James Smits, 2012, Economics

Under the guidance of Professor Snow Barlow of the Primary Industries and Climate Change Center at the University of Melbourne, I investigated water-trading markets in the Murray Darling-Basin, the major food bowl of Australia. I studied the shortcomings of the current water trading scheme, focusing on the role the market plays in influencing decision making by members of the water trading system. In addition, I conducted research on the role of the government and the consumer in shaping water-trading markets. My findings suggest a reassessment of the role water trading plays in the context of climate change in Australia and elsewhere, and the manner in which a government should consider the implementation of water trading markets. Water trading functions as a risk management tool for water users, allowing ease of entry and exit from the system, especially during a period of extended drought, is a valuable market mechanism. As a tool for controlling water usage and the effects of climate change, water trading has great potential. Although a basic market is present, it lacks the defined structure and consistent rules necessary for the efficient operation of the system. By evaluating current and past practices during my internship, I was able to suggest a more efficient system.