Pricing and Sharing Water

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In 1992, The International Conference on Water and the Environment generated the Dublin Statement, highly controversial but also critically relevant if this unique and complex resource is to be both preserved and equitably distributed. (Table 9.1) The statement reads that: “Water is an economic value in all its competing uses and should be recognized as an economic competing good.” It further weighs in on the social implications leaving no chance for misperception, stating: “It is vital to recognize the basic right of all human beings to have access to clean water and sanitation at an affordable cost.”

How do people value water? The simple answer is “differently”. We know for certain that value is linked to quantity, quality, and ability to pay. It is also linked to purpose.   Water for drinking for example carries a different value than water for laundry washing. How water is priced may also be quite different than the cost of supplying it, or said another way, water may be priced to be affordable to the consumer, with true cost recovered through indirect tariffs or subsidies. For many, water seems to be unlimited and free. As such, incentives for efficiency are relatively non-existent beyond social good and social conscience. This is not to say that societies since the beginning of human kind have not weighed in with rules and approaches to fairly provide enough water at least for survival, and if plentiful, for other functional purposes as well. They have. But principals that could be generally agreed upon, and utilized as benchmarks within and across geographic boundaries have been largely absent.

At the 1998 Expert Group Meeting for the United Nations Commission for Sustainable Development, certain principles were confirmed. These included: Economics – water planning and management must be integrated into the economy; Allocation – since water is finite and vulnerable, analysis of costs and benefits of different allocations should drive these discussions; Accountability – efficient, transparent responsibility for water management must be assigned, monitored and evaluated; Cost Recovery – all costs must be covered by 2015 to assure access and sustainability, subsidies may be required and should be transparent; Financing – new financial resources must be marshaled to access water supplies and maximize efficient use of technology to address poverty and, the projected new demands for water.

As we’ve seen, water serves many different purposes, and is used and reused in various ways, often quite casually and without much thought. Most are conscious of its value in sustaining all life, human and otherwise. Some understand that water plays a vital role in agriculture, industry, and energy. Others know it can be drilled for, channeled, diverted, foiled, discarded, but not fully lost. Water contributes in many complex ways, each of which carries some economic benefit. Sharing economic information about water can stimulate brisk discussion of both distribution priorities and efficiencies.

The value attributed to water is bound to time and place. It is a local need, and locally provided. For most of us, domestic need for water would trump agricultural need. We highly value a predictable source, and are uncomfortable with tying our lives themselves to good luck or good weather. All life forms, including ourselves, are true consumers of water. In contrast, water use for hydropower does imply a cost or loss but does not generally conserve the basic resource. We are generating electricity (avoiding other approaches), without factoring in the cost of loss of water for other priorities. As to who is using increasing amounts of water for energy and otherwise, increasingly it is being consumed in urban areas. It is here that populations and industry have formed a symbiotic relationship. Increasingly progress of developing nations is tied to their growing industrial complex. And industry needs water, uses lots of it (now 22% of all withdrawals), and is benefiting from the shift of water away from agriculture (in part due to efficiencies).

There is a cost to poor water management. A study of 15 water and sanitation projects executed in the 1990’s with World Bank funds showed that 67% of the projects collapsed in time due to poor management and absent maintenance. On a much smaller scale, individual “water managers” exerted a similarly large negative economic impact on ground water. When you think about ground water, it’s a rather large, invisible, geographically non-definable, incredibly useful resource that multiple individuals can siphon off simultaneously if they own the land above the aquifer. Ground water has been defined as a “common property resource with very high use value”. Yet it is limited in one important way. It is an easily damaged resource, vulnerable at many sites, and once damaged does not clean up well. Thus absent consistent, distributive, enlightened management, the value of this resource long term is at great risk.

So experts continue to agree that valuing water is complex. Economists develop their formulas, but even the best have trouble putting a price on the intrinsic value of this resource. And while the economist may think she understands it, the language and approach is rarely transferable to real world situations. For most involved in day to day water management, value is all about making wise allocations and establishing more efficient and holistic system management. The supply and demand sides are both behavioral and process engineered. And if the math remains fuzzy, the questions are coming into greater focus. How much efficiency can we deliver and at what economic, social, and political cost?

As to the cost, three studies have estimated the total annual global funding requirement to reach the UN Millennium Goals for water and sanitation at between 111 and 180 billion dollars per year. Seeking investment, eyes are increasingly turning to the private sector. The fear of course is that the notion of equitable and just valuing of water will rapidly devolve into discussions of price and profit alone. The more strident warn of bribes, corruption and profiteering. Yet public-private partnerships are growing and citizens are being reassured by their leaders that regulatory checks and balance will prevent abuse. The most critical issues in many eyes are ultimate control of the asset and need for sustained investment.

