Regulating the Australian water market

Journal of Environmental Law

Volumn 22, Issue 3, 2010, Pages 431-459

  Waye, Vicki ^a   Son, Christina ^b  

^a UNIVERSITY OF SOUTH AUSTRALIA   (Australia)

^b Office for Water Security   (Australia)

Author keywords

Australia; Markets; Regulation; Trading; Water

Indexed keywords

COMPETITION (ECONOMICS); IMPLEMENTATION PROCESS; MONOPOLY; REGULATORY FRAMEWORK; SOVEREIGNTY; TRADE; WATER ECONOMICS;

AUSTRALIA;

EID: 78049440955     PISSN: 09528873     EISSN: 1464374X     Source Type: Journal    
DOI: 10.1093/jel/eqq022     Document Type: Article

References (145)

1. N Barr and J Cary, Greening a Brown Land: The Australian Search for Sustainable Land Use (Macmillan Education, South Melbourne 1992)
2. Australian meteorology is characterised by the high frequency of drought/flood oscillations: J Tisdell, J Ward and T Grudzinski, The Development of Water Reform in Australia (CRC for Catchment Hydrology, Australia 2002) accessed 21 April 2010, 4.
3. Business Council of Australia, 'Water Under Pressure: Australia's Man Made Water Scarcity and How to Fix It '(September 2006) accessed24 September 2010.
4. J Howard, 'A National Plan for Water Security' (Prime Minister, Canberra 2007) accessed 27 September 2010.
5. N Fligstein, The Architecture of Markets: An Economic Sociology of 21st Century Capitalists Societies (Princeton UP, Princeton 2002) 33
6. D Fisher, 'Markets, Water Rights and Sustainable Development' (2006) 23 EPLJ 100
7. A Gerlak, 'Federalism and US Water Policy: Lessons for the Twenty-First Century' (2006) 36 Journal of Federalism 231
8. M Kaika, 'The Water Framework Directive: A New Directive for a Changing Social, Political and Economic European Framework' (2003) 11 Eur Plann Stud 299
9. L Crase, 'Water Policy in Australia: The Impact of Change and Uncertainty' in A Dinar and J Albiac (eds), Policy and Strategic Behaviour in Water Resource Management (Earth Scan, London 2009)
10. See also D Connell, Water Politics in the Murray-Darling Basin (The Federation Press, Leichhardt 2007) at ch 1, setting out the history and difficulties faced when shaping a national regime for the sustainable use of water
11. The general consensus is that water entitlements have historically been over allocated ie, the total volume of water able to be extracted by water users has at times exceeded the environmentally sustainable level of extraction: Australia Government Department of Environment, Water, Heritage and the Arts, 'Restoring the Balance in the Murray-Darling Basin' (May 2010) accessed 24 September 2010.
12. R Hollander and H Patapan, 'Pragmatic Federalism: Australian Federalism from Hawke to Howard' (2007) 66 Aust J Publ Admin 280, 286
13. M Painter, Collaborative Federalism: Economic Reform in Australia in the 1990s (Cambridge UP, Melbourne 1998), 32-60
14. National Competition Council, Annual Report 1995-96 (Australian Government Publishing Service, Canberra 1999), 31
15. T Anderson and D Leal, Free Market Environmentalism (Palgrave, New York 2001) 1-9
16. Market environmentalism refers to the use of market regulation that serves both economic efficiency and environmental aims
17. Australia, National Water Commission, Australian Water Reform 2009 (National Water Commission, Canberra 2009) accessed 21 April 2010, 126-156.
18. S Beare and A Heaney, 'Irrigation, Water Quality and Water Rights in the Murray Darling Basin' (2006) 29 Natural Resource Management and Policy 177, 177
19. L McInerney, C Nadarajah and
20. As part of its Water for the Future plan, in 2008 the Australian government has committed to investing $12.9 billion over 10 years to improving rural water infrastructure; investing in desalination, water recycling and storm-water harvesting and reuse projects in urban areas; and in financing an ambitious buy-back scheme to restore environmental flows.
21. See Australia, Department of the Environment, Water, Heritage and the Arts, 'Water for the Future - Fact Sheet,' accessed 23 April 2010.
22. L Simpson and K Ringskog, Water Markets in the Americas (The World Bank, Washington DC 1997) 6 - opining that effective regulation is a necessary precursor for the effective operation of water markets
23. According to the authors, there must be a regulatory system of title and transfer and rules that police transfer. The authors also argue that a timely, fair and rational conflict dispute system is also a pre-requisite for a functioning water market.
24. See ACCC website: ACCC, 'What We Do' accessed 21 April 2010.
