Heterogeneity, Heterogeneity, incentives and incentives and

sustainable water usesustainable water use

Karina Schoengold Karina Schoengold

David ZilbermanDavid Zilberman

Renan GoetzRenan Goetz

Population trends and waterPopulation trends and water

Global world population have grown fromGlobal world population have grown from 1Billion people in 1800 to1Billion people in 1800 to 2.5 Billion in1950 to2.5 Billion in1950 to 6 Billion in 2000 to ?6 Billion in 2000 to ? 11 Billion ? 17 Billion ? 6 Billion in 210011 Billion ? 17 Billion ? 6 Billion in 2100 With population growth cameWith population growth came

Increase in water use per CapitaIncrease in water use per Capita

Heterogeneity and conflictHeterogeneity and conflict Some countries (Canada) are water rich-Some countries (Canada) are water rich-Other (Jordan) are water poorOther (Jordan) are water poor

-but even Canada has deserts -but even Canada has deserts Provides opportunity to tradeProvides opportunity to tradeDiversity of interest drought prevention vs. flood controlDiversity of interest drought prevention vs. flood control Conflicts about irrigated agricultureConflicts about irrigated agricultureIn dry regions In dry regions Agricultural may use up to 80% of water-Agricultural may use up to 80% of water-Environment and urban sector are expanding their Environment and urban sector are expanding their

demanddemand

Benefits of irrigationBenefits of irrigation

Irrigation allowed us to overcome population Irrigation allowed us to overcome population growthgrowthIrrigated land has increased from 50 mha (million Irrigated land has increased from 50 mha (million hectares) in 1900 to 267 mha today. hectares) in 1900 to 267 mha today. Between 1962 and 1996 the irrigated area in Between 1962 and 1996 the irrigated area in developing countries increased at 2% annually.developing countries increased at 2% annually.

The 17% irrigated land is producing 40% of global The 17% irrigated land is producing 40% of global foodfood

The value of output of irrigated cropland is about The value of output of irrigated cropland is about $625/ha/year ($95/ha/year for rain-fed cropland and $625/ha/year ($95/ha/year for rain-fed cropland and $17.50/ha/year for rangelands).$17.50/ha/year for rangelands).

The high productivity of agriculture slowed The high productivity of agriculture slowed expansion of deforestation.expansion of deforestation.

Perception water supply Perception water supply crisiscrisis

Water consumption in 2000 is 4-5 times Water consumption in 2000 is 4-5 times as in 1950as in 1950

Most the “obvious” sources for Most the “obvious” sources for diversion are useddiversion are used

We will need more water to We will need more water to accommodate more peopleaccommodate more people

There is appreciation for environmental There is appreciation for environmental services of waterservices of water

More bad newsMore bad news The capital costsThe capital costs of water projects have been of water projects have been

underestimated. A recent study of 81 dams found that underestimated. A recent study of 81 dams found that the average cost overrun was 56%the average cost overrun was 56%

Environmental costEnvironmental cost - lose of habitat - lose of habitat Increase of water and land salinityIncrease of water and land salinity

Soil Salinity reduce productivity of 20% of irrigated Soil Salinity reduce productivity of 20% of irrigated land 1.5 million hectares of these lands are land 1.5 million hectares of these lands are deserted annuallydeserted annually

Water logging Costs 11Billion annuallyWater logging Costs 11Billion annuallyGround water depletion Ground water depletion 8% of India’s food produced with depleted aquifers8% of India’s food produced with depleted aquifers

In 1973 3% of India's groundwater pumped below 10 In 1973 3% of India's groundwater pumped below 10 meters in 1994 46%. meters in 1994 46%.

Social Social ConcernsConcerns

Water born diseasesWater born diseases kill 4-5 million annuallykill 4-5 million annually

DisplacementDisplacement 40 – 80 million people has been displaced 1950-9940 – 80 million people has been displaced 1950-99. .

International conflicts and water supply. International conflicts and water supply.

Sustainability and Sustainability and managementmanagement

.There is a perception of water supply crisis,but .There is a perception of water supply crisis,but we have a water we have a water managemenmanagement crisist crisis..

