Pricing water for environmental externalities in Western Australia

It is one of the premises of the Intergovernmental Agreement on a National Water Initiative that pricing water use for the environmental externality effects would contribute to the more sustainable use of water resources. This article explains the concept of the environmental externalities and the National Water Initiative pricing principles, considers the techniques of externality pricing and reviews the legal (constitutional and statutory) authority of the Western Australian government to set prices for water that include the costs of environmental externality effects of water use. It argues that the price of water to the licensed user and, subsequently, to the customers of water suppliers could reflect the annually determined scarcity of water in the surface or ground water system from which the water is taken. The article concludes with a discussion of the application of funds collected from the environmental externality pricing.