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IAAE 2006 Water Policy Reform
Much in common India, Vietnam, NZ, China, Australia and USA
Important Observations Substantial gains from trading
But be careful, look beyond water prices and markets (infrastructure, governance)
Setting up markets is a long and tortuous process
Issues Savings – who gets them?
Governance – what structure for large systems?
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IAAE 2006 Water as commodity
1. Input into production system
Intensive margin (Technology)
Extensive margin (Land-use change)
2. Supplier of unpriced ecosystem services
3. Ground and surface systems are connected
Efficient production of all goods and services is the goal
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IAAE 2006 Top down v’s bottom up market development
• China and India are trialling bottom-up Evolving
Progressively expanding the scale
• Australia now trying to align its systems
• Research Questions
1. Decide where and how entitlements should be defined
How many types?
Farmer, village, regional and system level?
2. Governance systems that work across scales – who is responsible
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IAAE 2006Social v’s Private Contracts – Meenakshi
Social Contract (equity)
Private Contract
Tube well owners also have land without wells
Repeat player game
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IAAE 2006 Vietnam – Jim, Mark & Claudia
“Charge-subsidy” reveals problem with pricing approaches Unusual way of describing the first step in a
process of assigning quasi-entitlements and eventually establishing entitlement and allocation markets
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IAAE 2006 Starting up markets – Irene Parminter
•Very difficult to begin, systems takes time to build.
•China is trialling bottom-up approach
•Australia fixing up problems that a plethora of systems created
•NZ is searching for a template for unregulated, fast changing systems
How many formal products in one region?
•Sequencing is critical Markets can allow you to trade into trouble and increase the cost of fixing
problems
•Theory Trading prices for scarcity Then only have to get a supply charges and contracts right and manage
externality
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IAAE 2006 China – Jinxia, Ric and Steve
Moving to trade but have not started on price
Challenges Urban-Rural transfer (Australia & USA too)
Rural-Environment
Major warnings Infrastructure capacity
Supply reliability (India on electricity)
g-water connectivity
Yellow River over-allocation solved administratively! (After 17 in 20 yrs no flow it reflowed in a drought)
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IAAE 2006Climate change and over-allocation John Quiggin
Need state-contingent allocation rules
Market v’s administrative control of storage?(Dams stop small floods)
Unbundle at two scales Individual and system level
Design of robust instruments to manage for system uncertainty is in its infancy
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IAAE 2006 Salinity and Wetlands – Keith & David
Reuse provides opportunity
Discounting
Compensating projects
Permit trading and banking
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IAAE 2006 Environmental water management - Anna Heaney
As markets develop more and more products will emerge
State contingent instruments (Portfolio) Entitlements
Option contracts
Leases
•Counter-cyclic trading has big potential but has challenging governance implications
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IAAE 2006 Frontiers
1. Governance (Institutions)
2. Accounting
• Flow reducing activities (risks)
• System losses
3. Exchange rates
4. Infrastructure management (Privatize?)
5. Third party aspirations
6. Communication
IAAE 2006 Design
Contact:
Prof Mike YoungWater Economics and ManagementEmail: [email protected]: +61-8-8303.5279Mobile: +61-408-488.538