and household demand are reduced when water trade is allowed. The extent to which these losses are reduced depends on the extent to which trade is allowed and the differing water uses in each trading region. The results of this preliminary modelling show that net gains are greatest, and the costs to industries and regions are generally more dissipated, when trade is unconstrained. When regions with relatively low levels of water consumption (such as Adelaide and Canberra) face shortfalls in water availability and trade with regions that use large volumes of water (such as irrigators in the southern Murray-Darling Basin), they have little effect on traded prices and quantities. The opposite is true, however, when large water users experience shortages. These broad patterns hold when all regions experience the same hypothetical reduction in water availability. *The views expressed in this paper do not necessarily reflect those of the Productivity Commission.