Water is one of the world's most precious natural resources. Yet current climate patterns are making water scarce in many regions. Water rights provides an innovative solution to help address water scarcity by facilitating its efficient allocation.

Water rights refers to the practices of buying and selling surface water or groundwater allocation entitlements. It allows water rights holders to purchase water from willing sellers and transfer it to higher valued uses. The key participants in water rights are irrigation districts, local governments, industry, and environmental water holders.

Water rights has existed informally for decades through occasional one-off transfers. However, over the past 20 years formal water markets have emerged across Australia and parts of the United States to better match water supply with demand. In a Water Trading market, water rights are securely defined and can be freely bought and sold through a transparent price mechanism.

Challenges of Implementation
While water trading has succeeded in improving allocative efficiency, some challenges remain in fully optimizing its implementation. Establishing clear and transparent water property rights is critical but complex given hydrological connections and third-party impacts. Monitoring and compliance also require resources to ensure water savings from trades are realized and not negated by certain groups.

Additionally, upfront infrastructure investments are sometimes needed to physically deliver traded water between markets. Water quality considerations must be addressed when trades concentrate pollutants in some catchments. Distributional impacts also persist as irrigators transition to a market with more variable incomes. Resolving such issues will strengthen the social license and overall welfare gains from trading.

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