The role of water markets in climate change adaptation

Authors: Adam Loch, Sarah Wheeler, Henning Bjornlund, Simon Beecham, Jane Edwards, Alec Zuo and Martin Shanahan
Year: 2013

This report reviewed the available literature on the southern Murray-Darling Basin related to anticipated climate change effects, the economic, social and environmental impacts of water reallocation through markets, and future development requirements to enhance positive outcomes in these areas. The review found that total MDB surface water availability is predicted to decline by 11% in a median 2030 scenario, with reduced end-of-system flows in South Australia. Supply reliability will also suffer, with the security of general water entitlements in NSW and low security water entitlements in Victoria being particularly affected. Drought frequency will increase in the southern and south-eastern regions, whereas heavy rainfall and tropical cyclone events will increase in the north eastern regions of the MDB. There will be an increase in extensive and prolonged flooding, causing infrastructure damage and production/environmental losses. Water trade has resulted in tangible enviornmental benefits and reasonable reallocation of scare water resources during the last few decades in the MDB, although a better understanding of trade behaviour, especially strategic behaviour which can lead to market failures, will improve economic benefits. While community concerns over water transfers away from regional areas do exist, there remains limited evidence of negative social impacts from water trade. This report identifies a number of institutional, information and political changes to water markets that will need to be made in order for water markets to support climate change adaptation in the future.

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