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What is water trading?

Water trading is the process of buying, selling or exchanging rights to water. The VEWH is permitted under the Victorian Water Act to buy, sell or exchange water to meet environmental needs.

What type of water trading does the VEWH do, and why?

Water trade can be a permanent transfer of ownership of a water entitlement (an ongoing right to water), or trade of an allocation water (the physical water available in a given year).

The VEWH can trade its water entitlements with the approval of the Minister for Water, assessed on a case-by-case basis. The VEWH has not to date traded its water entitlements.

The two categories of allocation water trades the VEWH commonly undertakes are:

Administrative trade

Environmental water supply and demand across systems varies due to climatic and ecological conditions. Administrative allocation water trades ensure water is available when and where it is most needed. Administrative trades have no financial consideration aside from administration fees that may be charged by a water corporation. Examples include:

  • trades of environmental water within and between water systems to ensure water is available when and where it is most needed
  • trades between the VEWH and other environmental water holders to facilitate environmental water delivery in Victoria
  • donations of privately owned water to the VEWH.

Commercial trade

The VEWH can buy or sell water if required to optimise environmental outcomes in Victorian waterways.

The VEWH may decide to sell allocation water following an assessment of environmental water demand and supply. Allocation has been primarily sold when foreseeable priority water demands have been able to be met. Decisions may be made to forgo watering actions and sell allocation water to fund investment in strategic activities, knowledge, research, complementary works and measures or other priorities to improve management of the holdings and performance of Victoria's environmental watering program. This includes the sale of allocation water where the environmental outcomes of investment of the proceeds is considered greater than environmental outcomes of delivering or carrying over an equivalent volume of water.

How does the VEWH trade?

In northern Victorian systems the VEWH can apply to trade allocation water via a water corporation and is subject to the same state and Commonwealth trading rules as other water market participants, such as irrigators or water corporations.

Trade is possible in other parts of Victoria, but not as established.

Commercial trade can be undertaken through established water markets, or by agreement between entitlement holders. Water markets in the irrigation supply systems in northern Victoria (and the broader Murray-Darling Basin) are well established and are commonly used by entitlement holders to manage water for irrigation, towns and the environment. The VEWH commonly engages water brokers to facilitate commercial trade of water via established water markets.

How does the VEWH communicate water trade?

The VEWH’s annual allocation water trading strategy provides information about how and why environmental water might be traded each year.

The VEWH will normally announce commercial trade decisions on its website. Commercial trade announcements will cover the system in which the trade will take place, the volume and timing of the allocation trade.

There may be circumstances when a trade decision would not be announced, for example if the action was urgently required (e.g. purchase of a small volume to ensure a watering action could continue) or if there is no established market that can be affected by trade activities.

Avoiding trading impacts on other market participants

As a public sector organisation, the VEWH seeks to ensure it is operating in the public interest and is not causing impacts to market participants.  When considering the volumes of water to sell or purchase, the method of market participation, and the prices considered, the VEWH undertakes an assessment of potential market impacts and takes steps to minimise those impacts.

VEWH activity in the water market, including its choice of market intermediaries and mechanisms, is guided by the following considerations:

  • ensuring adequate information is provided to the marketplace
  • ensuring no positive or negative discrimination against potential buyers and sellers or intermediaries
  • minimising any real or perceived impacts on the market from trading activity
  • ensuring efficient transaction costs and management fees
  • ensuring systems and contractual arrangements are in place to guarantee transactions are executed in a timely, accountable and efficient manner.

In addition, the Victorian Government has set Ministerial rules around how the VEWH can make decisions, including about water trade. In setting these rules, the government has ensured that the VEWH is trading only in the public interest, to protect environmental values without adverse community impacts.

Allocation trade review

In 2019, independent auditors, Marsden Jacobs, undertook an allocation trade review and found the VEWH has not impacted water market prices, transparently signals its trading intentions to market participants, and effectively avoids market distortion and adverse impacts on other parties.

Page last updated: 05/12/24