Water Market Development in the Yellow River Basin: Challenges and Opportunities

The MDB water market facilitates the trading of two types of water rights: (a) water entitlements (permanent water), categorized as high-security, general-security, or low-security entitlements, and (b) water allocations (temporary water), the seasonal allocation received by specific water entitlements [46]. The volume of water allocated to water entitlement holders during a given water year depends on the available water in storage, system losses, demand projections, delivery capacity, and other pertinent considerations [47,48]. As a result of the MDB’s characteristics, various forms of water rights trading have emerged. In Victoria, water entitlements are converted into water stock, endowing water resources or water rights with clear property rights and tradable attributes [49]. The water markets in different western US states have developed differently, and there are diverse forms of water rights trading tailored to each state’s market characteristics. These include water rights transfers, water banking, dry year options, etc. [40]. California’s “water banking” system, which serves as an intermediary for water rights transactions, provides an excellent example for optimizing water resource allocation [50]. In Chile, water rights trading includes short-term water rights trading among farmers, long-term water rights trading among farmers, and water rights trading between farmers and urban water users. Due to the government’s loose control over the water market, a water leasing system has spontaneously formed [51]. In the MDB, the western US, and Chile, forms of water rights trading with local characteristics have been established based on their respective water market developments, fully leveraging the financial attributes of water rights. Clearly, more diverse forms of water rights transactions can significantly enhance people’s willingness to participate in water rights transactions and increase the activity of the water market, and the free circulation of water rights in the market is conducive to improving water resource utilization efficiency. There is still huge space for the development of forms of water rights trading in the YRB, and the financial attributes of water rights are yet to be fully leveraged. Transaction prices are important, influencing water rights trading [52], and reducing transaction costs can promote water market-based transfers. The MDB has reduced transaction costs by lifting water trade restrictions [53], while the state of Colorado has lowered the cost of water rights transactions through making modifications to its water laws [40]. Chile’s implementation of the “water leasing” system has also helped reduce transaction costs [54].