Transcript A Manual for Implementing Integrated Groundwater Management

A Manual for Implementing
Integrated Water Management:
The Economic Perspective
DR. PHOEBE KOUNDOURI
Senior Lecturer in Economics
School of Business
Department of Economics
UNIVERSITY OF READING
http://www.rdg.ac.uk/economics/koundouri.html
Co-ordinator of ARID Cluster of Projects
European Commission 5th Framework Programme
Key Action "Sustainable Management & Quality of Water"
Energy, Environment and Sustainable Development
http://www.arid-research.net
Senior Research Fellow
Member Groundwater Management Advisory Team
Department of Economics and CSERGE
GW_MATE, The World Bank
UNIVERSITY COLLEGE LONDON
http://www.worldbank.org/gwmate
http://www.econ.ucl.ac.uk/index.phn
http://www.cserge.ucl.ac.uk/Koundouris_Cvweb.pdf
1
3-step approach
Step 1
Economic characterization
of the river basin
Step 2
The assessment of the recovery of
the costs of water services
Step 3
The economic assessment of potential
measures for balancing
water demand & supply
2
Step 1:
Economic characterization of the river basin &
identification of significant issues
Step1_A.
Evaluation of the economic significance of
water in the region.
Step1_B.
Identification of key economic drivers
influencing pressures and water uses.
Step1_C.
How will these economic drivers evolve over
time & how will they influence pressures?
Step1_D.
How will water demand and supply evolve
over time & which problems their paths are
likely to cause?
Time & Money Constraints Define the Detail of Step 1!
Construct
Baseline
Scenario
3
Step1_A. Evaluate the Economic Significance
of Water Uses in the Region




Residential (e.g. population connected to public water supply
system, population with self-supply, number of water supply
companies, etc.).
Industrial (e.g. turnover for key sub-sectors, employment in
sectors, etc.)
Agricultural (e.g. total cropped area, cropping pattern,
livestock, gross production, income, farm population, etc.)
Tourism (e.g. total number of tourist days, daily expense per
tourist day, employment and turnover in the tourism sector,
etc.)
4
Step1_B. Identify Key Economic Drivers
Influencing Pressures and Water Uses





General socio-economic indicators and variables (e.g.
population growth, income, employment).
Key sector policies that influence significant water uses (e.g.
agricultural and environmental policies).
Production or turnover of main economic sectors /
significant water uses.
Implementation of planned investments linked to existing
regulation, likely to affect water availability.
Implementation of future (environmental and other) policies
likely to affect water uses.
5
Step1_C. Evolution of Economic Drivers &
their Influence on Pressures

Trend
variables



Critical
Uncertainties
Water Policy
Variables




Changes in demographic factors, e.g. population growth in specific
urban areas.
Economic growth and changes in economic activity composition,
e.g. changes in the relative importance of services/sectors.
Changes in land planning, e.g. new areas dedicated to specific
economic activities, etc.
Changes in social values and policy drivers, e.g. globalization.
Changes in natural conditions, e.g. climate changes.
Changes in non-water sector policies, e.g. changes in agricultural
policy or industrial policy that will affect production and
consumption in economic sectors.
Planned investments in the water sector, e.g. for developing water
services, for restoring the natural environment/mitigating for
damage caused by given water uses.
Development of new technologies likely to impact water use for
industrial production and related pressures.
6
Step1_D. Evolution of Demand and Supply


-
-
-

-
Apply appropriate methodologies to assess sector-specific
water demand.
Derive:
marginal value of water in consumption and production
price and income elasticity of demand
marginal/average WTP for public goods & quality changes of common
access resources
risk parameters (production and consumption)
Identify economic measures/instruments to balance demand &
supply if a ‘gap’ is identified:
Water supply will be allocated among competing demands
Aggregate demand will expand until marginal benefit is equal to
marginal social cost of supply
7
Estimating Demand in Step 1 – An Example
i. Identification of Sector Water Demands in the Watershed Area
Households
Industry
Agriculture
Environment
ii. Valuation Techniques for Specific Types of Water Demand
Use Value
Non-use
Input in Production:
Consumption Good:
Amenity/Recreation:
Existence values:
• Profit or Cost
Function Approach
• Econometric
Demand Estimation
• Travel Cost Method
• Mathematical
Modelling
• Cost Function
Approach
• Hedonic Analysis
• Contingent
Valuation
Methodology
• Residual Analysis
• Hedonic Analysis
• Choice
Experiments
8
Methodology for Constructing Baseline
Scenario Using Parameters from in Step 1
1



Consider three possibilities of evolution of population.
Consider two possibilities of evolution of demography of other cities in the region.
Consider possible evolution of rural population.
2
Build scenarios using basic assumptions and quantify the water balance with these assumptions.
3
Apply step two over time.
4
Based on steps 1,2,3, imagine a plot that tells the story of the system from now until at least
2030, giving consistency to the assumptions and water balance curves.
9
How to apply the ‘Baseline scenario’?
Starting from initial
status it is possible
to elaborate a
baseline scenario.
The baseline scenario
refers to the situation
without doing
anything else than
planned today.
Measures to
close the
gap are
needed!
Water Balance/
‘Good Water
Status’
gap
Initial status
2003
2015
Date at which ‘Water Balance’
should be met.
2021
10
Step2:
Assess Cost-Recovery of Water Services
Step2_A.
How much do current water services cost?
Step2_B.
Who pays these costs?
Step2_C.
What is the current cost-recovery level?
Step2_D.
Propose cost-recovery mechanisms.
11
Step2_A&B. Current cost of services
Who pays for these costs?


