- Define and quantify yield (allowing for variance) for surface and/or groundwater, by time and place
- Exclude environmental flows (e-flows) necessary to maintain a minimally healthy environment
- 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.*
- 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.
- Study transaction costs to choose between a consumptive or diversion regime.
- Establish and identify delivery infrastructure for flows and trades at a reliable price/access.
- Register rights and/or flows in one place.
- Subtract carriage losses from any trades.
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.