Development of Groundwater Markets in Australia: Insights from Victoria in the Murray Darling Basin

Markets are designed to be an efficient policy mechanism to a deal with water scarcity, by enabling market participants to adjust their consumption in accordance with a flexible price signal. However, groundwater presents some challenges to the use of markets to achieve sustainable water use in that there are physical and policy constraints that may determine where markets operate. This chapter examines how the legal rights to use groundwater are managed throughout Australia through application of markets, the success or otherwise of this policy approach, and its capacity to adapt to future pressures on water availability as a consequence of climate change. We begin by outlining the principles underpinning groundwater markets across Australia. This includes key statistics, data and trends in relation to the history of groundwater trade. We then evaluate the experience of groundwater markets in practice, using Victoria as a case study in the Murray Darling Basin – this outlines how trade is administered by local authorities, possible influences on groundwater trade and markets, together with issues relating to physical connectivity between systems that can enable or stymie trade. We conclude by considering the future possibilities of markets as a tool for groundwater management.