Water stewardship

1. Economic Rights and Regulatory Regimes: Is there still a ‘right’ to water?Could trade in water resources promote water stewardship? Alice PiureStrategy and Policy Analyst, Anglian Water

2. “Stewardship is about taking care of something that we do not own. Stewardship approaches that focus on the management of public goods like forests, fisheries or, in our case, freshwater resources, are based on the premise that we are all accountable for the sustainable management of those resources and are, therefore, based on collective responses. Environmentally sustainable water use maintains or improves biodiversity and ecological processes at the catchment level. Socially beneficial water use recognizes basic human needs and ensures long-term benefits (including economic benefits) for local people and society at large.” Water Stewardship is the use of freshwater that is socially and economically beneficial as well as environmentally sustainable. Source: Alliance for Water Stewardship Water stewardship

3. 28%of the region is below sea level demand for waterwill rise but available water won’t as a low-lying regionthere is a high use of energy to pump water around the region populationis expected to rise – around 1m homes to be built in the next 25 years Climate changeimpacts and uncertainty it is the driestregion in the UK sustainability reductionswill reduce the water available for abstraction What does water stewardship mean to Anglian Water?

4. Abstraction in the Anglian Region Source: Environment Agency, 2012

5. A right to water? A sustainable water allocation regime should: • Protect the environment & other in-stream uses • Ensure affordable and reliable water supplies • Encourage efficient allocation and use of water • Encourage dynamic efficiency or improvements in the efficiency of water use over time

6. Water allocation project • Co-funded by Defra & Anglian Water • Managed by Anglian Water • Steering group Final report available at:www.cpsl.cam.ac.uk

7. The Upper Ouse & Bedford Ouse catchment characteristics • c 3,000 km2 • Predominantly rural • Urban centres: Milton Keynes, Hitchin, Letchworth, Bedford, Huntingdon. • Farming; horticulture; aquaculture; quarrying; power generation; golf courses; race courses. • Grafham Water Source: Environment Agency, 2005.

8. Project Overview Phase 1 Initial engagement with stakeholders: including abstractors in catchment, Environment Agency, Ofwat and innovative local land managers May – June 2012 ------------------------------------------- Phase 2 Development of 2 demonstration trading platforms/models Interactive workshops to share with with stakeholders July – October 2012 Improved Pairwise Hydro-economic model Common Pool Hands on trading demo

9. Evidence of social capital & collaborative approaches during 2011-12 drought: EA took a flexible approach & worked closely with farmers Voluntary 20% reductions Internal Drainage Board kept water levels higher than usual Agricultural abstractor groups trading HOFs Investment in shared storage facilities But: Current trading system not well understood Agreement current system not flexible enough to deal with future challenges Phase 1 Findings Source, HR Wallingford et al, 2012.

10. Phase 2 Trialled two alternative market models: 1. Improved pair-wise trading 2. Common pool model

11. Current system: Pair wise trading Ben Don • Very thin market • High transaction costs Zara Frank Bill Roz

12. Modelling an improved pairwise trading system Ben Don Zara Frank Bill Roz • 3 scenarios: • Current licensing system (volumetric licenses with Hands Off Flows) • Current system with improved pair-wise trading • ‘Shares’ licensing system • Models weekly abstractions, consumptive use, return flows, reservoir storage and trades. • Estimated demand curves • Real flow data • Transaction costs reflect measures to ease trading and approvals needed • Model suggests who might trade with whom, how much, and when • Improvements to the current system: • pre-approved trades • online bulletin boards Lower trading time and transaction costs

13. Improved Pair-wise trading Right: Hypothetical Screenshot of an online trading bulletin board • Abstraction points (green, yellow, orange) indicate extent of pre-approval • Redcircles show interest in trading • Online transactions, link to Environment Agency records You 0.1£/m3

14. Total volumes abstracted across sectors Drastic water cuts to abstractors with unfavourable conditions (stringent HOF limits) Short-term trading under either licensing system allows more favourable abstraction patterns

15. Flow exiting catchment Current licensing system is not able to maintain environmental flows under very dry conditions

16. Improved pair-wise tradingReactions Improved pair-wise trading builds on the existing system and was generally more readily understood Pre-approved short-term bi-lateral trades were generally considered positively by the abstractors Mapping of parties willing to trade, water availability and the use of bulletin boards were seen as positive

17. Common Pool Bill Roz Zara • Weekly auction • Users trade “quotas” with auction manager • Quotas scaled to match forecast water availability • Low transaction costs • Trading platform underpinned by hydrological model • Auction clears market subject to environmental flow constraints • Needs suitable (unbundled) licences

18. Common pool model Environmental Flow Monitoring Points Abstraction points

19. Common Pool ModelReactions Change of mindset needed: abstractors, regulators Concerns: Would require training and time to manage Being short of water due to inappropriate bidding strategy (but: “isn’t this just like trading wheat futures?”) Perceived dominance of large abstractors (i.e. the reservoir) & consequent calls for “ring fencing” Discomfort/risk associated with scaling of quotas. Unused to non-firm licence rights. Governance of catchments? Potential for adverse unintended consequences e.g. loss of sector

20. Ring fencing supplies for agricultural abstractors? Ring fencing could restrict water for agricultural use only and so protect farmers’ abstraction rights BUT It might skew the market as it would keep non-agricultural users out of part of the market It could remove resilience from the trading system It may inhibit farmers from investing in water storage in partnership with other users It could restrict farmers’ ability to buy, store and sell water on the open market when conditions allowed A wider debate on the pros and cons of ring-fencing is needed.

21. Could trade in water resources promote water stewardship? Water Stewardship is the use of freshwater that is socially and economically beneficial as well as environmentally sustainable. Can protect the environment and other in-stream users (when rights are defined as a share of available water) Can encourage efficient allocation Can encourage investment Flexible BUT Concerns about unintended consequences that would be socially undesirable Concerns about transition

22. Improve demo tools / models Use common pool demo as a trading “laboratory” Effects of ring fencing PWS dominance To what extent could trading encourage multi-sectoral investment in shared infrastructure? Extend to other catchments Funding partners sought!! Final report available at:www.cpsl.cam.ac.uk Possible next steps?