Water resource economics

Economics helps develop market-based solutions that encourage efficient development and allocation of scarce water resources.

We use economic principles that crystallise the problem and combine this with an in-depth understanding of the operational, regulatory and behavioural factors that influence water allocation.  We work with engineers, scientists, lawyers and market researchers to make sure that proposed solutions are technically feasible.

Frontier has contributed to government policy papers considering ways to create sustainable water trading regimes. And we have advised companies on the commercial advantages and disadvantages of proposed changes.

Case Study: Water trading in Australia
Water scarcity has been a critical issue in Australia for many years. In the mid-1990s, Australian governments recognised that over use was causing significant environmental damage.

Water trading was considered as a way of achieving specific environmental results. The government did this by fixing the quantity of water that could be taken and by allowing licence holders to trade licences (in much the same way as carbon credits can be traded in the EU emissions trading scheme). This enabled market prices for water to adjust. Trading was seen as a way of ensuring that water resources were put to their best use. It was also considered to be a highly adaptable mechanism: reducing the cap enabled changes in future water availability to be easily managed. This is important, given the uncertainty surrounding the impact of climate change.

For more details read our Bulletin, Liquid Markets