Understanding water trade

Every year, water in our rivers and dams is bought and sold to meet the needs of towns, farms, industries and the environment.

People rely on rivers to provide water, amenity and other services. They are also home to a vast array of native wildlife that rely on water to feed, breed and move.

The NSW Office of Environment and Heritage (OEH) manages a portfolio of water on behalf of the NSW Government to support the health of rivers and wetlands across the state.

Careful management of this water supports our unique native fish, water dependent wildlife and ecosystems.

To maximise the benefit for our rivers and meet some of the costs involved in managing this resource, OEH may choose to buy or sell water. OEH is a water user, not an investor – the only returns we’re after are healthier rivers and wetlands that are better able to support local communities.

OEH trades water allocation but does not generally sell or buy water licences. OEH manages water to maintain and improve the health of NSW rivers along with the unique native plants and animals that rely on them.

Licenced water allocation managed by OEH may be sold to:

  • contribute to the payment of water use fees associated with water licences (the same costs apply to all water licence holders)
  • support small infrastructure projects which enhance the delivery of water to important river or wetland sites
  • purchase water for another valley
  • enable carryover of water into future years.

Example – improved infrastructure

  • In 2017 we traded water which enabled OEH to invest in the replacement of the Mascotte Escape — part of Murray Irrigation’s network in the central Murray catchment, southern NSW.
  • This improvement increased the amount of water able to flow through Mascotte Escape which means that larger volumes of environmental water can be delivered into the Jimaringle-Cockran Creek network.
  • The Jimaringle and Cockran creeks are isolated from major waterways. This improved infrastructure means OEH can restore more natural flow patterns into these creeks.

Example – forward water purchase

  • In June 2014 we ‘forward purchased’ 6,500 megalitres of water in the NSW Murray. This gave us certainty that we could deliver water at the start of the new water year in July 2014. A water year runs from 1 July to 30 June.

No. Water is traded with the objective of improving river and wetland health.

OEH is a water user – not an investor.

Water trading is considered if there is an opportunity to help increase river and wetland health without risking good environmental results between years or across valleys.

Water needs change all the time. Water trade helps OEH manage sudden changes in water availability within and across valleys.

Water licences are a public asset and trades must be considered good value for money before they can proceed.

Water trades need to provide the best benefit for environmental assets like rivers and wetlands. The sale of water must cause the least impact on good environmental outcomes. When OEH sells water, the benefit must be more than the risk of having less water to achieve the best environmental outcomes for rivers and wetlands.

Yes. OEH typically trades water in one or more valleys each year.

The money raised from water trades is used to pay for water delivery fees mostly, plus various other water related costs.

These funds are also used to fund monitoring activities, community education programs, infrastructure projects which support improvements in river health, or to purchase water.

The volume of water traded can vary a lot – it depends on demand and the value of water on the market.

The graph ‘Total volume sold and purchased (all valleys)’ shows our past trading volumes for both the sale and purchase of water. The graph does not include ‘supplementary’ water - surplus flow that cannot be captured into storage.

Carryover water is licensed water that remains unused in storage at the end of the water year.

In some cases, this water can be held over and used (or traded) in the following year.

Trading carryover water helps to provide certainty for buyers in future years as they can start a new season with guaranteed water in their accounts.

Licence holders can also sell ‘space’ (or capacity) on their water licence to manage carryover water on behalf of another licence holder. The seller provides a service to the buyer by holding their water at the end of the water year and transferring it back to them at the start of the next water year.

OEH has previously purchased small volumes of carryover in the NSW Murray and sold carryover space in the Murrumbidgee.

Total volume of water sold and purchased (all valleys) in megalitres

OEH holds water licences in five regulated river systems – the Gwydir, Macquarie, Lachlan, Murrumbidgee and NSW Murray valleys.

Most of the holdings on these licences are for general security, conveyance or supplementary water.

Though OEH can purchase water in other river catchments, we haven’t done so to date, but may in the future.

Valley and environmental water holdings

Graph showing where OEH holds and trades water

Most of our water trades are non-commercial. They are transfers between environmental water licences or to private water users who deliver water to targeted rivers, creeks and wetlands on our behalf through partnership arrangements.

Yes, OEH pays the same licence fees as every other licence holder.

Water for the environment that accrues under Water Sharing Plan rules is called planned environmental water. Planned environmental water does not attract the same fees because the water is not from a licence, it is provided by the plan.

Yes, the same trade rules set by the Water Sharing Plan apply to OEH licences.

A small number of OEH licences have further trade restrictions that only apply to those licences.

No, most of OEH’s operating costs are covered by the NSW Government.

Both commercial and non-commercial trade decisions are made centrally by our Environmental Water Governance unit.

Our regional operations staff are involved in planning and managing the delivery of water to achieve specific outcomes for native fish, waterbirds, plants or system processes, but do not participate in trade decisions.

OEH participates in the market in the same way as other water users. This includes the use of established water brokers and online water trading platforms and ensures that buyers and sellers are not identified by each other before a trade is agreed. This ensures neither party is disadvantaged in negotiations to reach a fair price.

Trading is done centrally by the Environmental Water Governance unit and is commercial in confidence until transfers have been approved by WaterNSW and posted on the public water register. OEH also reports on its trade activity in an annual Outcomes Report.

OEH follows rules established by the Basin Plan which control how it shares information and how it makes decisions about trades. OEH deals with market sensitive information and makes water trade announcements.

Our Sensitive Water Market Information Protocol establishes the following:

  • arrangements to prevent market sensitive information being communicated to the person(s) making the trade decision to prevent them being involved in trade with this type of knowledge
  • limit how information is communicated within OEH and between agencies to ensure market sensitive information is only shared where it is appropriate
  • the way in which OEH makes water trade announcements.

More information about water trading and choosing a water broker can be found at the Australian Competition and Consumer Commission (ACCC)

https://www.accc.gov.au/regulated-infrastructure/water/water-trading-brokers-exchanges

The market sets the price based on supply and demand at the time.

OEH aims to participate in the market with minimal influence on the current market price. For example, we carefully consider whether the parcel size is likely to have an undue influence on the price compared with other trade volumes.

All market participants enter the market voluntarily when opportunities for buying and selling meet their needs. These transactions only occur when there is a benefit to both parties.

OEH only makes decisions which are based on value for money and value for the environment.