Estimate costs of groundwater services by sector.
Do users and/or institutional mechanisms recover these costs?
12
Step2_C. Current cost-recovery level.
Elements to be investigated:





Status of key water services (e.g. number of persons
connected).
Costs of water services (financial, environmental & resource
costs).
Institutional set-up for cost-recovery (e.g. prices and tariff
structure, direct & indirect subsidies, cross-subsidies).
Contribution from key water uses to the recovery of costs.
Resulting extent of cost-recovery levels, linked with the
affordability for water users.
13
Step3_D. Identify potential cost-recovery
mechanisms?
Potential cost-recovery mechanisms:
-
Selling permits for water abstraction/pollution.
Taxes on abstraction/pollution.
Charges for the use of the irrigation system.
Charges on energy used, etc.
Possible subsidies/transfers involved:
- Subsidies to low-income households (mainly for
agricultural water use)
- Capital subsidies on investments in infrastructure,
irrigation system, etc.
14
Step3:
The economic assessment of potential
measures for reaching good water status
Step3_A.
Identify least-cost set of measures.
Step3_B.
Assessment of cost of measures.
Step3_C.
Assessment of the impact of measures on
economic sectors/uses.
Step3_D.
Are costs of measures disproportionate?
15
Step3_A. Search for Least-Cost Set of
Measures




Economic instruments (e.g. abstraction/pollution taxes,
tradable permits, subsidies).
Measures to increase awareness regarding water scarcity,
aiming at reducing abstraction/pollution.
Direct controls on pollution dischargers.
Agri-environment programs providing financial and technical
assistance for, e.g. reallocation of crop production mix over
agricultural land, adoption of water-saving technologies
coupled with land-allocation restrictions, etc.
16
Step3_B. Assessment of Cost of Measures
- Estimate a range of costs along with key parameters influencing
costs over time (cost change with developments in sectors).
Financial costs
- capital costs
- operation and maintenance
- administrative costs
Indirect costs
- non-water related environmental
charges/taxes
- changes in environmental quality
- costs of preventive and mitigation
measures
- Allocate costs of measures to water users and identify winners and
losers, in order to potentially feed into the analysis of
disproportionate costs to justify derogation (Step3._D).
17
Step3_C. Impact of Measures on Key
Economic Sectors/Uses

-

-

Net impacts on public expenditures and revenues: e.g.
impacts on expenditures for agri-environment schemes
revenues of economic instruments
impacts of changes in the prices charged for publicly owned
water services.
Wider economic and social impacts: e.g.
significant changes in patterns of employment
economic impacts on industries & local economic development
from changes in the price of water supply, level of
discharges and water quality.
Effects on the retail price index and inflation.
18
Step3_D.
Disproportionate Costs/Derogation
Important for
budget-constrained
developing countries!
Disproportionality
If the achievement of good water status has
significant adverse effects on the wider environment
& human activities.

Measures to improve water
quality are expensive
If the beneficial objectives served by the artificial
or modified characteristics cannot reasonably be
achieved by other means.

Heavily Modified Water bodies
Water bodies substantially changed in character
as a result of physical alterations by human activity.
Less stringent
objectives
Time derogation
!! Disproportionality is a political judgment informed by economic information !!
- Disproportionality does not begin when measured costs exceed quantifiable benefits.
- The margin of excess costs should be appreciable & have a high level of confidence.
- Disaggregated analysis to the level of separate socio-economic groups and
sectors is needed, especially if the ability to pay is an issue for a particular group.
19
Summary of the
3-Step Methodology
Economic analysis needs
to be integrated with other
field expertise (hydrology,
geology, engineering,
sociology, etc.) and be
considered all along the
management & decisionmaking process.
1- Characterisation of the river basin




economic significance of water uses
trends in key indicators and drivers
dynamic path of demand and supply of water
gaps in water status by the agreed date of meeting ‘water balance’?
2- Assess current cost-recovery



how much water services cost and who pays this cost?
how much of this cost is recovered?
potential cost-recovery mechanisms
3- Identification of measures and economic impact




construction of a cost-effective programme of measures
assessment of cost-effectiveness of potential measures
financial & socio-economic implications of the programme of measures
20
are costs disproportionate?
Derogations