India-EU Water PartnershipWorkshop on Water Allocation, Water Economics and Eflows

In River Basin Management

14-15 September 2016, New Delhi

WATER ECONOMICS, WATER ALLOCATION, ECOLOGICAL FLOWSXavier Leflaive, OECD Environment Directofate

EU – India Water Partnership14 September 2016

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• The OECD – An economic organisation– 34 member countries (4 accession countries, 5 “key partner”

countries)– Economics-based, multi-sectoral– Forum to share experiences and derive policy lessons, source of

comparative data– Secretariat: 2500 staff, based in Paris

• OECD work on water - Managing water for growth– Water-related risks– Allocating water among competing uses– Managing water quality– Financing investments in water for growth– Water governance

– Working in partnerships

OECD on water

• The economic case for water security• Allocating water for sustainable growth

– A policy framework– Economic instruments for water allocation– A survey of current practices– Specific issues related to groundwater

allocation• E-flows• A state of flux

Outline

• Expected global flood damages from urban property alone: USD 120 billion/ year

• Water risks cost irrigators USD 94 billion/ year

• Inadequate WSS cost USD 260 billion/ year

The economic case for water securitySelected figures

The economic case for water securityHow water-related risks affect growth

Source: Securing Water, Sustaining Growth, report of the OECD/GWP Task Force

The economic case for water securityLinking economic growth, hydrological variability and investment

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The economic case for water securityCompeting demand for water

Source: OECD Environmental Outlook to 2050; output from IMAGE

• Increase in water demand: +32% by 2050

• Per capita water availability (m3/year)– From 5,177 (in 1951) to 1,140 (in 2050)

• Water intensity of energy production

The economic case for water securityCompeting demand for water in India

Source: IEA (2012), World Energy Outlook, OECD Publishing

• A development strategy that factors water-related risks

• Water allocation regimes that translate the strategy into water flows

• The capacity to finance water-related investments (i.e. WSS)

• Institutions and policies that drive innovation

• Robust data sets

The economic case for water securityA policy framework

• Allocate water where it is most needed

• Adjust to shifting conditions, at least cost for society

• A balance between competing requests– Water security for water users– Flexibility for water managers

• Account for the distinctive risk profile of water users

Allocating water for sustainable growthAn OECD approach

• Set priorities– A political process– Who takes part in the conversation

• Optimise allocation in practice– A range of technical options

Selected requisites– Knowledge (availability, use, uncertainty)– Transparency– The capacity to adjust to shifting conditions

Allocating water for sustainable growthA two-step process

• Market instruments– Trading mechanisms (quantity, quality)

• Non-market instruments– Abstraction and pollution charges– Water pricing– Payment for Ecosystem Services– Certification / eco-labelling– Insurance schemes

Allocating water for sustainable growthEconomic instruments

• Signal water scarcity• Allocate water• Allocate risks

• Promote flexibility • Save investment costs• Stimulate private investment• Stimulate the diffusion of innovation

Allocating water for sustainable growthIn principle, economic instruments …

• Tax on the abstraction of water resources• Tax for storage in low water periods• Tax for the protection of aquatic environments

• Tax on water pollution• Tax for modernisation of the wastewater

drainage• Tax on diffuse agricultural pollution• Tax on obstacles on rivers• Tax on sealed surfaces (optional)

Allocating water for sustainable growth8 taxes to manage water in France

Allocating water for sustainable growthA review of current practices

Respondants which reported some form of an abstraction

charge (%)

Out of which: abstraction charges that reflect scarcity (%)

Source: OECD (2015), Water Resources Allocation: sharing risks and opportunities, Paris

Allocating water for sustainable growthAbstraction charges in OECD countries

Source: OECD (2012), A Framework for Financing WRM, Paris

Allocating water for sustainable growth A review of current practices

Source: OECD (2015), Water Resources Allocation: sharing risks and opportunities, Paris

% of regimes allowing some formof transfer of water entitlements

• Specific physical characteristics• State of knowledge• Ease and costs of access• Often considered a common pool

resource• Legal status• Governance

Allocating water for sustainable growthZooming on groundwater - why

Allocating water for sustainable growthCo-management of groundwater and energy

in India (Gujarat)• High levels of groundwater

use• de facto ownership• Jyotigram scheme

in China (North China Plain aquifer)• Privatisation of well ownership• Informal groundwater markets• Price reflects scarcity (metered

electricity consumption)• Enhanced access• Efficiency and innovation• Depletion• Equity issues• Opportunity for regulation

through pricing

Managing ecological flowsImpacts of stream inflow reduction

Managing ecological flowsA survey of current practices

Source: OECD (2015), Water Resources Allocation: sharing risks and opportunities, Paris

% of examples according to type of limit of water abstraction

% of examples that define ecological flows

Allocating water for sustainable growthIn a state of flux

Countries with recent or on-going reforms of water allocation regimes

Source: OECD (2015), Water Resources Allocation: sharing risks and opportunities, Paris

Allocating water for sustainable growthDrivers of reforms

Source: OECD (2015), Water Resources Allocation: sharing risks and opportunities, Paris

• Engage in a policy dialogue• Take opportunity of droughts, other

reforms• Be ready for an iterative process, over time• Determine a sustainable baseline• Compensate potential « losers »

– Financial transfers– Enhanced security– Permits to build storage infrastructure

Allocating water for sustainable growthLessons from successful reforms

Xavier.Leflaive@oecd.org www.oecd.org/water

For further collaboration