Market critical in valuing water

A well-functioning water trading market has a critical role in revealing the true value of water to existing and potential users, the Australian Economic Forum was told today.

Commissioner Ed Willett, of the Australian Competition and Consumer Commission, told the forum in Sydney that it was only when the true value was realised that water users such as irrigators would innovate and improve productivity.

He was speaking after the release today of the annual Water Report Card, by the Water Services Association of Australia, which said water prices were expected to double in all Australian capital cities over the next five years.

"The Australian Competition and Consumer Commission has a key role in promoting the efficient and effective functioning of water markets for irrigators across the Murray-Darling Basin," Mr Willett said.

"However, water has not to date been fully valued or allocated efficiently.

"Australia is not unique in this. Throughout the world water supplies are underpriced and water scarcity is dealt through some form of non-price rationing, even today. Over the past 15 years or so, it has become clear that this approach has not served Australia well.

"The reasons for this have, in large part, been the over-allocation of water and the lack of effective mechanisms to trade water, exacerbated by the falling availability of water during Australia's longest and most serious drought."

Mr Willett said many people might regard water as a 'special' good essential for life and which needed 'special' treatment compared with other products.

"But there is no doubt that economic principles, the fundamentals of supply and demand, and the role of markets have at least as important a role to play in contributing to important social and environmental objectives as for any other product."

Mr Willett said the ACCC's water functions in relation to the Murray-Darling Basin under the Water Act 2007 included:

• advising the Minister for Climate Change and Water on water charging rules and water market rules,
• monitoring compliance with and enforcing these rules, and
• advising the new Murray-Darling Basin Authority on water trading rules as part of the authority's development of the Basin Plan.

"To date, our advice to the Minister has been implemented while we continue to develop further advice in accordance to the Act. "The ACCC has been pleased with the progress to date."