Murray-Darling Basin Plan: Case Study in Market-Based Approach to Water Sharing in Australia

The Murray-Darling Basin (MDB) is an area in southeastern Australia that has the largest and most regulated river system in the country. Historically, it has been an area of conflict over water resources, with efforts to bring the different states together to negotiate water sharing since the early 1900s. In the 20th century, the focus of water policy was predominantly on water supply infrastructure: building large-scale dam storages, weirs, and other irrigation region infrastructure. However, increasing problems with both water quality and quantity from the 1970s onwards—such as acid sulphate soils, salinity, declines in vegetation health, and species loss—meant that more attention was turned to water demand management options. These included establishing formal water markets, trade liberalization, and water extraction caps. The National Water Initiative (2004) and the Water Act (2007) laid the groundwork in unbundling water and land ownership and created the Murray-Darling Basin Authority (MDBA). The MDBA was tasked with developing the MDB Plan (Basin Plan 2012) to readjust the balance between consumptive water use and the environment. The Basin Plan when implemented in 2012 aimed to return up to one third of consumptive water extraction to environmental use, making it one of the biggest reallocations of water to the environment in the world. It has predominantly used market-based approaches to do so. However, conflict over water sharing has remained a dominant feature of MDB water reform. Self-interest among states and irrigation interests have impacted environmental water recovery methods, resource expenditure, and allocation—subsequently weakening both the Basin Plan and water policy in general. Given current policy developments, there is real danger of targets not being met, and environmental sustainability being continually compromised. The ongoing issues of drought, climate change, and readdressing First Nations access to—and ownership of—water have emphasized distributional issues in water sharing. It is clear also that the Basin Plan has been wrongly blamed and misattributed for ongoing rural community declines, with current amendments and reductions in water reallocation targets a result of this. What is clear is that the Basin Plan is currently not the fully sustainable solution for water sharing that it set out to be. It will need to continually evolve, along with various institutions to support water governance and rural community economic development in general, to address existing overallocation and future climate challenges. The challenges of equity, rural community development, and distributional fairness lie firmly in the sphere of strong governance, high-quality data, and first-best economic and scientific policies.