Improved Improved policies and incentivespolicies and incentives can address can address water supply and quality concern and lead to water supply and quality concern and lead to sustainabilitysustainability

SustainabilitySustainability- - Environmental quality levels Environmental quality levels and natural resource resource stocks are above and natural resource resource stocks are above target levels target levels

Causes & Solutions of Causes & Solutions of water situationwater situation

Water institution respond to Water institution respond to scarcityscarcity and and political economypolitical economy

We will argue that changes in conditions We will argue that changes in conditions requires institutional transitionrequires institutional transition

Economics is crucial in transition design,yet it Economics is crucial in transition design,yet it has been under usedhas been under used

Heterogeneity is essential feature of water Heterogeneity is essential feature of water system and should be integrated in analytical system and should be integrated in analytical frameworkframework

Factor affecting the emergence Factor affecting the emergence of water Institutionsof water Institutions

Water institutions are affected byWater institutions are affected by Water ScarcityWater Scarcity Government ability to tax and finance projectsGovernment ability to tax and finance projects Policy objectives-growth vs. environmental qualityPolicy objectives-growth vs. environmental quality

Water abundance +Water abundance +Financially weak government+Financially weak government+

Desire for growthDesire for growth lead to lead to Water rights (Water rights (prior appropriationprior appropriation)) Water abundance +Water abundance + Financial resources availability+Financial resources availability+ Desire for growthDesire for growth lead to lead to Public supply projects Public supply projects

+subsidies+subsidies

The emergence of water The emergence of water InstitutionsInstitutions

Water scarcityWater scarcity leads toleads to water tradingwater trading

Financial crunchFinancial crunch leads toleads to Privatization of suppliesPrivatization of supplies Environmental concernsEnvironmental concerns lead to lead to Water quality Water quality

regulations + Environmental purchasing regulations + Environmental purchasing fundsfunds

Equity concernsEquity concerns leads toleads to regulated regulated pricing+subsidiespricing+subsidies

The Tricky TransitionsThe Tricky Transitions

Transition from Transition from water rightswater rights to to water marketwater market Introduction of Introduction of water quality regulationswater quality regulations Introduction of new innovations is very Introduction of new innovations is very

challengingchallenging Economists and scientist can recommendEconomists and scientist can recommend but but Politician have to deliverPolitician have to deliver

Understanding of policy process can lead to Understanding of policy process can lead to effective designseffective designs

Transitions are not alikeTransitions are not alike Timing, History,Transaction cost , Political economy and Timing, History,Transaction cost , Political economy and

preferences affect transitions preferences affect transitions Transition may be gradualTransition may be gradual-the transition towards water -the transition towards water

trading in most locations takes yearstrading in most locations takes years Yet Crises trigger transitionsYet Crises trigger transitions

Depletion of ground water leads to surface water projectsDepletion of ground water leads to surface water projects San Fernando valley flood led to building dams upstreamSan Fernando valley flood led to building dams upstream Long Draughts lead to migrations (American Indians), storage Long Draughts lead to migrations (American Indians), storage

(Joseph and Pharaoh(Joseph and Pharaoh))

Systems are rigid - a threshold have to be crossed (Dixit Systems are rigid - a threshold have to be crossed (Dixit Pyndick) to overcome political economy constraints Pyndick) to overcome political economy constraints (Rausser Zussman) and transition costs (Shah (Rausser Zussman) and transition costs (Shah &Zilberman) to introduce change&Zilberman) to introduce change

Economics based approach to Economics based approach to water management reformwater management reform

leading to sustainabilityleading to sustainability

We will present incentives and policies to We will present incentives and policies to improve:improve: Water project design Water project design Water pricing allocation and conveyanceWater pricing allocation and conveyance Micro level choicesMicro level choices Water qualityWater quality

II.Improved water projects design.Improved water projects designRely on social benefit cost analysis Rely on social benefit cost analysis Consider projects with positive expected NPV Consider projects with positive expected NPV

&resources should be valued by their societal &resources should be valued by their societal value value Capital subsides and under-costing the environment Capital subsides and under-costing the environment lead to lead to oversized projectsoversized projects Learning is crucialLearning is crucial-delay is worth while-invest when it is -delay is worth while-invest when it is

optimal not at first moment when NPV is positiveoptimal not at first moment when NPV is positive

Project design should include nonstructural solutionsProject design should include nonstructural solutions--bring the economists and biologists to the design processbring the economists and biologists to the design process

Consider future costsConsider future costs water logging cost and drainage water logging cost and drainage

Benefit cost analysis Benefit cost analysis and project designand project design

Water projects make fortunes and political Water projects make fortunes and political careers-”careers-”too importance to leave to economicstoo importance to leave to economics”. Some ”. Some yield high returns yield high returns most do notmost do not

Budgetary constrains led to economic scrutiny in U.S.-Budgetary constrains led to economic scrutiny in U.S.-projects require to pass benefit cost tests projects require to pass benefit cost tests

The application of benefits cost analysis reduced the The application of benefits cost analysis reduced the number of new projects and reduced delivery of number of new projects and reduced delivery of political porkpolitical pork

Politicians and interest groups are working to exempt Politicians and interest groups are working to exempt projects from benefit cost requirementprojects from benefit cost requirement

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Despite formal requirement to use benefit cost Despite formal requirement to use benefit cost analysis- projects are not efficientanalysis- projects are not efficient

Economics is not used for projects designEconomics is not used for projects design

Under emphasis on non structural solutionUnder emphasis on non structural solutionNeed more ex post studies on return from projectsNeed more ex post studies on return from projects..

