Water as an economic good and international water resources

1. Water as an economic good and international water resources Aline Baillat-Ballabriga, PhD Aline.baillat@graduateinstitute.ch

2. Water, an economic good? • Dublin-rio principle • Domestic water reforms • Formalization of water rights • Pricing policies • Introduction of market-based mechanisms

3. Wholesale Water (natural) and Retail Water

4. Water Pricing Policies Objectives Conservation Full cost recovery Economic development Social equity Efficiency Public Health

5. SINGAPORE - Uniform tariff first block - Conservation tax - Different fee for wastewater treatment - Targeted financial aid FRANCE No block tarification Different tariffs depending on the sector, and zones Fixe/variable part Targeted financial aid Exemples SOUTH AFRICA Free basic water policy Full cost recovery Local governments Prepaid meters

6. Privatization Water services British Model French Model Public Private Private Concession Management contract Lease contract

7. Privatization Natural water water markets Opportunity cost Definition: institutional design that facilitates the reallocation of water among different uses through voluntary exchanges between buyer and seller of water rights (include banking schemes)

8. Water markets Australian Water markets Northern Colorado Lower Rio Grande Chile Canary islands Private Public Criteria Issuance of water rights Durability of water rights Water rights modification Transfer procedures Environmental protection Right to return flow Dispute over water uses Procedures in case of shortage

9. Depend on the institutional framework and regulation Results?

10. What does it mean forinternational watercourses management?

11. Results at the domestic level depend on the institutional framework (able or not to protect the different aspects of the resource). At the international level: no clear and strong rules In this context market-based solutions will bring undesirable results Important

12. Legal vaccum: What are the rights of non-riparian states to an international watercourse? Trade in [unregulated] water International trade rules apply Trade in water rights River basin rules apply (in and out)

13. High costs of moving water Problem of initial allocation of water rights Institutional and technical challenge No shortcut! International trade in water rights: solution to water scarcity?

14. Additional slides

15. Colorado river compact 1922 Upper Basin : 7.5 maf Lee Ferry :Division Point Estimated flow in 1922: 16.5 maf 1948 compact: C : 51,75% NM: 11,25% U : 23% Wy : 14% In 1922, the flow was estimated at 16.5 maf The Colorado River annual flows range from as low as 5 maf to 24 maf. From 2001 to 2003, the river averaged about 5.4 maf. Lower Basin : 7.5 maf 1928 BCPA Az: 2.8 maf Ca: 4.4 maf Ne: 0.3maf Mexico : 1.5 maf

16. ICUA Interstate Banking (1999) ICS banking (2007) ‘New product’: water conserved by extraordinary means Apportionned but unused water Colorado water contract holders, but also fed agencies, NGOs, Mexican users. State agencies AWBA created, administered and owned by Arizona Federal supervision (storage in Lake Mead) Comparison Colorado Murray Darling Role of the river basin commission Ownership ‘vested in the Crown’ Ownership of theriver water e.g. apportionment ‘In perpetuity’, no River Basin Commission. Market scheme Trading Scheme (2004) Harmonized water rights, state water entitlements modified at the end of each year product actors Individual right holders regulator Basin Commission 1915 Basin Authority 2007 (water planning, cap)

17. Interstate water trading in the Murray Darling River Basin Commission 1915 (and 1992) Well established Intra-state water markets National Water Reform 1994 Cap on diversions 1995 (1993-1994 levels of developments) Interstate Water Trading 1997 State Water Entitlements and Cap are modifiedto take into account permanent tranfers among individual right holders.

18. Federal examples Mexico Colorado River Basin Murray Darling River Basin Interstate Trade of Water Entitlements among individual right holders (July 2007) Interstate Water Banking Scheme (Arizona, 1996) states participation (ICUA) ICS stored in Lake Mead (federal supervision) 2007

19. Classification of the property regimes of the rivers’water Stronger degree of inter-state ownership Stronger degree of state ownership Common Property State Property AWBA (Colorado 1999) ICS banking (Colorado 2007) Murray Darling Trading Scheme (2004)

20. Propose a way to solve the pb of the Initial allocation of property rights - rest on the Coase Theorem (initial allocation of property rights does not matter from an efficiency point of view – all water users are buyers slightly modified by monetization of water in dispute. Price of water in dispute will never be >price of desalination. ‘water ownership is a property right entitling the owner to the economic value of water’ Gains from Trade in water rights (‘cooperation’)> change in ownership Problems remain: - Allocation of water rights : wealth effect and transaction costs (Bromley, 1991) Size of the market (international entities) Fisher’s analysis overlooks institutional aspects of water markets and water rights. only distinction between uses and ownership. - Pb of initial allocation of water rights limited only if common property regime of the resource. Water Market Proposal for the Middle East (Fisher et al. 2005)

21. Link between the different decision making forums Coordination between the different levels of management What does it mean to define an international watercourse as a common property? Weak/no institutional design at the international level Water at the center of the web: limit the size of the web

22. Entire water cycle Good balance between public and private participation Financial support Research and training Wastewater collection and recycling Singapore has the solution!