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What is water trading?

Water trading is the process of buying, selling or exchanging rights to water.

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

Water markets in the irrigation systems in northern Victoria and the Murray-Darling Basin are well established and are commonly used by entitlement holders to manage water for irrigation, towns and the environment.

In other regions in Victoria, while trade is possible, there are not always well-established processes.

Whether they be dairy farmers, almond growers, beef farmers, water corporations or environmental water holders, all market participants are subject to the same State and Commonwealth trading rules.

Under the Victorian Water Act, we can buy, sell or exchange water to meet environmental needs.

The annual Water Allocation Trade Strategy provides information about how and why environmental water might be traded in the financial year.

Significant commercial trade decisions are announced on our news page and in our annual reports.

Why do we trade water?

The VEWH trades water to improve the health of Victoria's rivers and wetlands. Trading helps ensure water is available when and where it is most needed.

Environmental water supply and demand across systems varies due to climatic and ecological conditions. Trading, like carryover (saving unused allocated water to use the following season), helps us smooth out some of that variability.

Proceeds from selling allocation can help us buy water in areas where we need it. For example, in a year when there is enough water to meet all needs in a system, we might be able to sell allocation to buy and deliver water in a system where we don't have enough.

Proceeds can also fund monitoring and river improvements.

The most common trades we do are administrative water transfers, which involve transfers of water with no financial exchange (aside from application fees). These are usually transfers between our entitlements, or with other environmental water holders.

Trading entitlements

Transfers between VEWH entitlements

Like farmers who have more than one farm or water entitlement, the VEWH can water allocations between different entitlements.

These administrative transfers basically involve moving water between different environmental water 'buckets', helping to make sure the water is available where it is needed most.

Transfers with other environmental water holders

Other environmental water holders, such as the Commonwealth Environmental Water Holder and the Murray-Darling Basin Authority in northern Victoria, transfer their water to us to use in northern Victorian waterways.

This uses environmental water in Victoria in a coordinated way, maximises water availability across all regions, returns unused water to the source environmental water holder and accounts for delivery of water to South Australia.

A large proportion of trade by us is simply moving water between systems and environmental water accounts.

For instance 384,056 ML allocated to the Commonwealth Environmental Water Holder was transferred into the our accounts to use in northern Victorian rivers and floodplains in 2014-15.

This benefited the Goulburn, Campaspe, Loddon, and Broken systems and Hattah Lakes and Mulcra Island – resulting in golden perch spawning in the Goulburn River and improving fish passage and habitat in the lower Broken Creek.

Once environmental watering in a system is complete, unused Commonwealth water is transferred back to the Commonwealth Environmental Water Holder. A total of 53,064 ML returned to the Commonwealth in 2014-15.

Water donations 

The VEWH can receive water donations from individuals, community groups and other organisations.

This water can be used in the financial year it was donated or it can be carried over to use in the future.

Some donors may tell us how they want the water to be used (such as in a specific wetland or to protect a certain tree species). About 47 ML of water was generously donated to us in 2014-15. It was primarily used to water wetlands in the Mallee region and contributed to winter flows in the Goulburn River.

If you are interested in donating water to benefit the environment, please contact us on 03 9637 8951 or email general.enquiries@vewh.vic.gov.au.

Buying water allocation

The VEWH can buy water to meet shortfalls in environmental demand and to mitigate risks, such as preventing the loss of a threatened species.

We have purchased relatively small amounts of water in systems such as the Loddon in northern Victoria, and in the Werribee and Maribyrnong systems in southern Victoria (in partnership with Melbourne Water), where there are smaller quantities of environmental water available.

Larger purchases may occur, but would be uncommon. Like all organisations we are constrained by funding and achieving value for money.

The primary driver for us to buy allocation is critical environmental demand, and – due to the high cost of water – the water market is unlikely to be a feasible option for making up a significant demand shortfall.

Three hundred ML of water was purchased in 2013-14 to release into the Loddon River.

This contributed to a water release in spring – a release which is the highest priority environmental watering action for the Loddon River, and aims to provide movement opportunities for fish and help promote the establishment of plants in and on the riverbanks.

