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SCOPING THE ECONOMIC ANALYSIS OF THE WATER FRAMEWORK DIRECTIVE

CONFEDERACION HIDROGRAFICA DEL EBRO. MINISTERIO DE MEDIO AMBIENTE. SCOPING THE ECONOMIC ANALYSIS OF THE WATER FRAMEWORK DIRECTIVE. CIDACOS RIVER BASIN NAVARRA-SPAIN Presentation 3.- Measures in Agriculture Ministerio de Medio Ambiente Gobierno de Navarra.

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SCOPING THE ECONOMIC ANALYSIS OF THE WATER FRAMEWORK DIRECTIVE

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  1. CONFEDERACION HIDROGRAFICA DEL EBRO MINISTERIO DE MEDIO AMBIENTE SCOPING THE ECONOMIC ANALYSIS OF THE WATER FRAMEWORK DIRECTIVE CIDACOS RIVER BASIN NAVARRA-SPAIN Presentation 3.- Measures in Agriculture Ministerio de Medio Ambiente Gobierno de Navarra

  2. Typology of applicable measures • Effectiveness of the measures • Indirect effects • Redistribution effects • Conclusions

  3. 1.Typology of applicable measures

  4. Key concepts • Two-sided water demand • Wholesale water demand (Q) • Net demand (q) (Real or physical consumption) • q=h Q; (h: global irrigation efficiency) • Q-q = Q  (1-h) = return flows • h= hcond  hdist happlicac • Assume water is priced at wholesale level-define P’ = P/h (P tariff; P’application price) • hNO < hyes

  5. P’ (€) Key concepts qbN(p’) A. Water pricing Inelastic demand EbN1 p1/hN Ebn0 p0/hN q (net consumption m3) qbN1 qbN0

  6. P’ qbN(p’) qbs(p’) B. Modernisation project hy >hn h Ey,n0 p0/hN Ebs0 p0/hy qbs1 q qbN0

  7. P’ qbN(p’) qbs(p’) C. Water pricing + modernisation project hs >hn h p1/hN Ebs1 p1/hs Ey,n0 p0/hN p0/hs q qbN0 qbs1 qbs0

  8. P’ qbN(p’) qbs(p’) h EbN1 EaN1 p1/hN Eas1 EaN1 EbY1 p1/hs A B Ey,n0 p0/hN qay(p’) p0/hs h qaN(p’) qaN1 qas1 qbN1 qbs1 q qaN0 = qbN0

  9. 2.Effectiveness of measures • Evaluation: • Estimate water demand reductions • Estimate flow increases as result of lower demand • Estimate total cost • Assumption of return flows Measures (excluding incentive pricing)

  10. 2.Effectiveness of measures Fix rates vs variable rates Inelastic demand Implications • Lower Profits • No price effect • No indirect effects • No crop changes • Easy to collect/administer P Q • Lower Profits • Indirect effects • Crop changes • Less Easy to collect/administer P Q

  11. 3. Indirect effects • Negative, in the rural economy: • Food processing industries • Agricultural input industry • Employment • Positive, in irrigated farms: • More reliable water supply • Higher product prices • Higher farm productivity • Assumptions: • Only measures in which q have (-) effects

  12. 3. Indirect effects: 2 examples A) Restoration of the riverine forest to lower river temperature • Set-aside of cultivated land (10meters x 15 km=15 hectares)

  13. 3-Indirect effects: 2 examples B) Incentive pricing: • Reduction in water demand • Reduction in land productivity • Procedure: • Evaluate the correspondent Volumetic Tariff needed to: • Recover 50% of the Measures’ costs • Recover 100% of the measures’ costs • Apply water demand elasticity: -0.4. • Estimate new water consumption • Reestimate irrigated land • Estimate direct and indirect effects

  14. 3. Indirect effects: 2 examples B) Incentive pricing Strecht 2. CR Olite. Tariff recovers 50% of measures’ costs

  15. 3. Indirect effects c) Sensitivity analysis

  16. 3. Indirect effects c) Sensitivity analysis

  17. 4. Redistribution effects • Measures have also positive effects on the farms’ economies • What would the costs and benefits distribition for the Cidacos’ farms if the most cost effective measures are implemented and all irrigators contribute to pay them?

  18. Conclusions • Assumptions about return flows are critical • Different financing mechanisms are not neutral in: • Indirect effects • Water conservation • Agricultural policies affect water demand and the relative costs of the measures • There is a trade-off between the objectives of cost’s effectiveness and institutional feasibility

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