Economic Dimension of Integrated Water Resources Management R. - - PowerPoint PPT Presentation

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Economic Dimension of Integrated Water Resources Management R. - - PowerPoint PPT Presentation

Mar 08, 2023 36 likes •223 views

ecologic.de Economic Dimension of Integrated Water Resources Management R. Andreas Kraemer, Britta Pielen & Benjamin Grlach Ecologic Inter-American Development Bank IWRM, 24 - 28 May 2004, San Jos - Costa Rica ecologic.de

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ecologic.de IWRM, 24 - 28 May 2004, San José - Costa Rica

Economic Dimension of Integrated Water Resources Management

  • R. Andreas Kraemer, Britta Pielen & Benjamin Görlach

Ecologic

Inter-American Development Bank

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ecologic.de Datum ecologic.de IWRM, 24 - 28 May 2004, San José - Costa Rica 2

Content

  • Economic perspective on IWRM
  • Value of water
  • Example: Allocative efficiency
  • Economic approaches and instruments
  • Transboundary water resources management
  • Conclusion
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ecologic.de Datum ecologic.de IWRM, 24 - 28 May 2004, San José - Costa Rica 3

Economic Perspective on IWRM I

  • Effects of water on the economy
  • Basic need
  • Input to economic activities
  • Environment
  • Effects of water policies on the economy
  • Influence on the incentive structure of actors
  • Sectoral development (rate of growth)
  • Inter-sectoral allocation (structure)
  • Spatial allocation (regional distribution of growth)
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ecologic.de Datum ecologic.de IWRM, 24 - 28 May 2004, San José - Costa Rica 4

Economic Perspective on IWRM II

  • Economics applied to IWRM:
  • Supports the selection of policy targets
  • Helps to assess the economic implications of

different water policies (at different levels)

  • Assists in the choice of the optimal water

resources management strategy

  • Supports the achievement of policy objectives by

providing implementation tools & instruments

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ecologic.de Datum ecologic.de IWRM, 24 - 28 May 2004, San José - Costa Rica 5

Value of Water I

  • 1. Water as an economic good
  • 4th Dublin principle: “Water has an economic value in all its

competing uses and should be recognized as an economic good“

  • Production factor
  • Key to economic development

→ → Related economic concepts:

  • Opportunity costs: forgone value of alternative uses
  • Externalities: actions of one user that affect the

interests or wellbeing of another user („+“ or „-“ ) Example

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ecologic.de Datum ecologic.de IWRM, 24 - 28 May 2004, San José - Costa Rica 6

Value of Water - Example

  • Water has different values for different uses

depending on their positions within the river system

  • Two economic values can be distinguished here:
  • 1. The value a user derives from a specific water use (WU)

(eg irrigation) → → user value

  • 2. The aggregate value that a unit of water can generate

within the river system before it is consumed or lost through evaporation → → system value

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ecologic.de Datum ecologic.de IWRM, 24 - 28 May 2004, San José - Costa Rica 7

WU1 Hydropower WU2 Benefits, revenues: WU1: $ 0.05/m3 Hydropower: $ 0.02/m3 WU2: $ 0.07/m3 8% evaporation 5% evaporation

Value of Water - Example

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ecologic.de Datum ecologic.de IWRM, 24 - 28 May 2004, San José - Costa Rica 8

WU1 Hydropower WU2 Benefits, revenues: WU1: $ 0.05/m3 Hydropower: $ 0.02/m3 WU2: $ 0.07/m3 8% evaporation 5% evaporation

Value of Water - Example

Scenario Scenario 1: 1: Abstraction at WU1 System value: (1-0.05) * $ 0.05 = $ 0.48/m3 User value: $ 0.05/m3

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ecologic.de Datum ecologic.de IWRM, 24 - 28 May 2004, San José - Costa Rica 9

WU1 Hydropower WU2 Benefits, revenues: WU1: $ 0.05/m3 Hydropower: $ 0.02/m3 WU2: $ 0.07/m3 8% evaporation 5% evaporation