25. Tisdell and others (n 2) 19. The authors report that the drivers of this micro-economic reform were: rising marginal supply costs, intensified competition between water users, increased water scarcity and increased interdependency between water users, growing awareness of environmental degradation and, at 3.1, broader micro-economic reform aimed at improving performance throughout the Australian economy.
26. See further J McKay, 'Water Institutional Reforms in Australia' (2005) 7 Water Policy 35
27. One of the major policy aims of water trading is to transfer water away from low-value producing, inefficient water users to high-value producing efficient water users. Another aim is the attraction of capital funds to replace aging infrastructure: H Chong and D Sunding, 'Water Markets and Trading' (2006) 31 Annu Rev Environ Resour 239.
28. L Crase, L O'Reilly and B Dollery, 'Water Markets as a Vehicle for Water Reform: The Case of New South Wales' (2000) 44 Australian J Agr Resource Econ 299
29. KW Easter, A Dinar and M Rosegrant, 'Water Markets: Transaction Costs and Institutional Options' in KW Easter, A Dinar and M Rosegrant (eds), Markets for Water: Potential and Performance (Kluwer Academic Publishers, Massachusetts 1998)
30. However, cf J Dellapenna, 'The Importance of Getting Names Right: The Myth of Markets for Water' (2000) 25 William & Mary Ent'l Law & Pol'y Rev 317, arguing that water is a public good that cannot be divided among users, controlled or owned
31. Others note significant externalities and transaction costs in water markets, eg, AD Tarlock and others, Water Resource Management: A Casebook in Law and Public Policy (Foundation Press, New York 2002) 231
32. H Bjornland and J McKay, 'Do Water Markets Promote A Socially Equitable Reallocation of Water? A Case Study of a Rural Water Market in Victoria, Australia' (2000) 7 Rivers 141
33. Current legislative statements to this effect can be found in Water Management Act 2000 (NSW) s 393; Water Act 1989 (Vic) s 7; Water Act 2000 (Qld) s 19; Natural Resources Management Act 2004 (SA) s 124(8). However, basic landholder rights for domestic and stock needs have been retained: eg, Water Management Act 2000 (NSW) s 52; Water Act 1989 (Vic) s 8; Water Act 2000 (Qld) s 20; Natural Resources Management Act 2004 (SA) s 124 (4).
34. P Davis, 'Australian and American Water Allocation Systems Compared' (1967-1968) 9 Boston Coll Int'l & Com L Rev 647, 651-652
35. Eg, Part 3A, Div 5 Water Act 1989 (Vic); Div 4 Water Management Act 2000 (NSW); s 157 Natural Resources Management Act 2004 (SA); Div 6 Water Act 2000 Act (Qld)
36. H Bjornland and J McKay, 'Current Issues and Future Directions for Australian Water Market Policies' (2001) 28 Water 74
37. Intergovernmental Agreement on a National Water Initiative accessed 27 September 2010.
38. The Tasmanian government signed the Agreement in 2005 and Western Australia in 2006
39. National Water Commission, Australian Water Markets Report 2008-9 (National Water Commission, Canberra 2009) 30-46, noting limited inter-state trading and trading outside the Murray-Darling Basin region
40. See further R Roberts, N Mitchell and J Douglas, 'Water and Australia's Future Economic Growth' (Summer 2006) Economic Round-up 53: 'Despite an ongoing water reform agenda, Australia does not have well-functioning and complete water markets.'
41. Although governments have been entering the market and purchasing seasonal water access entitlements to increase environmental flows, the total volume purchased remains insufficient (at 1800GL in 2008-9, National Water Commission, above n 30, 41 to prevent degradation of riverine environments in drought conditions: R Goddard, J Connor and R Ranjan, Environmental Triage Decisions During Drought (AARES, Cairns 2009) noting that the Murray-Darling Basin's environmental problems have become so acute that hard decisions have to be made regarding which assets to save and which to let go
42. National Water Commission (n 30) 30-46
43. Australia, Productivity Commission, Rural Water Use and the Environment: The Role of Market Mechanisms (Australian Government, Productivity Commission. Canberra 2006).
44. The cap will gradually be phased out from 2011 to 2014
45. National Water Commission, Australian Water Reform 2009: Second Biennial Assessment of Progress in the Implementation of the National Water Initiative (National Water Commission, Canberra) 10, Finding 7.2.
46. See further ACCC, Water Trading Rules Position Paper (ACCC, Canberra 2009) accessed 29 April 2010, xii.