Beyond benefit cost analysisBeyond benefit cost analysis Projects assessment should not only decide Projects assessment should not only decide if if

to build or notto build or not but also but also when when to do it, to do it, Adaptive learning (AL):Allow flexibility to Adaptive learning (AL):Allow flexibility to

resolve uncertainty about preferences or resolve uncertainty about preferences or technologies-technologies-delayed decisions allow learningdelayed decisions allow learningCare is especially important in Care is especially important in cases of irreversibilitycases of irreversibility

Projects should be apart of a multi tool Projects should be apart of a multi tool strategy. strategy. Incentives(Incentives(water price) may be used to water price) may be used to

reduce project size or delay its start. reduce project size or delay its start. For unique and new problems-For unique and new problems-Investment in Investment in

appropriate R&Dappropriate R&D may lead to projects may lead to projects

II.Improve water allocation II.Improve water allocation and pricingand pricing

The price of water is elusiveThe price of water is elusive The actual prices of water (whenever they The actual prices of water (whenever they

exist) tend to be different from efficient pricingexist) tend to be different from efficient pricing Both actual and efficient prices vary depending Both actual and efficient prices vary depending

onon Time (within season and between season)Time (within season and between season) LocationLocation QualityQuality UseUse InstitutionsInstitutions

Figure 1 presents a stylized water trading system.

Supplier 1Supplier 2 Supplier 3

II. Environment

WaterMarket

I. Buyers

Conveyance

Elements of the economics Elements of the economics of water systemsof water systems

Benefits (Marginal benefits=demand)Benefits (Marginal benefits=demand) Private cost extractionPrivate cost extraction Conveyance costConveyance cost Externality costExternality cost Future value of water inventoryFuture value of water inventory

Optimal Vs subsidized water - water is over used and under paid

Quanitity

PRICE

MPC

MC+MCC

MPC+MCC+MEC

MPC+MCC+MEC+MFC

A

M

B

N(subsidized}

Optimal pricing Optimal pricing

Price=Price=Marginal extraction cost+Marginal extraction cost+Marginal conveyance cost+Marginal conveyance cost+Marginal environmental cost+Marginal environmental cost+Marginal storage costMarginal storage cost

P =MPC + MCC +MEC + MFC

Implication of optimal Implication of optimal pricing in Agpricing in Ag

Subsidies are not accidental, removal is Subsidies are not accidental, removal is painfulpainful

Optimal pricing will reduce water use resulting inOptimal pricing will reduce water use resulting in:: Adoption of conservation technologiesAdoption of conservation technologies Transfers to cities-lower prices in citiesTransfers to cities-lower prices in cities Reduction in acreage of low value cropsReduction in acreage of low value crops More environmental benefitsMore environmental benefits Less water projects constriction over timeLess water projects constriction over time More stable systemsMore stable systems

Pricing under small providerPricing under small provider

Provider ignores environmental costs and dynamic pricing-over-Provider ignores environmental costs and dynamic pricing-over-suppliessupplies

Need for intervention to prevent over provisionNeed for intervention to prevent over provision Extra water tax to account for environment & storage Regulatory limit on amount consumed with tradable permits Buy back of water for environmental purposes

€

P = MPC + MCC

Current failures of water pricingCurrent failures of water pricing Current pricing systems aimed at cost recovery Current pricing systems aimed at cost recovery

not efficiencynot efficiency Recovery of operation and maintenance costs Recovery of operation and maintenance costs

ranges from a low of 20-30 percent in India and ranges from a low of 20-30 percent in India and Pakistan to a high of close to 75 percent in Pakistan to a high of close to 75 percent in MadagascarMadagascar

The most common pricing systems are per-acre The most common pricing systems are per-acre fees. Subsidies of +50% are common fees. Subsidies of +50% are common

System like tiered pricing providing some System like tiered pricing providing some subsidies but relying on social marginal cost will subsidies but relying on social marginal cost will lead to optimalitylead to optimality

Improved Conveyance & water allocationImproved Conveyance & water allocation

Poor management of irrigation systems leads to Poor management of irrigation systems leads to conveyance losses of up to 50 percentconveyance losses of up to 50 percent

