21 Aug 2013

How to build a water market

Just a reminder of what you need...
  1. Define and quantify yield (allowing for variance) for surface and/or groundwater, by time and place
  2. Exclude environmental flows (e-flows) necessary to maintain a minimally healthy environment
  3. Assign remaining water ("sustainable yield" or SY) to tradable permits in flows (temporary water) and/or rights (permanent water). Flows are assigned each year/period as a percentage of rights.*
  4. Note that "consumptive rights" are SY less return flows, i.e., return flows will fall if consumption (=efficiency) rises. "Diversion rights" ignore return flows, so their sum should not exceed SY. Leakage from diversion rights go to e-flows. 
  5. Study transaction costs to choose between a consumptive or diversion regime.
  6. Establish and identify delivery infrastructure for flows and trades at a reliable price/access. 
  7. Register rights and/or flows in one place.
  8. Subtract carriage losses from any trades.
Most of these steps are based on conversations I've had with traders, what I've observed, and the Australian system for the Murray Darling (as I understand it).

Did I get all the steps? In the right order? Do you have examples of other functioning water markets?

* It seems that trading activity is shifting from rights to flows in the MDB.

1 comment:

waterinfoontap said...

Great post.. finally someone beginning to address the possibility of a water market. I know its some ways off but we need to start exploration of this new and wonderful market.
As an avid follower of the water industry particularly from the standpoint of a traded commodity, I find the idea very exciting.
Cheer David

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