Economic Instruments in the Management of Australia's Water Resources: A Critical View

Abstract

The era of environmental concern ushered in by the World Conservation Strategy and the Brundtland Commission in the 1980s was given renewed impetus following the United Nations Conference on Environment and Development (UNCED) in 1992 and the adoption of Agenda 21. Water was a key resource singled out for attention and governments around the world have made a commitment to ecologically sustainable management of the resource. Australia is no exception and a number of processes are under way aimed at ensuring the sustainability of the country's limited water endowment. In recent years the Australian water industry has increasingly come under criticism as the perceived source of widespread resource degradationand extensive impairment of riverine environments. At the same time, growing demands for alternative uses of water have arisen for a wide range of environmental purposes. Addressing these criticisms and satisfying these demands have prompted moves for far-reaching adjustment to water allocation systems and a new approach to water management, a key component of which is the use of economic instruments to bring about change. Among measures introduced to improve water management are the encouragement of water markets and tradable water entitlements, and the rationalization of water pricing. These measures have had a mixed reception from water users, particularly in the irrigation sector, and have come under scrutiny with regard to their rationale and effectiveness in promoting efficiency and equity in rural water use. The challenge remains to identify the most appropriatemix of incentive-based and regulatory mechanisms for the management of Australia's water resources.