Improved canal and varying price with distance Improved canal and varying price with distance will improve efficiency -require new institutionswill improve efficiency -require new institutions

Canals are public goods. Private users tend to Canals are public goods. Private users tend to under investment in canal maintenanceunder investment in canal maintenance

A water utility determines simultaneously A water utility determines simultaneously optimal water pricing and investment in optimal water pricing and investment in conveyanceconveyance

Spatial impacts of optimal conveyanceSpatial impacts of optimal conveyance

Distance from source

Water use basic conveyance

Water use improved conveyance

Optimal conveyance policy will

•increase utilized acreage and water use in agriculture

•Charge downstream farmer higher water prices which will lead to conservation

•Empirical simulation find that optimal conveyance loss to be negligible

Conveyance IConveyance ISuppose Marginal productivity of water per acre is 10-2XWhere X is water per acreWe have 2 parcels of land locations 1 and 2 Water use at destination X1 and X2

Initial conveyance lose in location 2 is 50% pay for 2 units at source for each unit consumed at 2

Each unit consumed at location 2 requires 2 units at sourceD1=10-2X1 DEMAND LOCATION 1

D21=5-X21 DEM AND LOCATION 2 IN TERMS OF WATER AT SOURCE X21=2X2

MC OF WATER AT SOURCE =.25(X1+X21)

Conveyance IIConveyance II

P=10-2S

P=5-X21

S=X1+X21 P IS PRICE AT SOURCE

FINDING AGGREGATE DEMANDFOR P=5 S=2.5 FOR P=0 S=7.5

AGRREGATE DEMADN IS P=7.5-S =.25*S HENCES=6 P=1.5

S

PRODUCTION AT LOCATION 1 IS 4 WATER PRICE 1.5

PRODUCION AT LOCATION 2 IS 2WATER PRICE IS 3

NO CONVEYANCE LOSENO CONVEYANCE LOSE

P=10-S

S=X1+X21 P IS PRICE AT SOURCE AND LOCATION 2

AGRREGATE DEMADN IS P=10-S =.25*S HENCE X1=X2=4S=8 P=4 ( 10-2X1=10-2X2)

S

PRODUCTION AT LOCATION 1 IS 4 WATER PRICE 2

PRODUCION AT LOCATION 4 IS 2 WATER PRICE IS 2

COMPARISONCOMPARISON 50% CONVEYANCE 50% CONVEYANCE

LOSSLOSS P1= 1.5 Q1=4P1= 1.5 Q1=4 P2=3 Q2=2P2=3 Q2=2

NO CONVEYANCE NO CONVEYANCE LOSSLOSS

P1=P2=2P1=P2=2 Q1=Q2=4Q1=Q2=4

BETTER CONVEYANCE INCREASES PRODUCTION

BENFIT DOWNSTREAM PRODUCERS

DAMAGES UPSTREAM PRODUCERS ( PAY MORE FOR WATER)

Water rights systemsWater rights systems

Water is allocated according to water right systems Water is allocated according to water right systems that are queuing system based on location or that are queuing system based on location or seniorityseniority

Prior appropriation allocates water according toPrior appropriation allocates water according to Use it or loss itUse it or loss it First in use first in First in use first in

Water use permits operate as queuing systems Water use permits operate as queuing systems as wellas well

Trading is restricted with other rights systemsTrading is restricted with other rights systems

FROM PRIOR APPROPRIATION FROM PRIOR APPROPRIATION TO MARKETTO MARKET

TOTAL DEMAND

WATER SUPPLY

PRICE AFTER TRADING

GAIN FROM TRADING

DEAMND OF INITIAL WATER USERS

TRANSITION FROM QUEUING TRANSITION FROM QUEUING TO MARKETSTO MARKETS

• D1 INITIAL DEAMDN 10-X TOTAL WATER SUPPLY 10 INITIAL SURPLUS 50

• D2 LATER DEMAND 10-.5X• PRICE IS 5, WHERE 10-.5*10=5• SURPLUS IS 75• IN CASE OF TRANSFERABLE RIGHTS• SENIOT RIGHT OWNERS WILL SELL HALF THEIR

WATER AND MAKE $25 THEIR SUPLUS 62.5• JUNIOR RIGHTS WILL HAVE $12.5 IN SURPLUS• IN CASE FO GOVERNMENT OWNERSHIP• GOVERNEMENT WILL MAKE $50• SENIOR AND JUNIOR RIGHTS WELFARE AT $12.5

Transition from queuing to Transition from queuing to marketmarket

Reform :A transition to trading where water is Reform :A transition to trading where water is priced according to opportunity cost priced according to opportunity cost

