Developing a methodology to calculate water trading exchange rates

Abstract

The rationale for developing water markets is straightforward: to allocate water to the use where it will be valued most highly. However, designing and implementing a market for water entitlements that is efficient, equitable and sustainable, is very difficult. A simple system allowing people to buy and sell entitlements with no outside intervention does not take account of issues such as losses incurred in supplying the entitlement at the new location, changes in security level or third party impacts such as return flows and environmental degradation. The cumulative effect of unconstrained trade could reduce the value of existing entitlements, decrease system reliability and jeopardise ecos..