The Environment Institute Where ideas grow Water Futures Where is the world headed and what is...

The Environment InstituteWhere ideas grow

Water Futures Where is the world headed and what is Alberta heading for?

Mike Young Executive Director, The Environment Institute

The Environment Institute

Life Impact The University of Adelaide

Global water use

70% Agriculture, 20% Industry & 10% Urban

After Molden 2007



General messages1. By 2030, over half the world’s population is expected to be living

in a water stressed region.2. Failure to provide reliable access to water and sanitation services

is one of humankind’s greatest failings.3. Demand is growing and costs rising.4. The aggregate affect of climate change on water supplies is

expected to be negative.5. By 2030 child malnutrition is predicted to increase by 20%.6. The rate of change and structural adjustment necessary to resolve

existing challenges and cope with the new ones expected as a result of climate change and a larger more affluent global population is an order of magnitude faster than has been achieved in recent times.



Global water scarcity

After Molden 2007



Water stress (scarcity)

After OECD

2009



Water scarcity gap

After 2030 Water Resources Group



Alternative augmentation costs ($/m3)



0

500

1000

1500

2000

19

11

19

14

19

17

19

20

19

23

19

26

19

29

19

32

19

35

19

38

19

41

19

44

19

47

19

50

19

53

19

56

19

59

19

62

19

65

19

68

19

71

19

74

19

77

19

80

19

83

19

86

19

89

19

92

19

95

19

98

20

01

20

04

Ra

infa

ll (

mm

)14% less 20%

less

Rainfall for Jarrahdale

0

100

200

300

400

500

600

700

800

900

1000

19

11

19

14

19

17

19

20

19

23

19

26

19

29

19

32

19

35

19

38

19

41

19

44

19

47

19

50

19

53

19

56

19

59

19

62

19

65

19

68

19

71

19

74

19

77

19

80

19

83

19

86

19

89

19

92

19

95

19

98

20

01

20

04

Str

ea

mfl

ow

(G

L)

48% less

66% less

S tre a m in flo w fo r P e rth d a m s (P rio r to S tirlin g D a m )

PERTH

- 1%

- 3%



With half as much water, how much can you use?

Users

Environment

River Flow

Environment

River Flow

Users

River Flow

Environment

Users



Cost issues1. The recent financial crisis means there is a has brought attention

to the need to bring greater economic discipline to water investment and management decisions.

2. Donor willingness to pay for the provision of water infrastructure appears to have declined.

3. A larger proportion of the money needed to finance the necessary investments is going to have to come from user charges.

4. Whilst administratively more challenging, the least cost solution to the resolution of water supply and sanitation challenges is around four times cheaper than those usually proposed.

5. Considerable policy and governance reform is necessary.



Pricing arrangements1. The public and more importantly national leaders need to be made more

aware of the consequences of not charging the full costs of water use.2. Lack of economic discipline is crowding out the innovation and

investment needed to solve water scarcity and investment challenges. 3. This raises the cost of solving water supply problems and decreases the

rate of economic development.4. In many cases, the poorest of the poor would be better off paying the

full cost of supply rather than exposing themselves to the extremely high cost of obtaining access to water from other sources a central source and the impact of unsanitary conditions on them.

5. When considering the case for the provision of water at subsidised prices to the poor, it is important to understand influence of this practice on the likelihood that services will be maintained.

6. The more targeted cross-subsidies are the better. Blanket subsidies should be avoided.



Water pricing

$/m3

m3

AC

MC



Entitlement and planning systems1. Most entitlement systems are not designed to reward

innovation and facilitate rapid adjustment as conditions change.

2. One of the secrets to solving water supply problems is to define entitlements and make allocations in a manner that has hydrological rigour and promotes innovation.

3. Adaptive integrated planning approaches to management need to be underpinned by fully-specified entitlement systems.

4. Where possible, entitlement systems should be unbundled.



Water Rights Reform & unbundling

Water

Tradable Right Price

Land

Single Title to

Land with aWater Licence

Entitlement Shares

in PerpetuityBank-like Allocations

Use licences with limits & obligations

Delivery Capacity Shares

Delivery Capacity Allocations

SalinityShares

SalinityAllocations

National CompetitionPolicy 1993/94Plus Cap

National Water Initiative2004



Return to investment in entitlement systems & trading

After Bjornlund & Rossini 2007



Enabling conditions1. Parallel investments in governance, the development of taxation

systems, the removal of market distortions and freer trading arrangements for agricultural products.