It require transaction and transition costIt require transaction and transition cost Gain from trade increase with scarcity Gain from trade increase with scarcity Trading is desirable when gain > transaction Trading is desirable when gain > transaction

costcost Trading lead to conservation of water among Trading lead to conservation of water among

sellerssellers

The gains/loses from tradeThe gains/loses from trade Trading may be introduced in crisis situations-requires Trading may be introduced in crisis situations-requires

monitoring, expanded canal systemmonitoring, expanded canal system Trading may be small but critical to adjust to shortages Trading may be small but critical to adjust to shortages Trading may have negative third party effect-less Trading may have negative third party effect-less

runoff to environment & groundwater replenishmentrunoff to environment & groundwater replenishment Reform allows new entrants to markets-new cropReform allows new entrants to markets-new crop--

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Grapes in ChileGrapes in ChileGolf courses (high value farming)Golf courses (high value farming)Purchases for environmental Purchases for environmental purposespurposes

water trading design issueswater trading design issues Should permanent sales be allowed? Or should the Should permanent sales be allowed? Or should the

trade be in rights (water rent) rights?trade be in rights (water rent) rights? Who will sell- the state or historical owners?Who will sell- the state or historical owners? What about Export outside the basin?What about Export outside the basin? Should the sales be of of effective or applied water?Should the sales be of of effective or applied water?

Applied water

Field

Effective water

Residue go to Third parties

Emerging arrangementsEmerging arrangements

Transferable rightsTransferable rights-annual sales of water is -annual sales of water is easy-permanents sales of rights is facing easy-permanents sales of rights is facing constraintsconstraints

annual upper bound on exported volume annual upper bound on exported volume from a regionfrom a region

Only 70-85% of applied water can be sold-to Only 70-85% of applied water can be sold-to compensate third partiescompensate third parties

Pricing and informationPricing and information Pricing is perfected with volumetric monitoringPricing is perfected with volumetric monitoring Pricing should change by time and sometimes Pricing should change by time and sometimes

by crop and location to reflectby crop and location to reflect conveyance cost conveyance cost environmental side effectsenvironmental side effects

Without volumetric measurement-Per acre fees Without volumetric measurement-Per acre fees may vary by season / crop.may vary by season / crop.

Prices should reflect costs of side effects of Prices should reflect costs of side effects of water - use of greener/cleaner application water - use of greener/cleaner application technologies should be rewardedtechnologies should be rewarded

Improve ground water Improve ground water managementmanagement

India increased pumping by 300% since 1951-India increased pumping by 300% since 1951-8686

Farmers should pay Farmers should pay user feeuser fee( to reflect future ( to reflect future scarcity)-scarcity)-

Fuel for irrigation should not be subsidized.Fuel for irrigation should not be subsidized. Elimination of fuel subsidies and user fee will Elimination of fuel subsidies and user fee will

raise ground water pumping-leading to reduced raise ground water pumping-leading to reduced acreage and conservationacreage and conservation

Tiered pricing may address equity issuesTiered pricing may address equity issues Monitoring of pumping is needed-may need Monitoring of pumping is needed-may need

regional ground water authorities.regional ground water authorities.

Conjunctive use of surface Conjunctive use of surface and ground waterand ground water

Precipitation is random-reliance on rainfall or Precipitation is random-reliance on rainfall or surface water(river flow) lead to instabilitysurface water(river flow) lead to instability

The marginal value of water varies across The marginal value of water varies across season- high at dry seasonsseason- high at dry seasonsLow at wet seasonLow at wet season

Gain from storageGain from storageGround water can serve storage facilityGround water can serve storage facilityWater in ground has value that depends onWater in ground has value that depends on

Variability of supplyVariability of supply Stock in groundStock in ground

Reflection-reform will increase ag water pricesAg can survive with higher pricing-but it will have to changes- Reform requiresReliable information-facts not guessesGood economicsEffective administratorsSophisticated legal understandingExcellent political skill&leadership

Patience

III.Conservation technologiesIII.Conservation technologies

Technologies that Technologies that increase input use efficiency- the increase input use efficiency- the input actually consumed by cropsinput actually consumed by crops

Input use efficiency-depends on technology and Input use efficiency-depends on technology and specific situationspecific situation

The The residueresidue of unused input may be a of unused input may be a source of source of environmental concernenvironmental concern

Residue = Actual input * (1 - input use efficiency) Residue = Actual input * (1 - input use efficiency) Smaller residue reduces environmental damagesSmaller residue reduces environmental damages

