The environmental impact of water markets: an Australian case-study

Water markets are developing as part of a Council of Australian Governments initiative to promote an efficient use of Australia's water resources. The consequences of these policies on river health is yet to be fully understood, but recognised as having significant interrelationships which need to be explored. This paper examines the consequences of introducing trade and allocating water for environmental use in the Border Rivers region of Queensland. The results of this study suggest that: (1) trade in water entitlements is likely to increase the differential between extractive demand and historical flow regimes as extractive water-use concentrates on the most profitable crops, and (2) water markets are likely to limit the effectiveness of water policies aimed at restoring natural flow regimes. As a result, trade-offs between environmental needs and income from extractive use will need to be determined. This work is important and timely in water-policy development demonstrating the linkages and trade-offs between ecological and economic objectives.