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With climate change threatening to double the number of people experiencing water stress globally by 20501, competition for water allocations will become extreme.

To maintain equity—and the social and economic stability that comes with it— best practice water markets will be critical; and University of Adelaide research is contributing significantly to improving their governance. The University’s Professor and Associate Professor Alec Zuo are among the leading authorities on Australia’s Murray-Darling Basin (MDB) water markets, considered the most developed and adopted in the world.

Their ongoing research, both independent and commissioned by state and federal agencies, is providing critical insights into the effective design and governance of the country’s water management systems. A recent focus for the pair has been assessing water market governance failures and the impact of MDB water entitlement ownership by non-landholders—government and non-government organisations, and investors, such as superannuation companies and trade speculators.

“With increasing water scarcity and growing market participation, water is now one of the most valuable assets many MDB irrigators own,” says Zuo. “We’ve found considerable variation in financial valuation and accounting methods, and a large number of areas of market failure. That obviously makes it hard to maintain equity, so we feel there’s a pressing need for standardisation and for water market governance changes.”

Another recent project for Wheeler, this time collaborating with Oxford University’s Associate Professor Dustin Garrick, has been identifying market participation drivers. She and Garrick analysed historical water market activity in both the southern and northern MDB to uncover the key factors, or ‘policy levers’, that most influence trading activity and volume.

“There were three stand-outs,” says Wheeler. “Distribution of initial property rights in resource allocation; the need to prepare for and seize opportunities to strengthen property rights; and the institution of robust monitoring and compliance requirements.”

Further research into water market governance by Wheeler and Zuo included the world’s first comprehensive investigation into the area for signs of insider trading, and their studies into water scarcity’s impact on landholders’ mental health—highlighting the need for urgent action to address rural suicide— similarly broke new ground.

“Ultimately we’re seeking the most effective ways of sharing water to improve net social welfare,” reflects Zuo. “Economic strength must come hand in hand with environmental and human health.”

Published in the University of Adelaide's inSight Magazine.