Water trading in Melbourne : A risk review

Sammanfattning: The water industry in Melbourne is facing a range of challenges associated with a notoriously varying climate and population growth. As a response to this, new water entitlement arrangements were introduced in 2014, seeking to promote a more integrated water cycle management. Melbourne’s three water retail corporations and four regional urban water corporations were assigned so called Delivery Bulk Entitlements, giving each of them the right to an individually quantified volume of water and the responsibility to manage that water. As a part of this, it was also decided that the actors are allowed to trade water. According to economic theory, having a water market like this is likely to promote a more efficient water system – at least from an economic point of view. However, the overall aim of the water system management is not only to promote efficiency but also to provide affordable, secure water supplies and enable for a water system supporting liveability and sustainability while protecting the environment and public health. Recognising this and also the limited experiences from water trading in urban settings, the aim of the present study was to explore and review the risks (i.e. opportunities and threats) associated with the new water trading scheme in Melbourne. By performing interviews with industry representatives in combination with a literature review, features of water trading that could potentially affect the possibility to attain the objectives of the Melbourne water system management were identified. While confirming that the possibility to trade indeed offers an opportunity to improve allocative as well as productive and dynamic efficiency, it was also recognised that this brings about opportunities as well as threats in relation to liveability, environmental health, security and, potentially, affordability. For example, there could be ideological and/or religious opposition towards treating water as a commodity and considering the essentiality of the water services provided by the bulk entitlement holders, anything affecting their operations could be seen to affect the liveability and sustainability of Melbourne. However, there are currently little to no room for trading to directly affect the costumers’ costs for water since the prices are regulated and predetermined. By increasing efficiency, trading could potentially defer the next major water augmentation, which nevertheless would be positive in this regard. Furthermore, it offers a way to redistribute the available water after a disturbance, which is positive in relation to the water security. Currently, the lack of security frameworks guiding any trading activities is however problematic not only in relation to this but also since it basically keeps any trades from happening and thereby limits the scope for a market altogether. As regards the environment, trading brings with it an opportunity to solve a potential overallocation problem as well as a way for the environmental water holder to acquire additional water for the environment and to readjust its water holdings and get around delivery constraints. However, trading among other actors also potentially brings with it unwanted effects due to a change in quantity and/or quality of the water flows. Additionally, it may encourage entitlement holders to sell of water that would otherwise have been left unused. It should be emphasised that the present study did not seek to provide a complete risk assessment but to offer an initial mapping and understanding of opportunities and threats. From this, it also made some brief recommendations about how some of the identified barriers such as the low number of market participants and the current need for trades to get ministerial approval potentially could be overcome. All in all, although the scope for having a market in Melbourne could be questioned due to a number of factors (currently) keeping the low number of entitlement holders from trading, this study suggests that water trading could be both positive and negative in relation to the overall objectives of the water system government. Thus, the key is to develop a water market seeking to promote the identified opportunities while mitigating the threats, indeed giving the water corporations in Melbourne the possibility to use the new management tool for managing their respective demand and supply balances without compromising the level of service towards their customers.