Potential efficiency gains from water trading in Queensland

Economic reform in the water industry in Australia is an important issue. The supplies of regulated water have been constrained by restrictions on the construction of new dams as a consequence of environmental and political concerns, while demands have continued to increase from agricultural, urban and other users. The water industry is notable because price has rarely been used as a mechanism for allocating the resource, and when it has, it has only been used as a partial cost-recovery mechanism. Water prices have generally been set at very low levels through the public funding of major impoundments, with the effective subsidisation of many government operated distribution systems (Smith 1998).