Water Markets and Regulation: Implementation, Successes and Limitations

Exploring the Potential of Groundwater Markets in Agriculture: Results of a Participatory Evaluation in Five French Case Studies

“…The institutional arrangements we proposed to French stakeholders incorporate many safeguards against the risk of market failure. The factors explaining this rejection of cap and trade were globally the same as those reported in other papers analysing the limits of market-based forms of water governance (Galaz, 2004;Gianocarro et al, 2013;Hernandez-Mora and del Moral, 2015;Hasselman and Stoker, 2017;Holley and Sinclair, 2018). We review those factors below.…”

“…Our analysis also showed that part of the opposition expressed by French stakeholders concerns the capping process. Both the cap setting and the initial allocation of water-use rights are major challenges that, if not properly addressed, can impede the establishment of a water market (McAllister, 2009;Holley and Sinclair, 2018).…”

“…Compliance problems could increase with water trading as this increases financial incentives for disobeying the rules. Holley and Sinclair's (2018) conclusion, which could apply to the French context, is that "if caps are exceeded due to illegal water extraction, if […] tradable water rights are not adhered to, and if stakeholders lack confidence that there is an equitable sharing of water, the entire edifice of the market can be undermined".…”

“…Because market mechanisms emphasize individual values and stimulate competition, they can erode community spirit and crowd out more ethical and moral behaviour (Holley and Sinclair, 2018). Water markets are also contested by those who think that they encourage gaming-and possibly fraudulent-behaviour, but also may favour people making money by managing risk over those who use water for producing goods (Hasselman and Stoker, 2017;Holley and Sinclair, 2018). This reflects a broader concern that our society is moving from a production economy to a speculation one (Sandel, 2013).…”

“…Concerning the limited potential economic benefits generated by groundwater trading, the concerns expressed by French farmers again confirm findings reported in the literature. In Australia, where trade is restricted within a groundwater management unit, mostly to prevent environmental externalities, few transactions occur and the market remains quite thin (GHD et al, 2011;Skurray et al, 2012;Holley and Sinclair, 2018); this is supported by the fact that transactions in the states of NSW and Victoria represent only 1% of groundwater allocation. At the national level, 75% of Australian groundwater trade occurs in three major alluvial aquifers, characterized by a high number of licences and large volumes, high water demand and low availability (GHD et al, 2011).…”