Market mechanisms for recovering water in the Murray-Darling Basin

31 Mar 2010

This report makes recommendations on how the Australian Government's buyback of water entitlements in the Murray Darling Basin could be improved. {C}

The buyback and a larger irrigation infrastructure program are being used to recover water for the environment, and ease the transition to the much lower water diversion levels expected under a Basin Plan.

The report raises some concerns about aspects of the design and sequencing of the strategy, noting problems in having commenced the buyback before the Basin Plan is ratified. However, Commissioner Neil Byron said 'There is still much that can be done to improve the recovery and management of water for the environment in the Basin'.

In particular, the Commission recommends that:

• the Murray-Darling Basin Authority (MDBA) set 'sustainable diversion limits' under the Basin Plan in a way that balances environmental, social and economic tradeoffs (possibly requiring legislative amendment)

• rigorous approval processes be applied to all irrigation infrastructure projects, to prevent inefficient and inequitable investment, with surplus funds reallocated to the buyback or other priorities

• jurisdictions clarify how the risks of reductions in water availability are to be shared between irrigators and governments, to allow irrigators to make more informed decisions about whether or not to participate in the buyback

• environmental watering be addressed through purchasing a portfolio of water products, not just entitlements

• restrictions on water trading imposed by state governments be removed.

The Commission also found that, where active markets exist, acquiring entitlements directly in those markets is likely to be more efficient than the current approach of using tenders.

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