47. In light of the slow progress regarding removal of the 4% cap, South Australia has announced that it will be challenging Victoria's cap on water trading in the High Court of Australia alleging breach of s 92 of the Australian Constitution that guarantees free trade between Australian states
48. See further: P Ker, 'High Court Action on Water Trading Cap,' Stock Journal (Australia, 2 December 2009) accessed 28 April 2010.
49. Agreement on Murray-Darling Basin Reform (3 July 2008)
50. Water (Commonwealth Powers) Act 2008 (NSW);Water (Commonwealth Powers) Act 2008 (Qld); Water (Commonwealth Powers) Act 2008 (SA); Water (Commonwealth Powers) Act 2008 (Vic)
51. Water Act 2007 (Cth) s 172
52. Water Act 2007 (Cth) s 42. See further Murray-Darling Basin Authority, The Basin Plan: A Concept Statement (Murray Darling Basin Authority, Canberra 2009) accessed 27 April 2010.
53. Water Act 2007 (Cth) s 20
54. Even then the Plan will not apply uniformly as the Water Act 2007 provides that interim and transitional State water resource plans may operate until their prescribed expiry date: Water Act 2007 (Cth) s 241
55. Australian Government Productivity Commission, Market Mechanisms for Recovering Water in the Murray-Darling Basin - Research Report: Overview (Productivity Commission, Melbourne 2010) xxiv
56. Water Act 2007 (Cth) ss 34-35, 58-59 and 86G-86H
57. The Minister for Climate Change and Water signed the Water Market Rules on 10 June 2009. The rules were registered on 22 June 2009 and have had legal effect from 23 June 2009. Operators are expected to comply with the rules by 1 January 2010.
58. Explanatory Memorandum to the Water Bill 2007 Cl 97 para 190
59. Water Act 2007 (Cth) ss 97 (7) and 146 and various provisions of the Water Market Rules 2009
60. In other words, the water market rules do not apply where individual irrigators own the relevant statutory water rights. Consequently, the Water Market Rules do not apply to the majority of irrigation organizations in Victoria because in a majority of cases irrigators directly own statutory water rights pursuant to a process of unbundling commenced in 2006:Water Act 1989 (Vic) Part 3A.
61. Davis (n 25) 647, 656
62. Hance v Federal Commissioner of Taxation [2008] ATC 20-085
63. A Gerrand and others, 'Australian Forest Plantations: An Overview of Industry, Environmental and Community Issues and Benefits' (2003) 66 Australian Forestry 1
64. Australia, Parliamentary Joint Committee on Corporations and Financial Services, Inquiry into Aspects of Agribusiness Managed Investment Schemes (Senate Printing Unit, Canberra 2009) 21-3
65. Water Market Rules, Rule 7 (n 52)
66. Water Market Rules, Rule 8 and 9 (n 52)
67. The Water Market Rules recognise that under many irrigation-supply contracts the right to receive water is treated explicitly or implicitly as independent of the right to access delivery services. In this case, the delivery service includes connection to the irrigation operators' infrastructure and the services provided by the operator in delivering the water, not the water per se.
68. Water Market Rules, Rules 10, 14 and 20 (n 52)
69. Water Market Rules, Rules 16 and 17 (n 52)
70. Water Market Rules, Rule 14 (n 52)
71. Refer to discussion below and see, eg, Water Management Act 2000 (NSW) s 71ZA, which provides that the Minister may impose civil penalties on specific operators if they prevent transfer of a member's irrigation right up to an annual threshold of 4% of the operator's annual water entitlement. See further Water Act 1989 (Vic), Trading Rules for Declared Water Systems, Part 5, ss 25(a) and (b).
72. Eg, Water Act 2000 (Qld) s 190 (d) restricts an interim water allocation to the holder of land
73. Eg, Water Act 1989 (Vic),Trading Rules for Declared Water Systems, Part 5, ss 23 and 24
74. Water Act 2007 (Cth) Schedule 3 Cl 4.4.
75. ACCC Water Market Rules Advice to the Minister of Climate Change and Water (December 2008) at 83
76. Irrigation Act 2009 (SA); Renmark Irrigation Trust Act 2009 (SA)
77. Australia Productivity Commission (n 44) 234
78. ACCC (n 70) 13
79. Operators may be faced with sunk investments in costly infrastructure such as dams, weirs, drainage channels, pipes and flow-measurement devices and may not be able to earn an economic return on their investment as a result of a declining customer base following the introduction of water trading
80. See further H Roper, C Sayers and A Smith, Stranded Irrigation Assets (Staff Working Paper) (Productivity Commission, Melbourne 2006)
