An integrated water trading–allocation model, applied to a water market in Australia

Temporary water trading is an established and growing phenomenon in the Australian irrigation sector. However, decision support and planning tools that incorporate economic and biophysical factors associated with temporary water trading are lacking. In this paper the integration of an economic trading model with a hydrologic water allocation model is discussed. The integrated model is used to estimate the impacts of temporary water trading and physical water transfers. The model can incorporate economic and biophysical drivers of water trading. The economic model incorporates the key trade drivers of commodity prices, seasonal water allocations and irrigation deliveries. The hydrologic model is based on the Resource Allocation Model (REALM) framework, which facilitates hydrologic network simulation modelling. It incorporates water delivery system properties and operating rules for the main irrigation and urban centres in a study area. The proposed integration method has been applied to a case study area in northern Victoria, Australia. Simulations were conducted for wet and dry spells, a range of commodity prices and different irrigation distribution system configurations. Some example analyses of scenarios incorporating water trading were undertaken. From these analyses potential bottlenecks to trade that constrain the economic benefits from temporary water trading were identified. Furthermore, it was found that in certain areas of the system, trading can make impacts of long drought spells worse for water users, e.g. irrigators. Thus, the integrated model can be used to quantify short-term and long-term third party impacts arising from temporary water trading. These findings also highlight the need to link “paper trades” (estimated by economic models) to physical water transfers (estimated by biophysical models).