Basic modelBasic model

Y=a+bE-cEY=a+bE-cE22 E =effective water E =effective water E=qE=qiiXX qqii=irrigation effectiveness =irrigation effectiveness

technology itechnology i Profit(i)=Max p (a+b qProfit(i)=Max p (a+b qiiX -c qX -c qiiX qX qiiX) -wX-KX) -wX-Kii KKi-fixed cost technology ii-fixed cost technology i XXii=(p =(p b qb qii-w)/p c q-w)/p c qii22

Adoption occur at lower q if 0 <q <1Adoption occur at lower q if 0 <q <1

b c p w k6.25 1 100 100 50

q0 q1 x0 x1 y0 y1 profit0 profit1technology

0.50 0.60 4.25 3.82 8.77 9.07 451.56 475.17 1.000.54 0.64 4.07 3.66 8.91 9.16 483.59 499.32 1.000.58 0.68 3.90 3.51 9.02 9.22 512.09 521.07 1.000.60 0.70 3.82 3.44 9.07 9.26 525.17 531.15 1.000.63 0.72 3.70 3.38 9.14 9.28 543.52 540.76 0.000.66 0.75 3.59 3.28 9.19 9.32 560.47 554.34 0.000.70 0.79 3.44 3.15 9.26 9.37 581.15 571.05 0.000.75 0.83 3.28 3.04 9.32 9.40 604.34 586.35 0.000.80 0.87 3.13 2.93 9.38 9.44 625.00 600.40 0.000.85 0.91 2.98 2.83 9.42 9.46 643.52 613.35 0.000.90 0.95 2.85 2.74 9.46 9.49 660.20 625.32 0.000.94 0.98 2.76 2.67 9.48 9.51 672.41 633.72 0.000.95 1.00 2.74 2.63 9.49 9.52 675.32 639.06 0.00

Example-irrigation(hypothetical/ California)Example-irrigation(hypothetical/ California)

Increase yield, reduce water reduce drainage, costs Increase yield, reduce water reduce drainage, costs moremore

Low cost version (bucket drip, bamboo drip) existsLow cost version (bucket drip, bamboo drip) exists Impact greater/adoption higherImpact greater/adoption higher on lower quality lands-sandy soils on lower quality lands-sandy soils

steep hillssteep hills

technology Irrigation

efficiencyWater/ drainage

Yield(cotton)

Fixed cost/yr

traditional .6 4.0/1.6 1200 500

sprinkler .8 3.2/.64 1325 580

drip .9 2.7/.27 1400 650

Labor intensive conservation technologies available to

Poor farmers. More needed to be invented

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Real pricing accounting for environmental costReal pricing accounting for environmental costTechnology subsidiesTechnology subsidiesEffective extensionEffective extension

Policies to introduce Policies to introduce conservation technologiesconservation technologies

Common ThemeCommon Theme Research and Research and learninglearning

We operate with much ignorance- need to learn We operate with much ignorance- need to learn and adaptand adapt

Water policy requires constant leaning of both Water policy requires constant leaning of both natural phenomena and human learningnatural phenomena and human learning

With GIS and new information tools we can With GIS and new information tools we can improve policy designimprove policy design

Crucial - is policy maker education and Crucial - is policy maker education and interdisciplinary dialogue interdisciplinary dialogue

Specifics casesSpecifics cases

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Case studies Case studies may illuminate may illuminate factor affecting factor affecting water policy water policy reformreform

Economics Economics principle for principle for policy reform policy reform are valuable, are valuable, but their but their application is application is subject to subject to objectionsobjections

Lessons of California Response Lessons of California Response to 1988-92 Draughtto 1988-92 Draught

Water storage mattersWater storage matters. The storage . The storage facilities enabled California to survive facilities enabled California to survive the 3 early years of the drought with the 3 early years of the drought with minimal impacts or changes, and the minimal impacts or changes, and the later years with mild effects.later years with mild effects.

Multiple Responses to Reduced Water Multiple Responses to Reduced Water SupplySupply. . 1/3 from ground water pumping, 1/3 from ground water pumping, 1/3 from conservation (adoption of drip 1/3 from conservation (adoption of drip

etc),etc), 1/3 from land fallow.1/3 from land fallow.

