“Developing a Water Market Readiness Assessment Framework”
12th Annual Meeting IWREC, World Bank, 13th Sept 2016
Sarah Wheeler, Adam Loch, Lin Crase, Mike Young & Quentin Grafton
Centre for Global Food & Resources
The need for markets?
• Far greater demand than supply of water resources– 55% gap by 2050
– Supply augmentation options limited
– Demand incentives (e.g. pricing) work to a point
• But … practical understanding of the usefulness and implementation realities of water markets is limited
• Once it reaches scarcity it may already be too late to intervene cost-effectively
• Arguments of efficient reallocation v. vulnerable party impacts
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Terminology
• i) Short-term or temporary transfers of water that is already allocated and available for immediate use;
• ii) Medium-term leasing of water allocations in a manner that enables a water user to plan secure access to water for a period of time; and
• iii) Permanent transfers of water entitlements - the on-going property right to either a proportion or fixed quantity of the available water at a given source.
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More is needed to make them work!
BUT:
• Water is complex and fugitive
• Trade is often costly to effect
• Third-party impacts may arise
SO:
• It does not necessarily solve socio-economic issues around water use, nor readily address environmental externalities
There are lots of things to consider:
• Grafton et al. (2011)
– Allocation of rights, legal frameworks, administrative capacity and nested arrangements
• Perry (2013)
– Accounting, bargaining, codification, delegation and feedback
• Young (2014)
– Break rights into component parts, assign institutions to set objectives, ensure hydrological integrity, minimise transaction costs etc.
• OECD (2015)
– 14-point health check on water institutions
The list is complex and arduous; many contexts will struggle to comprehend the complexity and requirements, and will often end up with ‘accidental’ rather than planned market arrangements.
This drives negative perceptions of, and higher transaction costs in, water market formation.
We seek to address this in our paper.
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Methodology: Stage One
– Instigated by the National Water Commission (2005-2015)
– Expert Panel basis
– Identify prerequisites
– Establish structured yet non-prescriptive arrangements to evaluate the need for, and path towards, water markets
– Review lessons from Murray-Darling Basin in Australia
= set of market enabling and constraining factors
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• 1,000,000 km2
• 14% of Australia (size of Spain & France)
• 80% of basin is agriculture• 60% of Australia’s
irrigation • 40% of Australia’s farmers• Australia’s “Food Bowl”• Population 2,000,000; • Supports 20 million• 5 jurisdictions • Significant environmental
values• Australia’s three longest
rivers• Home to 34 major
Indigenous groups• Drought is the recurring
issue
The Murray Darling Basin (MDB)
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Fundamental Issues Key example questions to guide discussion/thinking
Property Rights:
Unbundled, individuals versus
environment, risk assignment,
adaptive etc.
Does legislation exist which gives a clear understanding of rights to water
for individuals/corporations and other legal entities? If so, is the degree of
attenuation clear, and which legislation (or pieces of legislation) are
pertinent?
Hydrology:
Connected systems, salinity and
water quality considerations, limit
& consequences of breach →
environment → end of system, do
we know what we don’t know etc.
Is the hydrology of the system well understood, well documented, and
monitored and reported on in a way that is supportive of trade and is
sympathetic to:
The resource constraint, and
The extent to which the knowledge of the resource is complete?
Adjustment:
Heterogeneity → Gains from
trade, societal pressures, early-
mover advantage etc.
Is there a sufficiently diverse (potential) market for water use in the system
so as to facilitate trade (willing buyers and sellers with different use
profiles in terms of value add per $ of water) and what is the likely
magnitude of these gains (ex-transaction costs)?
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Fundamental Issues Key example questions to guide discussion/thinking
State Planning:
Legislation, water sharing plans,
registers, information availability,
water allocation announcements,
compliance etc.
Are enabling resources such as information, planning resources and
registers available, reliable and trustworthy?
System Type:
Regulated/unregulated, surface
water/groundwater, connectivity
etc.
What is that status of infrastructure and what are the costs of accessing
water in the system, and at various parts of the system?
Material Externalities &
Governance Considerations:
Sleeper/dozers, known change of
use and hydrology inputs,
unregulated “use”, metering,
compliance, information, reversal
decisions etc.
Does the supplier have the systems, resources and technology to monitor
use, and to ensure use is within licences/entitlements?
Methodology: Stage Two
Jurisdictional case studies:
1. USA
2. Spain
3. Tasmania
• Test the framework and questions in these contexts
• Global focus long-term
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Nevada, USA
• Unsustainable groundwater aquifer use
• Recognition that new allocation regime and trade could provide long-term viability
• 5-year trial of sequenced reforms to achieve this
• If not convinced at end, revert to existing rights
• Capital increase expected
• Unbundling now agreed to
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Guadalquivir, Spain
• EU blueprint country for water trade
• Drought and over extraction scarcitydrivers
• High groundwater use, that is illegal but not curtailed
• High transaction costs to trade – consolidated rights
• Advanced reforms, but caps on further use, rights unbundling, administrative capacity building and private transformations toward reliance on trade are necessary
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Tasmania, Australia
• Very recent irrigation development basedon private-public partnership modeland business-case
• Uses National Water Initiative as thebasis for assessment and trade
• Ability to learn from past mistakes in MDB
• Investments in administration, registers, trade platforms, information gathering, farm planning and reduced barriers to trade
• Environmental externalities also accounted for
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Step 1:
Background
context
Step 2: Market
evaluation,
development and
implementation
Step 3: Monitoring
and continuous
review/ assessment
Hydrology
considerations and
system type
Existing planning and
property right
arrangements
Potential benefits from trade?
Basic assessment of costs and benefits:
- externalities
- governance/institution costs
- transactions costs
- number of users/sectoral activity
Yes NoMarket scale:
Management regime
commensurate with
potential market/trading
activities
Market initiating change II -
water market institution changes
(e.g. trade rules, registers)
Trade enabling mechanisms:
Monitoring externalities and new
market developments. Changes as
required
Maintain status quo: -
with enablers for trade and
further monitoring if
future demand or context
changes
Market initiating change I -
water market policy changes (e.g.
legislation, plans)
Case study:
Diamond
Valley, USA
Case study:
Tasmanian
Irrigation,
Australia
Case study:
Guadalquivir
Basin, Spain
The WMRA – Water Market Readiness Framework
Highlights:• Underlines importance of
property right unbundling
• Sequencing of reforms is critical in each jurisdiction
• Never waste a good crisis!
• Water markets are not the be-all and end-all for water management issues
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Methodology: Stage 3
– Current UNESCO project
– International context tests (China & Italy)
– We want to expand this further to a book or larger project with case studies across a wide number of countries
– Apply the questions with experts to determine case study specifics and trial the usefulness of the WMRA across contexts
= generalisability indicators of the framework – or weaknesses to be addressed
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