Achieving Targeted Environmental Flows: Alternative Allocation and Trading Models under Scarce Supply—Lessons from the Australian Reform Process

The problem of water overallocation in many regions of the world involves how to include environmental flow provisions for long-term sustainability of river systems, especially under scarce supply conditions. Market mechanisms have provided pathways for returning water to rivers for environmental use. We argue that it is important to consider how both market mechanisms and initial water allocation models contribute to achieving satisfactory environmental flow outcomes. The Murray-Darling Basin (MDB) in Australia has had policy processes applied to it for almost twenty years to address these issues, and provides an excellent basis for case-study analysis. Two MDB case studies are used to consider differences in the interpretation and implementation of environmental flow requirements, and the potential for institutional inertia of the systems within which water markets operate. We identify two simplified models from these case studies—one prioritising environmental rights above consumptive extraction and the other prioritising consumptive and environmental rights equally. However, neither of these case-study models provides the full environmental flow spectrum of base in-stream flows to over-bank flush events. Our findings suggest that combining allocation and market-based rights (a third model) offers an effective means to deliver full-spectrum environmental flows. If governments provide prioritised environmental rights for base in-stream ecosystem benefits, together with targeted temporary and permanent water market acquisitions to meet environmental needs associated with over-bank floods and flushes, there will be lower potential for shortfalls relative to targeted environmental flow outcomes.