Unit 1
Unit 2
Environmental Markets
The Market for Water
For those of you who read the quotes that appear at the top of this site, you might have noticed this one: “The economy is a wholly owned subsidiary of the environment”. What this means is that without a sustainable environment, there is no economy. This means that we need to be extremely careful about the way in which we manage the scarce environmental resources that are available to us.
Economists divide available resources into four types; land, labour, capital and enterprise. In this section we will concern ourselves with land resources. That is, any resource that occurs naturally. In particular, we will focus on the way in which water is managed in the Australian economy.
In 2007, the federal government passed the Water Act (2007). This Act created new roles for several bodies, including the National Water Commission, the Australian Competition and Consumer Commission (the ACCC) and the Murray-Darling Basin Authority. In particular, this act was designed to ensure that the management of water in Australia is seen as a national priority, rather than operating with a state by state approach. On this basis, a number of key objectives for water markets in Australia were established. Some of these goals were:
1. To create opportunities for trade between different areas in Australia: Remember that rivers often flow between states, and in one case a river actually forms the division between two states (the Murray River divides NSW and Victoria, and also flows into South Australia). This means that several states need to be co-ordinated so that each uses a fair allocation, rather than on a “first come, first served” basis.
2. To minimise transaction costs on water: Without water, there is no life. This means that we need to ensure that all people have access to water, and we also need to make adequate allocations for wildlife, farming, recreation and more. To make this possible, it is important that information about water is shared without cost, and the rules regarding access to water entitlements are clear and consistent between states.
3. To recognise and protect the environment: It might be possible for us to take all of the water that we need for the people who live in the city, but this would come at a cost. The decisions that we make in regards to water will also affect the unique Australian environment. It is important that this is preserved.
It is also true that there are other economic markets affecting environmental decisions in Australia. For example, the Rudd government’s controversial decision to push ahead with legislation for an emissions trading scheme at the end of 2009 ultimately resulted in a change in leadership of the Liberal Party. It also signalled that the Labor Party believes that the best way to address a significant environmental issue is through the use of basic economic principles; provide an economic incentive (or reward) for people who become more efficient, and an economic penalty for those who would like to continue to operate inefficiently.
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