81. See New South Wales Irrigators' Council, 'Response to the Australian Competition & Consumer Commission, Water Market Rules Issue Paper' (Submission - 080812, May 2008) accessed 25 September 2010.
82. Australia, Productivity Commission (n 44) xxxii. Note, however, that the ACCC's Water Market (Termination Fees) Rules, which came into effect on 23 June 2009, impose a maximum termination fee of no more than 10 times an irrigator's annual access fee. See further discussion below.
83. At its meeting of 3 July 2008 the Council of Australian Governments accepted that the current cap on water trading outside of irrigation districts would be lifted from 4 to 6% within 12-18 months
84. D Gribble and P Sutherland, 'GHD Pty Ltd Public Submission to Water Market Rules Position Paper' (Australia, August 2008) accessed 25 September 2010.
85. ACCC, A Regime for the Calculation and Implementation of Exit, Access and Termination Fees Charged by Irrigation Water Delivery Businesses in the Southern Murray-Darling Basin (ACCC, Dickson 2006) vi
86. See ACCC, 'Submissions to Water Market Rules Position Paper' accessed 15 September 2010.
87. National Water Commission, The impacts of Water Trading in the Southern Murray-Darling Basin: an Economic, Social and Environmental Assessment (National Water Commission, Canberra 2010) vi-vii. However, it is important to note that these findings were based upon trading at less than 10% of water use.
88. The Water Charge (Termination Fees) Rules 2009, made pursuant to Water Act 2007 (Cth) s 92 (1) were signed by the Minister for Climate Change and Water on 22 June 2009 and came into effect on 23 June 2009
89. ACCC, Position Paper, Water Charge Rules for Termination Fees (ACCC, Canberra 2008) at x
90. Water Charge (Termination Fees) Rules (n 82) Rule 7
91. ACCC (n 83) 45
92. ACCC (n 83) x
93. Australia, Productivity Commission (n 44) 238
94. Water Act 2007 (Cth) s 91(1)(a)
95. There are, however, currently no fees prescribed under regulations
96. 'Urban water supply activities' are not defined in the Act
97. Australia, House of Representatives 2007, Debates Vol HRII,7: 'The rules will reflect the water charging and trading principles in the National Water Initiative, ensuring that the water market in the basin works effectively and that there are no inappropriate barriers to trade.'
98. NSW Irrigator's Council, 'Response to ACCC Bulk Water Charge Rules Issues paper' (Sydney, 18 August 2008) accessed 25 September 2010.
99. ACCC Water Infrastructure Charge Rules Advice to the Minister for Climate Change and Water, (Canberra, June 2009) accessed 25 September 2010.
100. ACCC Water Infrastructure Charge Rules Further Advice to Minister on Accreditation Under the Water Infrastructure Charge Rules, (Canberra, February 2010) accessed 25 September 2010.
101. Australian Government Department of Sustainability, Environment, Water, Population and Communities, The Proposed Water Charge (Infrastructure) Rules 2010 accessed 16 September 2010.
102. The third tier applies to Part 6 operators and Part 7 operators. Part 6 operators are non-member owned infrastructure operators managing water access entitlements of more than 250GL. Part 7 owned operators are member-owned operators managing more than 10GL of water-access entitlements.
103. Proposed Water Charge (infrastructure) Rules 2010, Rule 29 (n 98)
104. The rules came into effect on 24 July 2010
105. Some states such as New South Wales already publish such information: see New South Wales, Office of Water, Charges for Water Management Services accessed 27 September 2010.
106. See: ACCC, Submissions to the Water Planning and Management Charge Rules Draft Advice accessed 16 September 2010.
107. The ACCC released its draft advice to the MDBA on the development of the Water Trading Rules on 17 December 2009. The advice will be made public when the proposed Basin Plan is released in late 2010.
108. ACCC, 'Water Trading Rules Position Paper' (n 36)
109. Water Act 2007 (Cth) s 22 Item 12
110. M Ejaz Qureshi and others, 'Removing Barriers to Facilitate Efficient Water Markets in the Murray-Darling Basin of Australia' (2009) 96 Agr Water Manage 1641, 1644
111. Murray-Darling Basin Authority, Media Release, 'Water trading rules through Barmah Choke relaxed from July 1' (30 June 2010)
112. See the Victorian Water register website: accessed 27 September 2010.
113. An environmental water holder is a State or Commonwealth body that manages water entitlements that are acquired to assure sustainable water use. The Water Act 2007 (Cth) Part 6 establishes the Commonwealth Environmental Water Holder.
