Australia’s Darling River…provided fresh water to farmers seeking to tame Australia’s rugged interior.  No longer. The Darling River hasn’t flowed for eight months, with long stretches completely dried up. A million fish died there in January 2019.  Kangaroos, lizards and birds became sick or died after drinking from toxic pools of stagnant water.  Australia’s water-trading market is drawing blame. The problems with the system, created more than a decade ago, have arisen as similar programs are being considered in the U.S.

Water crises are unfolding across the world as surging populations, industrial-scale farming and hotter temperatures deplete supplies.  Australia thought it had the answer: a cap-and-trade system that would create incentives to use water efficiently and effectively in the world’s driest inhabited continent. But the architects of water trading didn’t anticipate that treating water as a commodity would encourage theft and hoarding.   A report produced for a state resources regulator found the current situation on the Darling was caused by too much water being extracted from the river by a handful of big farmers. Just four license holders control 75% of the water extracted from the Barwon-Darling river system.

The national government, concerned that its water-trading experiment hasn’t turned out as intended, in August 2019 requested an inquiry by the country’s antitrust regulator into water trading.  Anticorruption authorities are investigating instances of possible fraud, water theft and deal making for water licenses. In one case, known as Watergate, a former agriculture minister allegedly oversaw the purchase of a water license at a record price from a Cayman Islands company co-founded by the current energy minister. The former agriculture minister said he was following departmental advice and had no role in determining the price or the vendor. The energy minister said he is no longer involved with the company and received no financial benefit from the deal.

Since 2007, Australia has allowed not only farmers but also investors who want to profit from trading to buy and sell water shares. The water market is now valued at some $20 billion.    But making water valuable had unintended consequences in some places. “Once you create something of real value, you should expect people to attempt to steal it and search for ways to cheat,” says Mike Young, a University of Adelaide professor. “It’s not rocket science. Manage water like money, and you are there.”  Big water users have stolen billions of liters of water from rivers and lakes, according to local media investigations and Australian officials, often by pumping it secretly and at night from remote locations that aren’t metered. A new water regulator set up in New South Wales investigated more than 300 tips of alleged water thefts in its first six months of operation.  In 2018, authorities charged a group of cotton farmers with stealing water, including one that pleaded guilty to pumping enough illegally to fill dozens of Olympic-size swimming pools.  Another problem is that water trading gives farmers an incentive to capture more rain and floodwater, and then hoard it, typically by building storage tanks or lining dirt ditches with concrete. That enables them to collect rain before it seeps into the earth or rivers.

The subsequent water shortages, combined with trading by dedicated water funds and corporate farmers, have driven up prices. Water in Australia’s main agricultural region, the Murray-Darling river basin, now trades at about $420 per megaliter, or one million liters, compared with as low as $7 in previous years.  David Littleproud, Australia’s water-resources minister, says 14% of water licenses are now owned by investors. “Is that really the intent of what we want this market to be?” he asks. “Water is a precious commodity.”

Excerpts from Rachel Pannett , The U.S. Wants to Adopt a Cap-and-Trade Plan for Water That Isn’t Working, WSJ, Sept. 4, 2019