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Water markets: From esoteric to a tool for water supply

October 1, 2014
Watershed in fall colors ©Rohith Roy

Watershed in fall colors ©Rohith Roy


Data about water availability and quality are fundamental to some of the most important decisions making processes of governments, businesses, farmers and last but not the least communities. Abundance and quality of water are critical factors in many aspects of our economy, environment, and social and physical well-being. Many experts argue that Payment for Ecosystem Services (PES) for multiple water resources objectives must be simultaneously managed. The costs of sub-optimal water resources choices can be while determining substantial PES. These forces when come into play together give rise to water markets as we know them today.

What are water markets?

Water markets have been considered as a coping strategy to allocate water from surplus to scarcity  regions.

The functional benefits of water markets have often been assessed from the perspective of economics, for example, the ability of markets to facilitate transfers of water-use rights from lower-value uses to higher-value uses, and the resulting increases in water productivity.


Water markets are not new and they have evolved over the years in shapes and appearances based on the regions and type of water traded (groundwater or surface water). Historically, water markets have existed in a number of agriculturally dominant countries ranging from secured and transferable form (Chile in South America) to informal and local ones (India in Asia).


One can be interested in exploring the significance of water markets by asking whether

  • Water markets can help improve overall water security (e.g., by preventing or alleviating shortages),
  • Encourage improvements in water conservation and water-use efficiency, and
  • Whether markets can contribute to environmental protection.


There are different types of water market that can be introduced based on the local geographic conditions, regulations, permits and other factors:

  • Open water markets
  • Spot market
  • Informal water markets

Do water markets actually work?

My favorite economist, recently posted information from a functioning water market. He recommends that we read Waterfind’s  annual report [pdf], which is full of market and price data. You may also want to read this post and listen to the water chats Dr. Zetland did with Waterfind CEO, Tom Rooney, a few years ago.


A number of US based and international organizations are in the process of exploring the concept of water markets further. They often ask the question of whether water markets should emerge from one of their existing initiatives or should they be something brand new. There is a huge potential of studying these further via surface availability, through government permits, and how much will water markets contribute towards environmental protection, payment of ecosystem services and environmental equity and justice so on. Water Users Associations (WUAs) can form a significant part for resolving conflicts over water rights. How will WUAs come into play, with increasing urbanization around us when water is being channelized for non-irrigation/agricultural purposes, and how effective they will be in fulfilling this responsibility is left to be seen.



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