River regulation has significantly altered the volume and frequency of overbank flooding in many river basins world-wide. In the semi-arid Murray-Darling Basin in Australia, climate change is also likely reduce the quantity and increase the variability of freshwater supplies. Under these conditions, the allocation of scarce resources to the environment in a way which maximizes ecological benefit and minimizes impact on consumptive users is a key challenge. A possible policy option to address this is the use of annual environmental water trade managed by an environmental water holder. To investigate the impact of this policy option, we develop a stylized annual hydro-economic simulation model of the Murrumbidgee sub-catchment. We employ the ecosystem services cascade typology to quantitatively describe the link between the hydrological regime, ecological change and economic value. A three-state carbon sequestration model is developed for the Murrumbidgee River Red Gum (Eucalyptus Camaldulensis) floodplain forests linking tree health (steady, improving, declining) to carbon sequestration potential. Modelling results indicate that annual environmental water trade can aid in maintaining floodplain ecosystem services under water scarce conditions by improving the inter-annual distribution of overbank flooding. Our results suggest that when faced with a changing climate, there is merit in widening the discourse about environmental water to include additional value characteristics, particularly the temporal distribution of environmental water to maintain ecosystem functions.