4 - Water markets

Abstract

Overcoming the challenges facing water resources management has necessitated the development and implementation of flexible, problem-solving approaches; these include building social partnerships, as well as recognizing scarcity signals, and developing market and exchange mechanisms. The critical role of water in sustainable development processes, combined with confronting the challenges of climate change and increasing demand (population growth and agricultural development), have increased the importance of building flexible economic mechanisms into water management and allocation system. Increasing the use of water markets is a key approach for expanding the water resources management toolkit. In principle, pricing, protecting, monitoring and efficient allocation of the water resources of a country or region can be improved with the introduction of water markets. But, this also as requires the strengthening of governing organizations and capacities responsible for implementing transfers. The requirements for the formation of water markets can be categorized into reforms in the structure of water laws and regulations, governance and organizational reforms. These, in turn, entail clarifying water rights, reviewing water laws by formalizing the rules surrounding water purchases and sales, the freedom to enter and exit markets, and the formation of supervisory bodies and local dispute resolution bodies, including priority programs. The role of the government as a major supporter of market forces should be important in this regard, and water market supervisors and organizations can be instrumental in implementing efficient water allocation systems. For example, the existence of clear rules and institutional arrangements for operating water markets, of which governments are the primary agencies, can affect outflows (agricultural effluents, municipal and industrial wastewater), protect instream or environmental, and affect the allocation of basic costs and the control of overdrafts.