More lessonsMore lessons

Conservation makes a differenceConservation makes a difference.. After .. After 1992,1992, more than 50% of tree crops in the more than 50% of tree crops in the

state used drip, state used drip, sprinkler in cotton and alfalfa exceeded sprinkler in cotton and alfalfa exceeded

40% in major areas.40% in major areas. Trading was introduced through water Trading was introduced through water

bankbank

California Water Trading California Water Trading institutionsinstitutions

The water bank-The water bank-bought water in north bought water in north sold it in southsold it in south Sustains perennial crops -allows their Sustains perennial crops -allows their

expansionexpansion provides water rights owners higher provides water rights owners higher

incomes. incomes. The operation of the bank is optionalThe operation of the bank is optional

only during draught years.only during draught years. Options sold annuallyOptions sold annually

Cal water institutionsCal water institutions The electronic water Market in the central The electronic water Market in the central

valleyvalley ““Electronic matchmaking” of buyers and Electronic matchmaking” of buyers and

sellers sellers Districts facilitates trades-gradually Districts facilitates trades-gradually

installs volumetric pressurized systeminstalls volumetric pressurized system Disclosure of prices is optionalDisclosure of prices is optional

Purchasing fund for environmental waterPurchasing fund for environmental water The value of water to fluctuateThe value of water to fluctuate, may vary , may vary

from $5 to $200 / AF. from $5 to $200 / AF.

VI. VI. Incentive for water &environmental qualityIncentive for water &environmental quality Introduce fee for quality-when measurableIntroduce fee for quality-when measurable

Polluter pay principlePolluter pay principle -make pollution control worth -make pollution control worth while while

Zero pollution is frequently sub optimalZero pollution is frequently sub optimal-use tradable -use tradable permits in emission-to reach targetpermits in emission-to reach target

Information is crucialInformation is crucial-effective policy requires -effective policy requires monitoring and valuation of environmentmonitoring and valuation of environment

When actual When actual emission is unobservableemission is unobservable--tax according tax according to activities.to activities.Organic pay less than chemical farming Organic pay less than chemical farming

Minimize use of direct controlMinimize use of direct control-allow flexibility-allow flexibility Use carrot - payments for environmental servicesUse carrot - payments for environmental services

Categories of Environmental Services (ES)Categories of Environmental Services (ES) Pollution PreventionPollution Prevention. Farmers may be paid to . Farmers may be paid to

modify environmental damaging activities and modify environmental damaging activities and engage in sustainable practices(engage in sustainable practices(farmers may have implicit farmers may have implicit historical rights to pollute that have to be bought). historical rights to pollute that have to be bought).

ConservationConservation. . of natural resources, life styles, of natural resources, life styles, ecosystems etc. Including forest resources and ecosystems etc. Including forest resources and wetland, agricultural communities ( slow urban wetland, agricultural communities ( slow urban sprawl), traditional varieties and species, etc.sprawl), traditional varieties and species, etc.

Amenity creationAmenity creation--restoration and built up of natural restoration and built up of natural resources Include clean up activities, planting of resources Include clean up activities, planting of forests, restoration of wetlands etc.forests, restoration of wetlands etc.

The dimensions of wetland The dimensions of wetland servicesservices

LocalLocal NationalNational InternationalInternational

Wildlife habitatWildlife habitat PublicPublic

PrivatePrivate

PublicPublic PublicPublic

Flood controlFlood control Public Public PrivatePrivate

Public Public PrivatePrivate

Public Public PrivatePrivate

Water Water purificationpurification

PrivatePrivatePublicPublic

Public Public PrivatePrivate

Aesthetic valueAesthetic value Public Public PrivatePrivate

Public Public PublicPublic

RecreationRecreation PrivatePrivate PrivatePrivate PrivatePrivate

ExistenceExistence PublicPublic PublicPublic PublicPublic

Mechanism to obtain ESMechanism to obtain ES Aggregate targets of ES with Tradable permitsAggregate targets of ES with Tradable permits

No reduction target led to wetlands banking in U.S.No reduction target led to wetlands banking in U.S. Kyoto targets may be attained by CO2 SequestrationKyoto targets may be attained by CO2 Sequestration

Purchasing Funds-raise public & private funds to Purchasing Funds-raise public & private funds to target & buy assets or pay for EStarget & buy assets or pay for ES Nature conservancy buys lands & development rightNature conservancy buys lands & development right USCRP pays for farmland use modification for a periodUSCRP pays for farmland use modification for a period Utilities pay for carbon sequestration in Utilities pay for carbon sequestration in Costa Rica &IowaCosta Rica &Iowa

IncentivesIncentives-payments for ES, penalties for damages-payments for ES, penalties for damages Direct controlsDirect controls

Zoning: restricting land use to certain activitiesZoning: restricting land use to certain activities Permitting:conditional approval of development activitiesPermitting:conditional approval of development activities

Institutional setup to create ES Institutional setup to create ES Private parties may invest in excludable Private parties may invest in excludable

amenity creating ES (habitat to birds or amenity creating ES (habitat to birds or fish,recreation area)fish,recreation area)

NGO’s may finance and control specialized ES NGO’s may finance and control specialized ES National & Local governments may National & Local governments may

