From 1 July 2014, new water trading rules in Chapter 12 of the Murray-Darling Basin Plan come into effect. These rules do not replace individual state trading rules, but mandate that state trading rules must be consistent with the new rules in the Basin Plan.
The new trading rules aim to boost the development of the water market by making it easier for trades to occur without duplicating existing laws. They limit the restrictions that can be placed on tradeable water rights and create additional obligations on the Murray-Darling Basin Authority (MDBA), agencies, States, approval authorities, irrigation infrastructure operators, irrigators and individual market participants.
Unbundled water, right?
The new trading rules apply primarily to unbundled water rights, but also to water rights bundled with land in specific instances.
Unbundled water rights are created by a process which separates water licences into distinct works, use and entitlement rights. States are continuing with the long process of unbundling water rights, with differing degrees of implementation. In NSW, water rights are fully unbundled, while in Victoria all regulated water is unbundled and groundwater is unbundled in part. In South Australia, water from the Murray River is unbundled and other rights are in the process of being unbundled.
What is a ‘trade’ of water?
The new trading rules in the Murray-Darling Basin Plan do not comprehensively define a ‘trade'. The Guidelines for the new water trading rules explain that a trade does not have to involve payment. It may include a lease agreement, a tagged water access entitlement or a situation where the location of water changes but the ownership does not. This broad definition means trading can occur outside of contractual obligations, even though tradeable water rights are generally considered to be property rights.
When do the rules apply?
The new trading rules apply to both surface water and groundwater. The types of tradeable rights that fall under the new rules include:
- water access rights, which entitle the holder to take water from a pool of water resources, and include both water access entitlements and water allocations
- irrigation rights, which represents a share of a water access right which is collectively held, usually by an infrastructure operator on behalf of irrigators that are members of the collective
- water delivery rights, which entitle the holder to have water delivered by an infrastructure operator,
There are hundreds of types of entitlements that exist within the Murray-Darling Basin. The Basin States are ultimately responsible for deciding which water access rights are tradeable and which types are not. Some Basin States have introduced legislation to begin to align their state trading rules with the Basin Plan trading rules, and all states are in the process of reviewing their current trading rules to ensure consistency with the new Basin Plan trading rules.
Where there is an inconsistency between the State rules and the trading rules in the Basin Plan, the rules in the Basin Plan will usually prevail. Where an interim or transitional water resource plan is recognised by the Water Act 2007 (Cth) and has not expired, the state water resource plan will take precedence over the Basin Plan trading rules. In the Basin States, 22 of the 27 recognised water resource plans expire by 1 July 2014. Groundwater resource plans in NSW generally expire in 2017. The Victorian transitional water resource plans will continue to have effect until 2019.1 This means that for areas covered by current water resource plans in Victoria and NSW, the trading rules technically will not apply.
The new trading rules do not apply to water resources outside the Murray-Darling Basin or to water access rights that are not able to be traded under State water management laws.
The trade of groundwater in the Great Artesian Basin is excluded from the new rules. In addition, there are a number of activities that are not considered a ‘trade’ under the rules. These include:
- the conversion of water access rights between a priority class and a reliability class
- the subdivision of a water access right into multiple rights with no change in ownership
- consolidation of multiple water access rights into one right of the same type with the same owner
- giving up a water access right to a Basin State
- lawfully devolving a water access right form one person to another.
Prohibited trading restrictions
One key element of the new trading rules is the prohibition of trading restrictions. The following are the key types of trading restrictions that the new rules generally prohibit:
- Separate rights – trade of a water access right is to be free of any conditions related to the holding, buying, selling, obtaining, accepting or terminating of a separate right related to a location. These separate rights may include a water delivery right, a work approval or a water use approval.
- Class of persons – water access rights are to be traded free of any restrictions based on a person being a part of, or not a part of, a particular class of people such as environmental water users, land owners, water authorities, hydroelectricity generators, catchment management authorities and cultural groups.
- Purpose – similarly, the purpose for which the water has been or will be used cannot be the basis of any trade restriction on water access rights. However, stock and domestic rights, environmental rights, power generation, research, cultural and urban water supply rights are excluded from this provision.
- Take and use after a trade – water access rights for taking and using water that is acquired through a trade should not be the basis of a restriction. For example, if a water allocation has different water use limits because it was acquired through a trade, it would be inconsistent with this provision.
- Carryover – a carryover arrangement allows a water access right holder to carryover water from one water accounting period to the next. Trade of a water allocation may not be restricted because it was carried over. This includes where the security profile or accessibility of traded carryover water is changed.
- Level of use – the historical or anticipated level of use of a water access right cannot be a basis of a trade restriction.
- Over-allocation – a water access right within a water resource should be traded without any restriction made due to the over-allocation of that water resource.
- Conditional water delivery rights – a water access right or an irrigation right may be traded free of restrictions requiring a person to hold, buy, sell, obtain, accept, terminate or vary the volume or unit share of a water delivery right. This applies to the part of the right that relates to water delivery even if the right is linked to another right.
- Volumetric limits – unless there are constraints, and based on the needs of the environment or the water supply, trade is not to be restricted because of any volumetric limit.
The future: greater transparency, more responsibility
The new water trading rules will likely have a gradual effect on the water trading market, with the aim of opening the market and furthering the goal of producing a National Water Market System in Australia with consistent trading rules. Although the rules will require State trading rules to be consistent with those in the Basin Plan, the exemptions for existing water resource plans means the application of trading rules in States such as NSW and Victoria will take place over a number of years.