2. Freer international trading arrangements will significantly reduce the costs of facilitating adjustment and attaining MDG targets.

3. The early introduction of greenhouse gas trading or taxation arrangements in concert with the use of market-based instruments can be expected to reduce the costs of achieving a transition to more sustainable forms of resource use and in particular, encourage greater investment in ecosystem services.

4. Increases in the capacity of a nation to collect income and other taxes will make it easier for nations to transition to full cost pricing arrangements and, where appropriate, provide rebates to the most dis-advantaged.



International Trade

After Hoekstar & Chapagain 2007



Governance1. There is a need for a much more disciplined

approach to the management and administration of water resources.

2. The development of governance arrangements and political support for processes and mechanisms that promote change and structural adjustment is critical to the development of administrative regimes that can cope with sudden climatic shifts and the rapid emergence of extreme water scarcity.

3. Independent Expertise-Based Authorities4. Independent Price regulators



Enhancing supply and supply reliability1. In the agricultural sector, water use tends to be very inefficient.

This is aggravated by the use of electricity and other input subsidies.

2. Subsidised tariffs promote inefficient water use. 3. The removal of subsidies, the development of water trading and

full cost recovery can do much to increase water use efficiency.4. Throughout much of the world there appears to have been under-

investment in the maintenance of urban water supply systems. 5. Governments have failed to understand that options for

infrastructure finance are inextricably linked to tariff policies. Water flow is conditional upon cash flow.



Finance1. There has been insufficient attention to the economic

scrutiny of proposals to invest in new infrastructure and renew existing infrastructure.

2. Proposals need to take much greater account of likely population shifts and vulnerability to climate variability and change.

3. As economies become greener, the costs of water treatment and flood control can be reduced be making greater use of natural environmental processes.

4. Costs will be less if parallel investments are made in the development of mechanisms to enable widespread use of market based instruments.

5. Greater use of the private sector is possible.



Financing investment (3 T’s)

After Marin and OECD 2009



Millennium Development GoalsHalve the number people without access to

drinking water and sanitation by 2015– Drinking water goal will be met– Sanitation will not be met



Investment required• Total cost of replacing ageing water supply and

sanitation infrastructure in industrial countries may be as high as $200 billion a year (WBCSD 2005).

• The world is seriously behind on maintenance

The Environment InstituteWhere ideas grow

www.adelaide.edu.au/environment

www.myoung.net.au



Water reform in Australia• Two decades into the process of trying to fix

governance• Commitment to restoring systems to health• Commitment to development of robust

entitlement and allocation regimes• Commitment to the development of markets to

facilitate adjustment, innovation and investment



Scarcity and Trading

Source: Murray Darling Basin Commission, 2007

Murray-Darling Basin Water Entitlement Transfers - 1983/84 to 2003/04

0

100

200

300

400

500

600

700

800

900

1 000

1 100

1 2001983/8

4

1984/8

5

1985/8

6

1986/8

7

1987/8

8

1988/8

9

1989/9

0

1990/9

1

1991/9

2

1992/9

3

1993/9

4

1994/9

5

1995/9

6

1996/9

7

1997/9

8

1998/9

9

1999/0

0

2000/0

1

2001/0

2

2002/0

3

2003/0

4

Tra

ns

fer

Vo

lum

e (

GL

)

0

100

200

300

400

500

600

700

800

900

1 000

1 100

1 200

1983/8

4

1984/8

5

1985/8

6

1986/8

7

1987/8

8

1988/8

9

1989/9

0

1990/9

1

1991/9

2

1992/9

3

1993/9

4

1994/9

5

1995/9

6

1996/9

7

1997/9

8

1998/9

9

1999/0

0

2000/0

1

2001/0

2

2002/0

3

2003/0

4

Intrastate Temporary (GL)

Intrastate Permanent (GL)

Interstate Temporary (GL)

Interstate Permanent (GL)

Water Reform Trading opened up



Volu

me o

f W

ate

r in

th

e S

yste

m

The Environment Institute Where ideas grow Water Futures Where is the world headed and what is...

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