If the control issue is not fully resolved, there does appear to be a growing consensus regarding the principle of “full cost recovery”. This means somebody has to pay for the costs of the water being used. In practical terms, the principle tends to decrease total subsidies, promote cross-subsidization between user groups, and places some financial risk (except for those impoverished) on end users of water. For the largest water consumer, agriculture, accurate pricing stimulates investment in efficient systems and careful monitoring by farmers of service levels of system providers. These approaches are logical and within reach. Other areas such as tariff restructuring and analyzing the true economic value of a multidistrict river basin are considerably more complex.

On the simplest level, both prices and tariffs recognize the economic value of water. Water is a commodity, affected by supply and demand, by the market, albeit a regulated one. Fair pricing is all over the map. If one compares the water prices for consumers in 5000 m2 of city office space and utilizing at least 10,000 m3 of water per year, prices vary from a low of .40 US$/m3 in Canada to a high of 1.91 US$/m3 in Germany (Table 9.2). Resistance to realistic pricing is in part belief system driven and in part the absence of scientific, legal, and regulatory institutions necessary to accurately apply cost to those who generate waste, inefficiencies, and pollution of water.

In many areas, water rights can be traded like real estate. Policy determines the legal options. One community may levy tariffs, another open it up to contractors and the highest bidder. In the developing world, there is a movement toward maximum decentralization to municipal authorities, placing controls and management responsibilities as close to the source and use as possible. If there is a weakness in this approach it is under investment and inadequate capacity to execute and maintain a system approach. Capacity includes technical know-how. Choosing the right system can make all the difference in maintenance and sustainability. Well tested and proven technology is adaptable to different settings, and cost to user can vary multi-fold based on making the right versus the wrong choice in design and equipment As with all technology, its access and distribution, if not first targeted at those most vulnerable, can actually magnify inequity.

So it is clear that raising the issue of full valuation of such a critical resource is both necessary and controversial. But it is worthwhile to consider the alternative, that is, the status-quo. The U.S. Department of Economic and Social Affairs has stated, “The legacy of public funded water services, in excessive quantities to the few and at subsidized prices, has created inefficient conditions resulting in severe environmental impacts on the resource itself. In many regions the poor already subsidize those richest in society for their water use.”

The first step then is to include an economic evaluation in the Integrated Water Management Plan. Such a plan must look at the wide range of opportunity costs and the impact, both positive and negative, of pursuing a list of priorities. The introduction of market based and participating approaches require policy changes and at times new management and governance. Integration is the crux since we are dealing with a fixed resource and expanding demand. Maximizing the benefit to individuals, families, communities, and societies is the challenge. But, remember, water flows. So to make this all work, to truly create Integrated Water Resource Management, implies a level of stable and long term human cooperation that, till now, has escaped our reach.

We must therefore learn to share – share between individuals, share between sectors, share between jurisdictions. To share implies a holistic view. It implies advanced planning and preparedness. It implies recognizing the value of an essential and limited resource. Sharing may seem a minor issue if you are upstream, but it is clearly of unparalleled importance if you are downstream. Water may be shared directly or as “virtual water” in a trade for agricultural or manufactured products.

There are examples currently of planned sharing of water, almost by necessity. Take China, exploding economically and socially over the past 2 decades. Early on the government appreciated that water, if managed poorly, could be their Achilles heel. Looking at their water resources, they saw a per capita supply of water that was only 25% of the global average. The numbers were the numbers: annual average precipitation 648mm; annual runoff 2712 km3, groundwater reserves 829 km3, total water resources 2812 km3. A huge population supported by only the 6th largest accessible water supply, and to make things worse a supply plagued by uneven distribution. And on the demand side: population growing, agriculture growing, and industry on fire. First step, make agriculture use water efficiently. The result, with only 7% of its land planted, China reliably feeds its people who represent 22 percent of the global population. With agricultural water use flat, total water volume use in 2000 reached 550 km3, with approximately 10% for domestic use, 67% for agriculture, and 21% for industrial use. Just as manufacturing has grown so has demand increased and competition with farmers and others is on the rise. The response has been the creation of the Water Conservation Scheme creating standards for water conservation, management practices, flood control, disaster preparedness and ongoing allocation priorities proactively. The learning? Sharing is hard work.