Pay directly for or subsidize private provision of Pay directly for or subsidize private provision of amenity creating ES amenity creating ES

Establish legal framework to require generation of Establish legal framework to require generation of resource conserving or pollution preventing ES resource conserving or pollution preventing ES

Global ES may be generated & controlled byGlobal ES may be generated & controlled by International agreements (Kyoto, Debt for nature)International agreements (Kyoto, Debt for nature) Voluntary agreements initiated by NGO’sVoluntary agreements initiated by NGO’s

Take home messagesTake home messages Use Benefit cost to establish projectUse Benefit cost to establish project

Take the option to wait and learnTake the option to wait and learn Make the price rightMake the price right

It must not be uniformIt must not be uniform Allow tradingAllow trading

Trading appropriate when gain >transaction costTrading appropriate when gain >transaction cost Polluter should pay-when feasiblePolluter should pay-when feasible Beneficiates pay for environmental services Beneficiates pay for environmental services Consistent Risk management-Consistent Risk management-same value of life same value of life

saved saved

Conclusions IConclusions IWater resources management reform can increase economic and Water resources management reform can increase economic and

environmental benefits environmental benefits

Irrigation crucial to food production-some systems are not Irrigation crucial to food production-some systems are not sustainable because of over pumpingsustainable because of over pumping

There is much potential to increase water productivity through There is much potential to increase water productivity through incentivesincentives

A priority is to increase trading within regions and to improve A priority is to increase trading within regions and to improve maintenance-through institutional changesmaintenance-through institutional changes

Irrigation technologies and improvement in varieties are another Irrigation technologies and improvement in varieties are another sources of improved water productivity in agriculture.sources of improved water productivity in agriculture.

Conclusions IIConclusions II Water development needs will be determined by Water development needs will be determined by

population growth population growth Development proposals should be scrutinized by Development proposals should be scrutinized by

social-cost benefit testssocial-cost benefit tests Pollution pays will be used to reduce pollutionPollution pays will be used to reduce pollution Consumer pays should be used to control)Consumer pays should be used to control) Public pay for conservation and public good Public pay for conservation and public good

activitiesactivities Monitoring and knowledge make policy effectiveMonitoring and knowledge make policy effective Political will is crucial to utilize new knowledgePolitical will is crucial to utilize new knowledge

About sustainabilityAbout sustainability

THE PROBLEMTHE PROBLEM LARGE SCALE POVERTY IN MANY LARGE SCALE POVERTY IN MANY

DEVELOPING COUNTRYDEVELOPING COUNTRY NEED TO UPGRADE AND IMPROVE NEED TO UPGRADE AND IMPROVE

STANDARD OF LIVING OF BILLIONSSTANDARD OF LIVING OF BILLIONS GROWING ENVIORONEMNTAL CONCERNSGROWING ENVIORONEMNTAL CONCERNS

CLIMATE CHANGECLIMATE CHANGE LOSE OF BIODIVERSITYLOSE OF BIODIVERSITY DEPLTED FISHERIESDEPLTED FISHERIES DEGRADED WATER REOURCESDEGRADED WATER REOURCES

Perceived Causes of Perceived Causes of environmental crisisenvironmental crisis

POPULATION GROWTH- IT IS A POPULATION GROWTH- IT IS A CAUSECAUSE BUT ALSO A BUT ALSO A BY PRODUCT OF HUMAN BY PRODUCT OF HUMAN SUCCESSSUCCESS IN CONTAINING DISEASE IN CONTAINING DISEASE AND FEEDING OURSELVESAND FEEDING OURSELVES

OVER CONSUMPTIONOVER CONSUMPTION TECHNOLOGY AND MODERN SCIENCETECHNOLOGY AND MODERN SCIENCE REGULATIONREGULATION

Basic point Basic point

technology and science can serve for technology and science can serve for better or worsebetter or worse- - it is the role of incentives it is the role of incentives policies and institutions to steer science policies and institutions to steer science and society to a greener futureand society to a greener future

we have progressed- but we need to make we have progressed- but we need to make the extra step to take advantage of our the extra step to take advantage of our capacitycapacity

Sustainability &climate Sustainability &climate changechange

Need conservation & adaptationNeed conservation & adaptation Sustainability Sustainability requires peacerequires peace-- people who are threatened and starved do not people who are threatened and starved do not

preserve -preserve -pay for preservationpay for preservation Sustainability requires Sustainability requires global solutionsglobal solutions We need creative We need creative incentives and take advantage of incentives and take advantage of

technologytechnologySustainable water management is part of a Sustainable water management is part of a sustainable futuresustainable future