Modelling water trade in the southern Murray-Darling Basin

Staff working paper

This paper by Deborah Peterson, Gavin Dwyer, David Appels and Jane Fry was released on 19 November 2004. The paper uses TERM-Water, a bottoms-up regional CGE model of the Australian economy, to examine the regional effects of expanding trade of irrigation water in the southern Murray-Darling Basin.

In the model, trade is induced by reducing water allocations to irrigators. Long run closures are used to consider the effects of 10, 20 and 30 per cent permanent cuts to water allocations. Short run closures are used to model year to year seasonal variability in water allocations for the years 1997-98 to 2001-02. The study finds that water trading dampens the impact of water allocation cuts on gross regional product (GRP). The benefits of introducing trading within irrigation districts are greater than the further benefits of expanding trade to between these regions. Permitting trade of seasonal allocations allows irrigators to reallocate water in reaction to climatic conditions and water availability - and it is this flexibility that enables GRP reductions to be minimised.

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Contents

Preliminaries
Cover, Copyright, Contents, Preface, Acknowledgments, Abbreviations and explanations, Key points

1 Introduction

2 Water trade and irrigation in the southern Murray-Darling Basin
Irrigation water sources and irrigation districts
Water entitlements and seasonal allocations
Utility charges
Quantities of water traded
Water trade prices
Constraints on water trading

3 Overview of the modelling approach
Development of a water module within TERM
Incorporating water trade
Model simulation

4 Long run effects of reduced water availability with trade
Macroeconomic effects of water trade
Further analysis of a specific case
Model design considerations

5 Short run effects of reduced water availability with trade

A Irrigation industry data

B Simulations
Experimental framework
Simulation details

C Examples of regulatory arrangements affecting water trade
Regulatory arrangements in selected districts
Water trading across subdistricts in the Goulburn-Murray

D Data tables and simulation results

References