114. ACCC, 'Water Trading Rules Draft Advice' (ACCC, Canberra 2009) 36-39 accessed 13 October 2010.
115. See, eg, 'Water Investments Australia' accessed 8 August 2010. Water Investments Australia is an asset holding company designed to 'create new investment opportunities in rural land and water.'
116. E Hadjigeorgalis, 'A Place for Water Markets: Performance and Challenges' (2008) 31 Rev Agric Econ 50, 57
117. Water Act 2007 (Cth) s 250B
118. Ejaz Qureshi and others (n 112)
119. Khan and others, 'Water Markets and Soil Salinity Nexus: Can Minimum Irrigation Intensities Address the Issue?' (2009) 96 Agr Water Manage 493, 494-5
120. A Heaney and others, 'Third Party Effects of Water Trading and Potential Policy Responses' (2006) 50 Australian J Agr Resource Econ 277, 284
121. National Water Commission, The Impacts of Water Trading in the Southern Murray-Darling Basin (NWC, Canberra 2010) 88-98
122. ACCC, 'Water Trading Rules Position Paper' (n 36) 81-82
123. ACCC, 'Water Trading Rules Draft Advice' (n 116) 53-55, 69-70
124. Principle 2 of the Basin water market and Trading Objectives (Sch 3 of Act)
125. ACCC, 'Water Trading Rules Draft Advice' (n 116) 142. A backtrade is a trade where water allocation is redirected back to its place of origin.
126. Calculating conveyance losses for trade/transfer can be highly problematic: there is a need to consider climatic conditions, current level of the river and isolating the conveyance loss arising from trade/transfer as well as those that would occur without the trade/transfer
127. ACCC, 'Water Trading Rules: Issues Paper' (Canberra, March 2009) accessed 25 September 2010.
128. D Peterson and others, Modelling Water Trade in the Southern Murray-Darling Basin, Productivity Commission Staff Working Paper (2004) at 11. An exchange rate is meant to reflect that moving water upstream results in less water security.
129. ACCC, 'Water Trading Rules Draft Advice' (n 116) at 6.1.
130. The ACCC felt that because of the volatility of supply in unregulated water systems, risk to other users from trade could be better limited by capping the volume of what was traded by way of exchange rates
131. Commonwealth of Australia Constitution Act ('The Constitution') s 51 (i)
132. Trade Practices Act 1974 (Cth) s 52
133. The fair dealing provisions of the Trade Practices Act 1974 do not bind State authorities: s 2B. State authorities are bound pursuant to Fair Trading Act equivalents. The state authority must also be engaged in trade or commerce.
134. The degree of equivalence will vary from State to State
135. Trade Practices Act 1974 (Cth) s 4B classifies consumers as persons who acquire goods (the definition of goods includes water) where the price does not exceed $40,000 or where the goods were ordinarily acquired for personal, domestic or household use
136. The exercise of a statutory power to consent to the transfer of a water entitlement is unlikely to be regarded as being in trade and commerce. However, if the government authority is itself engaged in the purchase or sale of a water entitlement then it would be engaged in trade and commerce: NT Power Generation Pty Ltd v Power and Water Authority (2004) 219 CLR 90 [46]-[88] per McHugh ACJ, Gummow, Callinan and Heydon JJ interpreting Trade Practices Act 1974 (Cth) s 2B as to whether the PAWAwas engaged in carrying on a business.
137. Trade Practices Act 1974 (Cth) s 76
138. Australia, Department of the Environment, Water, Heritage and the Arts, 'Restoring Balance in the Murray-Darling Basin' accessed 25 September 2010.
139. Frontier Economics, Urban Water Markets (2008) accessed 25 September 2010, 8.
140. D Spiller, 'Water for Today, Water for Tomorrow: Establishment and Operation of the SEQ Water Grid' (2008) 41 Aust Econ Rev 420
141. The Queensland government claims that its $9 billion SEQ water grid is the largest urban drought response in Australia: Queensland Government, 'South Eastern Queensland Water Grid' 02 July 2010 accessed 31 July 2010.
142. Victoria Government, 'Our Water Our Future: Expanding the Water Grid' accessed 31 July 2010.
143. Examples include the purchase by of water entitlements from Murray River irrigators by SA Water and the purchase by the Western Australia Water Corporation of water from Harvey Water, a private irrigators' co-operative
144. See further P Ker, 'SA Towns to Get the Water the Murray Can't Buy' The Age, (17 September 2009)
145. Allen Consulting Group, Saying Goodbye to Permanent Water Restrictions in Australia's Cities (Infrastructure Partnerships Australia 2007) 15