And sharing can be expensive. Short term thinkers spent a couple of decades drawing water off the Florida Everglades. There are a lot of good reasons not to mess with your wetlands, like having a place for flood water to collect and maintaining species diversity. But add to this that tourism in Florida is a 20 billion dollar business, and visitors weren’t enthusiastic about a dried up Everglades. So Florida has decided to reverse the damage, reclaiming and restoring some one million hectares (a hectare is the customary metric unit of land equal to 100 acres) of ecosystem, and in the process generating an additional 700 mm3 of freshwater a day. Florida is learning to share with itself, and its challenge is easy compared to the Danube River watershed, running through 18 countries on its way to the Black Sea. The Danube Regional Project must be endorsed and empowered by enabling legislation and proactive policies in all countries. Sharing here is complex but possible. In fact, when it comes to water, nations have generally been cooperative. Many have national agreements on intersectional allocation, financial incentives through tariffs and subsidies, management of abstraction rates and volumes, sites, reservoir rules, and quality objectives.

Most water managers look at the watershed as the unit of management quite independent of geographic boundaries. Over the years, bridges with neighbors were most easily built first by sharing information and by encouraging an open platform that invited everyone’s participation. Management structures, rules for allocation and commitment to values like equity then followed. Still, water and all its ramifications certainly challenge intergovernmental political capacity.

There are 268 trans-boundary water basins involving 145 different nations. One third of these basins are shared between 2 or more countries, and 19 of the basins unite five or more countries. The Danube River has 18. Potential disputes over water between countries in the past 50 years have numbered 1831 around the globe, 27% marked by anger and acrimony and 73% marked by cooperation and solution focused. Of the 1831 around the globe, only 2% involved violence. Over the past 50 years, 200 successful water agreements were endorsed and since AD 805, there have been 3600 water treaties tied to international water agreements. So the record is clear. When it comes to water, nations, even those in conflict with each other, have found a way to get along. One dramatic example is the Mekong Committee which was established in 1957 and remained functional throughout the entire Vietnam War.

When trouble does arise, it generally is for lack of a trans-boundary structure, or unilateral action by one party without informing a second affected party. Sharing is about institutional capacity building and preventive diplomacy. In the last 10 years there have been 16 new multinational water treaties signed. The treaties have increased in quantity and quality. Most now include specifics about shared allocations, water quality monitoring, basin-wide participation and, in some cases, formal water commissions with governance powers.

Surface water management continues to outpace ground water management due to its hidden nature and lack of a legal framework. Aquifers worldwide provide access to drinking water to 1.5 billion people. The major threats are over pumping and pollution. (Table 9.3) Consider for example that there are over 100 trans-boundary aquifers in Europe alone. Focus on groundwater will surely expand as the science and imaging of their stores become more ubiquitous, and as their connection to river basins, wetlands, and other elements of the hydrological cycle become better understood. The issues will be at least as complex as those for surface water. Discharge into a single aquifer may occur commonly on one side of the border, while recharge is on the other. Support for wetlands and biodiversity also must be considered, along with sustainable support for domestic, agricultural, industrial and energy needs. As the database grows, the issue of groundwater will come into greater focus, and what is hidden and subconscious now will rise up and demand conscious and wise oversight.

Drawing on recent history, however, we have reason to be optimistic that preventive hydro-diplomacy will rise. Lessons already learned include that management structures must be adaptable and flexible; criteria for allocations need to be transparent and non-rigid; public input must be pursued and considered; social equity can not be ignored. In regard to this last learning, the monitoring of water availability per person, percentage of water originating beyond state borders, supply/demand consumption rates, and strategic reliance on hydroelectric for energy help predict the potential for conflict.

As interdependency continues to grow, the record shows that managing and governing water, more often than not, can be a source of expansion of social, cultural and political capital between nations rather than withdrawal of these resources. The investment then pays off in the short and long term on many levels. It forces nations to come to grips with their values and priorities using valuation of water as a proxy, and challenges their leaders to design durable political and legal structures that codify the capacity to share in a common future.

Such nations, at the least, currently share our oceans. International governance of our oceans is slowly progressing as are some 145 different nations that are criss-crossed by 268 trans-boundary water basins. In addition, many national, regional, and local bodies have struggled to provide a structure to fairly govern the issue of water. What are they all seeking? First, comprehensive policies that are holistic, integrated and environmentally sound. Second, strong institutions able to improve water laws. And third, an integrated approach that is “dynamic, interactive and multisectoral” and one capable of embracing all water users in a socioeconomic plan.

By now most recognize that rules and regulations mean little absent enforcement. What are territories addressing right now? Incoherency, fragmentation, inadequacy and misplaced incentives related to water property rights. Good governance promises and must deliver an integrated participatory approach. Some structures focus on financial accountability and management. Others on efficiency alone. But, on a larger level, this is about participatory democracy to assure fundamental provision of human rights.

The United Nations Development Program (UNDP) defines governance as “the exercise of economic, political and administrative authority to manage a country’s affairs at all levels. It comprises the mechanisms, processes, and institutions through which citizens and groups articulate their interests, exercise their legal rights, meet their obligations and mediate their differences.”

