Presentations 2016

The regulation of non-urban groundwater extraction in Australia has undergone major policy reform over the last 15 years. In this regard, the clear policy ‘winner’ has been the adoption of a top-down policy approach that relies on caps (based on sustainable yield) and the market-based trading of groundwater permits (decoupled from land title). This paper uses survey and interview data collected from landholders and policy makers in the Murray Darling Basin in New South Wales, Australia, to explore three potential shortcomings of this approach for managing groundwater, and then considers policy alternatives for future reform.The first shortcoming is structural impediments to optimal trading. In an ideal market, there are few impediments. However, the practical experience in Australia reveals problems in trading between groundwater and surface water sources; difficulties in trading between discrete groundwater aquifers; and the presence of ‘sleeper’ groundwater licences.The second issue is deficiencies in the regulatory tools that support market trading. In essence, market trading is a hybrid policy instrument – it relies on the effective security of value of the permits being trading. And yet there is reason to doubt this security due to inadequate compliance and enforcement by water regulators, who have tended to focus on surface water issues, together with a slow embrace of transformative technologies like real-time, remote metering.The third issue is the ‘crowding out’ of other policy/regulatory options. The use of market trading of water can be incompatible with other regulatory approaches that undermine the purity of the market. There has been little exploration of alternatives, particularly the use of bottom-up, collaborative governance approaches that engage local communities, build ownership and provide tailored solutions.Having identified these three problems, the paper canvasses possible groundwater policy reforms, in particular, whether or not such reforms can be conceived within an exclusively top-down, market based approach, as presently exists.