Economics of Water Recovery in the Murray-Darling Basin, Australia

We review recent water reforms and the consequences of water recovery intended to increase stream flows in the Murray-Darling Basin (MDB), Australia. The MDB provides a natural experiment of water recovery for the environment that includes (a) the voluntary buy-back of water rights from willing sellers and (b) the subsidization of irrigation infrastructure. We find that (a) the actual increase in the volumes of water in terms of stream flows is much less than claimed by the Australian government; (b) subsidies to increase irrigation efficiency have reduced stream and groundwater return flows; (c) buy-backs are much more cost effective than subsidies; (d) many of the gains from water recovery have accrued as private benefits to irrigators; and (e) more than a decade after water recovery began, there is no observable basin-wide relationship between volumes of water recovered and flows at the mouth of the River Murray.