Irrigation induced salinity is a serious problem in many countries around the world. In Australia, this type of salinity is most pronounced in the valley of the River Murray in South Australia. Location of irrigation enterprises has been identified as a key factor that needs to be taken into account by policies aimed at mitigating salinity. This article compares and contrasts two such policies: an irrigation zoning policy, where new irrigation enterprises are only allowed in low salinity impact zones, and an offsetting with salinity credits policy, where new irrigation enterprises can locate in high salinity impact zones, provided they offset their salinity impact with salinity credits. Key findings are that the offsetting policy will be both less costly and more effective in reducing salinity than a standalone irrigation zoning policy. This is due to the presence of incentives for choosing "optimal" location of irrigation enterprises when costs of salinity credits are taken into account.


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