The increasing water deficit in the 1980s prompted the creation of Australian water markets. Several reforms emerged in the 1990s and 2000s to ensure an adequate water supply in Australia, mainly adopting the cap and trade system across major trading regions in the Murray-Darling basin. Therefore, the cost to buy water in Australia depends upon the market value of water, which further depends upon several other factors.
Read on to learn some basic yet essential factors about water products in Australia and their costs-
What Are the Water Products in Australia?
There are two main products in Australia– allocations and entitlements. While entitlements are ongoing rights to a share of water from a water resource each year, allocations are the volume of water allocated to an entitlement in a given year. It is usually represented as a percentage of entitlement volume.
While trade-in entitlements indicate the permanent transfer of water rights access, trade-in allocations are the temporary transfer within an irrigation season.
How Does Water Trade Help Australia?
Trade allows water to be reallocated from lower-value uses to higher-value uses. It also helps irrigators plan their water use and adjust to short-term shocks, while entitlement trade enables long-term structural adjustments. A combination of water reforms, transaction costs reduction and water scarcity, have steadily increased trade allocations and entitlements since the 1980s.
What Is the Cost to Buy Water in Australia in the Upcoming Summer?
ABARES, one of the agencies that help determine water costs in Australia, has predicted a wet scenario is likely for most of 2022-23 based on the climate. The annual average water allocation price in the Murray-Darling basin is expected to decrease from $ 67/ML in 2021-22 to $58/ML in 2022-23, presuming wet conditions throughout the year. However, in every given scenario, the price is forecasted to remain well below the yearly average of $617/ML during the drought-like situation that arose in 2019-20.
The price difference across the forecast scenarios for 2022-23 is small, with just a $113/ML difference between wet and extremely dry weather conditions. It shows the highly-favourable water supply and wet seasonal conditions forecasted for 2022-23.
The favourable wet conditions forecast in 2022-23 may help keep water prices low in the coming summer. It will help support the planting decisions made based on the water management strategies in the past. Though La Nina conditions have subsided since the beginning of 2022-23, there is still a 50% chance they may re-develop later in the year.
Key Takeaway
Due to ongoing wet conditions and the volume of carryover water available that has been the highest in a decade, the allocation outlook has a high degree of certainty. Knowing the expected cost of buying water will help in planting decisions by irrigators and ensure flexibility in water management strategies. Apart from water for irrigation and agricultural needs, the water markets of Australia for 2022-23 can also impact domestic and industrial rates and budgets.
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