Understanding the Victorian decision to suspend intervalley water allocation trading 2010-11
The establishment of efficient water markets is a key water reform objective under the National Water initiative. Efficient markets require that market participants are confident in the market processes and that market regulation is transparent.
From time to time actions are taken by market regulators that impact on the market, and the National Water Commission is interested in understanding the reasons for these actions and ensuring the transparency of the decision making processes.
On 11 April 2011 the Victorian Government gazetted changes to water trading rules that put into effect a suspension of water allocation trade from New South Wales into Victoria and from the Goulburn, Campaspe and Loddon systems to the Victorian Murray system, or interstate. The trade suspension was in place until 1 July 2011 however, there is provision to reinstate the trading halt in the future.
In response to this announcement the Commission engaged Frontier Economics to investigate the conditions that led up to the suspension and examine the potential impacts on trade. The resulting analysis is presented in this report.
The report shows the suspension was the culmination of seasonal conditions, of high inflows and near full storages, and water management arrangements that were not consistent with the physical limitations of the catchments. It highlights the complexity of the task of aligning effective water management rules with the hydrological conditions in a system.