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🗣️ Water Trading in Down Under

(don't) Waste Water!

Photo by Lukas Blazek / Unsplash

Table of Contents

Host: Antoine Walter
Guest: Scott Hamilton | Researcher & Author
Category: 🗣️ Opinion

Podcast’s Essential Bites:

[6:43] “Australia is laggard when it comes to action on climate change. […] And in fact, there's a big debate going on right now in Australia, about whether we even commit to net zero by 2050, which all the other G7 or G20 nations have already committed to. And we've got relatively weak 2030 targets. […] But the other thing is, […] because we're the driest inhabited continent in the world, […] it means that we also see the brunt of climate change really quickly and the sorts of severe droughts, bushfires and extreme weather events that come with climate change. […] So all of these issues mean that the challenge for having sustainability, particularly with water, but also other natural resources, is really critical to this country. And that's why you see that a lot of effort going into trying to manage and share make best use of what little resources we've got in this place.

[14:39] “We are still being looked upon by Colorado, in terms of what we did [with] water markets. And some profess that we are the most advanced in terms of our water markets in the world […]. But we think that's missing a major point. […] So this idea that markets are terrific and we want small government, lots of free markets, and […] economic rationalism […] was at the same time that we were to experience another one of our massive droughts. So every so many years […] there would be a massive drought. […] So at this time, we had a growing enthusiasm by politicians, by policymakers, by lots of community groups, and really fascinating that both the environment groups as well as the farmers end up buying into this approach. […] So to this massive problem, it was seen as an elegant solution, which was the market. So by going into the market, and going harder and quicker and further than any other nation, we thought that we'd be able to deal with this problem of drought, and a very over allocated resource, which was causing major impacts.”

[18:17] “Broadly, the concept or the public policy principle was that using a market based mechanism, we could make sure that this diminishing resource and this amount of water would go to what was going to be its best use, […] so its most efficient use or […] where it would be most valued. And provide the biggest benefit to the economy and to the country and the people within the community.”

[20:37] “In terms of making […] the water market, one of the first things that was done was actually to disconnect the water from the land. So we call this unbundling. […] We actually think that that in itself wasn't necessarily a bad thing, provided there were sufficient rules around and ways to manage that. […] If I've got a farmer within a valley […] [that] has a bit of water left over one season and the farmer down the road […] could use that water, it […] makes sense to be able to allow that trade to happen. […] What is probably more of a problem and then it gets worse, was the actual allowing other players to come into the water market. So it's not just farmers and users, which could trade that water, anybody could trade that water. […] And of course, that means that people who are very sophisticated […] start to think maybe I can have some arbitrage through this water trading. And one of our key findings is that really what we created was a paradise for arbitrage. […] There's multiple prices, multiple valleys, multiple different types of water rights. So this provides […] holes in the market, so places where someone with better information, more speed, more market power, can take advantage of that.”

[26:15] “Australia let in not just Australian banks, but anyone in the world, banks and hedge funds […] with the purpose of creating liquidity in the market. Those were the ones that changed the market fundamentally from being a […] natural resource market, into a financial commodity market, […] which is now worth billions of dollars. […] But what's the one of the worst things about this part of the story is that we then didn't regulate them. So normally, we would have very strong regulations about financial commodity traders. […] We purposely decided as a country […] that we would not regulate the players that were coming into the water markets and that they would not be bound by the same sort of rules and regulation that you would for normal financial commodities. And at the same time, the value of water was steadily increasing and increasing and becoming more and more tempting to have these traders come in and play the market.”

[29:18] “There's not just one market. There's multiple different markets, which are being played at the moment. And you can trade across valleys […] and you can move water and carry over water, and make trades across these valleys. So if you know something better and quicker than everybody else, you can then play that market and start to manipulate that market. And that's where we also saw the introduction of bots and technology. So if you had the quickest computers and the best algorithms when there were key decision points or changes happening in the market, [you had a significant advantage].”

[35:05] “Our thesis was that one of the first things that we should do in order to fix the market […] would be to say, in order to play in the market […] you should have some connection to water in use. So in that case, the Wall Street trader sitting in Singapore or in the Melbourne office, can't play water just for the pure profit and game of it. You've got to actually be using that water to grow almonds or grow oranges or whatever it might be.”

[49:31] “We have seen some improvements in terms of the transparency of the market, particularly in some of the states. Remember, this is a fragmented market with fragmented rules. So recently, in the state […] Victoria, we've just put in legislation whereby now the biggest water users and water owners can be identified. […] Interestingly, […] the biggest owner of water in Victoria is a Canadian pension fund that has a $1 company as a front, which I find quite fascinating. […] They also are working to regulate the brokers, […] which are the real estate agents of the water system.”

[1:00:06] “I think that all our world leaders should commit to a certain number of liters of water use per day. So in our part of the world, we had a target of 155 liters per person per day. In America, they've got another target. But I think we should say they will have to live on 100 liters per day for a year. […] That will make you appreciate the water.”

Rating: 💧💧💧💧

🎙️ Full Episode: Apple | Spotify (Original Title: "How Water Trading Unbelievably Killed One Million Fishes (and a River)")
🕰️ 1 hr 2 min | 🗓️ 12/01/2021
✅ Time saved: 1 hr

Additional Links:
Book: “Sold Down the River” (Scott Hamilton, 2021)