Surface and groundwaters are both licensed by, or on behalf of, the state governments, under state-specific water legislation and policy; licence details therefore vary considerably across the states.
A level of security is normally applied to water licences. This is traditionally based on the purpose for which the licence was originally issued. The accepted priorities of water supplies (from highest to lowest) are: town supply, stock and domestic, perennial crop (e.g. vineyards and orchards) and annual crops (e.g. grains).
Most water licences are specified in volumetric terms as an entitlement, based on a certain level of historical security of supply (exceeding availability in 99% of years, in the case of Victoria). Volumetric measurement and charging for surface irrigation water have been the norm throughout most of the MDB since the 1960s and date back much longer in Victoria. The actual amount a licence-holder can obtain in 1 year is determined pro rata by the announced allocation, which is reviewed every month, based on different formulas that incorporate available storage, plus minimum (1:100 year) expected rainfall volume, less the volume required by high-priority uses. The precise formulation of the allocation and entitlement rules varies from state to state, particularly in relation to environmental reserve, environmental flow rules governing dam operations and the ability to carry over unused allocations from one year to the next.
To some extent, this 'share' approach was the result of an explicit rejection of the 'prior appropriation' doctrine practised by the western states in America (Tisdell, 2002). It could nevertheless be contended that environmental and some native water titles can claim priority at least partially by virtue of history. The capacity of a share approach to entirely avoid prior appropriation issues also rests heavily on sound definition and hydraulic understanding of the water resource being licensed, implicitly assuming that these licensing frameworks account for any hydraulic connectivity between institutionally independent resources (e.g. surface water and groundwater).
In the MDB, interstate water shares were agreed in 1915 and those limits were not tested by water resources developments until it was realized (in the late 1970s) that the licensed volume exceeded the available resource, notably in NSW (Turral, 1998).
Subsequently, it was realized that the existing licensed volume already exceeded the sustainable water resource and that, at the prevailing rates of irrigation expansion, the actual diversion would exceed sustainable limits by 2020 (MDBC, 1996) and possibly approach the volume of annual runoff to the sea. A Cap on diversions of surface water within the MDB was agreed in 1995, set not to exceed the volume diverted at the extent of agricultural development in 1994. It was left to each state to work out how to implement the Cap and it has been independently audited annually since then. The idea of a rolling cap was implemented de facto, which allows states to overrun the Cap in low allocation years provided they balance this in subsequent above-average years. Since 2000, 3-4 years of consecutive drought, with less than the previous 1:100 year water availability, have put some strain on this arrangement. The largest volume of unused licences is in NSW, due to the existence of sleeper and dozer1 users and relatively conservative withdrawals by many farmers in response to the lower security of supply in NSW, where there is considerably less interannual storage volume than in Victoria.
Water trading has been activated through private, state and central initiatives since the mid-1980s, although temporary trading has a long and informal history. The liberalization of water trading since the mid-1990s has activated some of this unused volume, putting further strain on the security of supply to existing users (Panta et a/., 1999). The market is dominated by temporary transfers of unused allocation within a season and activity reflects the general drought cycle and water resources availability, whilst permanent trades account for less than 1% of the licensed volume (Turral et a/., 2005). Most of the water trade is between irrigators within a particular state, and interstate trading is currently limited by questions of exchange rate between upstream and downstream transfers (Etchells et a/., 2004).
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