Bar chart - The volumes of water the VEWH used, carried over, sold and bought in 2014-15

Selling allocation

The VEWH has sold water allocation that wasn't required for foreseeable priority environmental watering and where it was a better option than carrying it over (or it was unable to be carried over) to the next year.

All proceeds from the sale of environmental water are used to purchase water to meet shortfalls in other systems, or to invest in monitoring, technical or small structural works, or other improvements.

Decisions to sell depend on unfolding climatic conditions and environmental water demands.

Environmental water demand is highest in winter and spring (since this is when rivers would naturally receive inflows from rain). Decisions to sell water have typically happened from early December onwards, once peak demand has passed.

Avoiding trading impacts on other market participants

As a public organisation, we take our trade responsibilities seriously. In undertaking any water trading, we aim to avoid negatively impacting on other market participants such as farmers.

When we trade we ensure that:

  • adequate information is provided to the market
  • there is no positive or negative discrimination against potential buyers and sellers or intermediaries
  • we minimise any real or perceived impacts on the market from trading activity
  • transaction costs and management fees are efficient
  • systems and contractual arrangements are in place to guarantee transactions are timely, accountable and efficient
  • it benefits the environment.

The Victorian Minister for Environment also sets parameters around how we can make decisions, including water trade.

The Government has ensured that we trade only to protect the environment and in the public interest, without adverse community impacts.

Annual water allocation trading strategy and review

Water trading strategy 2019-20

Our water trading strategy 2019-20 outlines the types of trading we may undertake across Victoria.

Water allocation trade is one of the tools we use to effectively manage water for the environment. Water trading allows us to move water to the systems where it is most needed, and to smooth out some of the variability in water availability across systems and across years.

This strategy covers commercial water allocation trade (selling and purchasing water allocation), and administrative water transfers ('internal' transfers of Victorian Environmental Water Holder allocation or transfers between water holders).

Availability of water for the environment is expected to be low to moderate across the state in 2019-20. Average to wet conditions and associated inflows to storages will be required to increase water availability to moderate to high levels. A dry winter-spring 2019 will likely see low supplies across most of the state. Some catchments will only have enough supply to support critical environmental needs, while trade or transfer options may be required to meet critical environmental needs in other systems.

Opportunities to purchase allocation may be considered in the Maribyrnong system, depending upon assessment of seasonal conditions and environmental need. Opportunities to trade or transfer in the Latrobe, Werribee and Wimmera-Glenelg systems as well as across northern Victoria to increase supply may also be investigated, particularly if dry conditions continue.

The VEWH may consider selling part of its allocation in northern region systems if foreseeable environmental demands can be met. If this occurs, it would most likely be from summer 2019-20 onwards and be more likely following an average to wet winter-spring.

In 2019-20, the VEWH intends to implement a range of administrative transfers to facilitate the delivery of environmental water across Victoria or for carryover purposes, including water held by other environmental water holders. Similarly, administrative transfers will be undertaken to transfer allocation available for use in the Snowy River.

Download a copy of this trade strategy: Water allocation trading strategy 2019-20 - 533kb (PDF)

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.

Review findings

  • The VEWH’s allocation trades have not impacted on the market.
  • The VEWH’s market performance has been good, both with timing of trade and achieving prices either close to, or slightly above, the prevailing market price.
  • The VEWH has a clear and open way of signalling its trade intents and activities and gives enough detail to people taking part in the water market.
  • The VEWH’s participation in the market does not have a big influence on market prices. These are largely affected by other market forces like climate conditions, water availability, commodity prices and annual cropping choices.
  • The VEWH has effective processes to ease potential adverse impacts on other parties and avoid any distortion in the water market. These include only announcing specific trade intents and activities when they will definitely happen and using existing, well-functioning market methods as a silent participant in the market.
  • Water market intermediaries engaged by the VEWH have generally performed well.

Download the full report: Allocation trade review - summary report: Victorian Environmental Water Holder - 1,050kb (PDF)

Page last updated: 12/12/19