The Political Economy of Urban-Rural Water Trade

The policy response to Australia's urban water shortage provides some interesting lessons in political economy. On the one hand, the merits of water markets are frequently extolled by policy makers and yet, on the other, there is a reluctance to promote genuine unfettered inter-sectoral trade. This is particularly the case if water stands to be traded away from agricultural regions to satisfy demand in metropolitan contexts. Accompanied by the proclivity to summarily dismiss the option of investing in new dams, the outlook for urban water users appears to be continued water restrictions, mandated targets for expensive urban water recycling and reliance on desalination. In this paper we consider the underlying motivations that have led policy makers to overlook the potential for inter-sectoral water trade as a mechanism for alleviating urban water shortages. We endeavour to address two main questions: Why is inter-sectoral trade of water so difficult in Australia? And what are the consequences of putting trade in the 'too hard basket'?