When the concept of governance is applied to water, roles, issues, and equitable policy immediately surface for discussion. (Table 9.4) The establishment of water institutions, create the capacity to define who gets what, when they get it and how they get it. It also defines and balances economic and social gain. There are certain basic tenets that must now be embraced including participation, transparency, clarity, accountability, responsibility, integration, equity and justice.

Critical to initiation of sustainable water governance is addressing up front who owns the water. “Own” here is not a clear concept. Water rights are most often tied to property law. But the resource is variable, often shared, and generates a multiplicity of claims. Illegal abstraction is not uncommon and can be difficult to identify, let alone adjudicate. The solution is to establish the context of water as a common resource system and acknowledge that water is an increasingly scarce resource. When water is treated solely as a property right, those with property are empowered to exclude those without property from access to water. Private ownership of the land provides private control of the surface water above and the ground water below. Without regulation or guidance, those with property or finances are advantaged to the extreme. This is not to say that public control of the resource assures more equitable distribution. In fact, history indicates otherwise. If one is poor, isolated or immobilized, and especially if the public systems are poorly conceived, under funded, and not maintained, the results can, and have been disastrous.

Governance is part of the picture, backed up by good policy and enlightened legislation. Such governance reflects a tripartite vision of sustainability, efficiency, and equity. But increasingly, to deliver the goods requires good management in the form of assessment, measurement, data analysis, and decision management systems, as well as technology support. When these capabilities are accessed by a public-private partnership and function on the local catchbasin level, allocations, efficiency and environmental sustainability can be addressed. Handled wisely, the water governance triangle can deliver social equity. (Table 9.5) According to the Global Water Partnership, Integrated Water Resource Management (IWRM) “promotes participatory approaches, demand and catchment area management, partnerships, subsidiary and decentralization, economic and social value of water and basin or catchment management. It replaces the traditional, fragmented sectorial approach to water management that has led to poor services and unsustainable resource use.” (Table 9.6)

That is a long way of saying that water is connected to everything and everyone. If we can figure out how to manage it well, we will have figured out how to manage ourselves well. The government approach as dictator has not worked. So increasingly government is assuming the responsibility to activate and facilitate and provide focus. On what? On assessment, communication, allocation, conflict resolution, controls, economic instruments and technology in the hope of overcoming traditional obstacles to integrated management. (Table 9.7). They are also driving home the need to plan water, sanitation and hygiene as one. Changing the institutions requires changing attitudes and behaviors. After all, “one man’s waste is another man’s job.”

As for the private side, the UN Ministerial Declaration at Bonn in 2001 encouraged private sector participation, not as owner, but with a larger roll in financing, managing, operating and maintaining water and wastewater systems. This can take on varying forms. In England and Wales, the government maintains regulatory control of water through the Office of Water Services, (which has limited prices), The Environmental Agency (focused on allocation and waste/pollution discharge) and the Drinking Water Inspectorate (quality control). With this structure in place protecting the public’s interests, private sector industry owns the water infrastructure and plants, and provides financing, operations and maintenance. Other approaches include limited time concessions to private vendors for management, operation and development with governments maintaining ownership as in France.

In the developing world, private investment and involvement in water management has delivered success but also controversy. Criticisms include secrecy, downgrades on initial service contracts, discontinuation of service and tariff increases. Greatest success has occurred in the more affluent urban areas where capacity to serve and capacity to pay are high. But for urban and rural poor, success requires cross-subsidy to allow acceptable private return on investment. In this area, non-governmental organizations (NGO’s) have become more visible delivery partners, but they too have been criticized for inconsistent service delivery. In truth, then, there remains no single blueprint. We do know, however, that poor financing and inconsistent, fragmented leadership are most certainly predictors of failure. Complexity is the issue and how best to manage it on the local level. Contributing issues have now been outlined in preceding chapters; multiuse, urbanization, poor land management, agricultural pesticides and runoff, deforestation, animal feed lots, failed sanitation policy, wastewater diversion, mining and more. Absent management, the impact is clear and includes declining water quality and quantity, increased water treatment cost, increased water borne diseases, decreased ground water reserves and ecosystem health, increased siltation and salination of fresh water supplies and degradation of basin and coastal lands.

There is a renewed focus on identifying areas of opportunity (Table 9.8). These include sites where readiness, simplicity, flexibility, and community can intersect. Whether a waste minimization club, low water use sanitation scheme, or activation of water use association, participation on the local level is a common denominator. It’s been said that “Water in a reservoir or an aquifer is, in a way, equivalent to money in the bank.” If this is true, it only makes good sense to assure the governance and ongoing investment to prevent untimely withdrawals or catastrophic breakdowns that would effectively empty our water bank accounts.