Value of Water - Example

Scenario Scenario 2: 2: Abstraction at WU2 System value: [(1-0.05) * $ 0.02] + [(1-0.05) * (1-0.08) * $ 0.07] = $ 0.08/m3 User value: $ 0.02/m3 + $ 0.07/m3

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ecologic.de Datum ecologic.de IWRM, 24 - 28 May 2004, San José - Costa Rica 10

Value of Water II

  • 2. Water as an environmental good
  • Nature as a user (water dependent eco-systems)
  • Ecosystem services

(eg flood protection, climate regulation)

  • 3. Water as a social good
  • Public health
  • Gender
  • Equity
  • Culture and religion

Must also be considered in economic evaluation

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ecologic.de Datum ecologic.de IWRM, 24 - 28 May 2004, San José - Costa Rica 11

Economic Approaches & Instruments I

  • Economic instruments can be employed along

the whole water cycle

  • Functions of economic instruments:
  • Incentive function (internalisation of external costs)
  • Financial function (cost recovery)
  • Fiscal function

(earmarking versus general taxation)

  • Soft function (information, capacity)
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ecologic.de Datum ecologic.de IWRM, 24 - 28 May 2004, San José - Costa Rica 12

Economic Approaches & Instruments II

Abstraction:

  • Tax
  • Tradable permits

Subsidies for pollution control Effluent charges Tradable discharge permits Water price Tax on water supply Sewerage:

  • Tax
  • Charge

Subsidies for water saving measures

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ecologic.de Datum ecologic.de IWRM, 24 - 28 May 2004, San José - Costa Rica 13

Water Pricing I

  • What makes pricing so important?
  • Reflects the value of water: sets incentives for

efficient resource use & discourages overuse

  • (Financial) cost recovery of water services:

generates revenue that allows to operate, maintain & extend services

  • Allocative efficiency: water „flows“ to

highest value uses

→ Price structure must be in accordance with social

(eg affordability) and environmental objectives

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ecologic.de Datum ecologic.de IWRM, 24 - 28 May 2004, San José - Costa Rica 14

Water Pricing II

Different methods of water pricing:

  • Two-part tariffs with linear use rate
  • Two-part tariffs with non-linear use rate
  • Flat rate (not linked to use)
  • Single linear tariff (linked to use)

consumption P

  • Efficiency–equity trade-offs
  • Pricing types may differ by sectors

(eg agriculture) or users (eg vulnerable groups)

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ecologic.de Datum ecologic.de IWRM, 24 - 28 May 2004, San José - Costa Rica 15

Transboundary Water Resources Management I

  • Transboundary IWRM is complicated by:
  • Different legal frameworks
  • Uneven distribution of costs and benefits
  • f water policies (upstream - downstream)
  • Differences in problem perception
  • Differences in preferences & policy dynamics
  • European example of transboundary IWRM:

EC Water Framework Directive (2000)

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ecologic.de Datum ecologic.de IWRM, 24 - 28 May 2004, San José - Costa Rica 16

Transboundary Water Resources Management II

  • Transboundary IWRM:
  • Can facilitate regional co-operation
  • Leads to better results: holistic view on water

management (integrative problem perception)

  • Must be perceived as a „win-win“ situation

by all involved actors to ensure co-operation

  • May involve the redistribution of benefits

(through eg direct payments or

  • wnership arrangements)
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ecologic.de Datum ecologic.de IWRM, 24 - 28 May 2004, San José - Costa Rica 17

Conclusion

  • Water and WRM policies impact through

different channels on the economy

  • Economics can support the formulation and

implementation of WRM policies

  • Economic analyses always need to take other
  • bjectives (social, environmental) into account
  • Increasing water scarcity →

→ economic & equity considerations will increase further in importance

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ecologic.de IWRM, 24 - 28 May 2004, San José - Costa Rica

Economic Dimension of Integrated Water Resources Management

  • R. Andreas Kraemer, Britta Pielen & Benjamin Görlach

Ecologic

Inter-American Development Bank