Water in the 21st Century: The Looming Crisis Averted

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Water in the 21st Century The Looming Crisis
Averted?

• Peter Rogers
• Harvard University
• Presented at the Annual Meeting of the Asian
  Development Bank, Honolulu, May7, 2001

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The views expressed in this paper are the views
of the author and do not necessarily reflect the
views or policies of the Asian Development Bank
(ADB), or its Board of Directors or the
governments they represent. ADB makes no
representation concerning and does not guarantee
the source, originality, accuracy, completeness
or reliability of any statement, information,
data, finding, interpretation, advice, opinion,
or view presented.
 
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Population and Environment

• Population Scenarios
• Economic Development
• Consumption Patterns

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Water and Irrigation by 2025
IF

• 3 billion extra people
• Food consumption per capita is constant
• Irrigation of incremental agriculture is same
  as of total agriculture today
• Water efficiency at basin level reaches 70
• Need 17 more water for irrigation

THEN
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By 2025

• Urban populations will treble
• Industrial activity will increase
• Water pollution will not decline significantly

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Questions we must consider

• Population and environment
• Increasing supply and reducing losses
• Reducing pollution and promoting reuse
• Reducing water consumption
• Mismatch between needs and availability
• Markets, trade and institutions

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Increasing supply of useable freshwater

• Underground water
• Desalinization
• Other?

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Reducing losses

• Monsoon dams
• Water harvesting
• Evapotranspiration

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Reduce water consumption

• More crop per drop
• Improve irrigation
• Improve agronomic techniques
• Biotechnology

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Water use efficiency in producing grain wheat,
Syria
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• Improve municipal water use
• Replace flush toilets
• Coverage and sustainability

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Markets, trade and institutions

• Global trade
• Water markets
• Institutions
• Community action

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Fundamental Principles for Water Pricing

• User pays
• Polluter pays
• Subsidize the good, tax the bad

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New technologies in waste management

• Better processes in treatment of waste water,
  sludge, and solid wastes
• Better composting techniques
• More effective removal of pathogens and heavy
  metals
• Better odor control

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• THEREFORE
• Need more water
• harvesting/dams Desalination
• Different plants
• Water reuse
• Trade
• Plus all the other demand-side management and
  efficiency/equity measures

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Investment in water over the next 10 years

• 600-800 billion
• 60-80 billion internationally funded
• Up to 30-40 billion possible from the World
  Bank
• How much from ADB?

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Policy Issues

• Develop integrated, multisectoral frame-works for
  waste resource management
• Clearly define reuse priorities and strategies
  with a focus on protecting human health
• Integrate rural-urban waste utilization plans

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SOURCES OF MARKET FAILURE

• Public goods (non-excludable non-rival
  consumption)
• Common property resources (non-excludable rival
  consumption)
• Externalities
• Unpriced assets and missing markets
• Lack of property rights
• Transaction costs
• Irreversibility
• Ignorance and uncertainty

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SOURCES OF GOVERNMENT (POLICY) FAILURE

• Failure to correct market distortions
• Subsidies to resource users and polluters
• Inappropriate tax incentives and credits
• Over-regulation and under-regulation
• Conflicting regulatory regimes
• Bureaucratic obstacles and inertia

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International Institutions and Water Policy
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The Dublin Principles

• Fresh water is a finite and vulnerable resource,
  essential to sustain life, development and the
  environment
• Water development and management should be based
  on a participatory approach, involving users,
  planners and policymakers at all levels
• Women play a central part in the provision,
  management and safeguarding of water
• Water has an economic value in all its competing
  uses and should be recognized as an economic good

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STRATEGIC INSTRUMENTS FOR IWRM IDB,1997

• Cost Recovery
• Capacity Building
• Institutional reform and innovation
• Human resources development
• Stakeholder Participation
• Decentralization
• Private Sector Participation
• Tradable Water Rights
• River basin Councils

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TIMELINE FOR IWRM

• Flood Control Act, 1936
• Federal Inter-Agency River Basin Committee, 1939
• Hoover Commission, 1949
• Green Book, 1950
• Presidents Water Resources Commission, 1950
• Bureau of the Budget Circular A-47, 1952
• Senate Document 97, 1962
• Water Resources Council, 1965
• National Water Commission, 1968
• NEPA, 1969
• National Commission on Water Quality, 1973
• Principles and Standards, 1973
• Principles and Guidelines, 1982
• UN Convention on the Law of the Non-Navigational
  Uses of International Water courses, 1997

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Conferences, Commissions, and Important Documents
for IWRM

• Green Book, 1950
• Muddy Waters, 1951
• Design of Water Resources Systems, 1962
• Principles and Standards, 1973
• Principles and Guidelines, 1982
• International Conference on Water and the
  Environment Development Issues for the 21st
  Century, Dublin, 1992
• World Banks Water Policy Paper, 1993
• Inter-American Development Banks IWRM Strategy
  Paper, 1997
• Asian Development Banks Draft Water Policy, 1996
• Global Water Partnership, 1996
• World Water Council, 1996
• World Commission on Water for the 21st Century,
  1998
• World Commission on Dams, 1999

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UN ORGANIZATIONS AND IWRM

• UNDP
• FAO
• WHO
• UNICEF
• WMO/UNESCO
• IHP
• UNDESD
• Intersecretariat Group for Water Resources
• UNEP
• GEF

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OTHER INTERNATIONAL INSTITUTIONS DEALING WITH IWRM

• World Bank
• Asian Development Bank
• Inter American Development Bank
• African Development Bank
• Global Water Partnership
• World Water Council
• IUCN
• IIMI now IWMI
• IFPRI
• IPTRID
• ICID
• IJC

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Efficiency, Equity, and Sustainability Through
Pricing
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How to use Prices to Promote Equity,
Efficiency, and Sustainability
Well Known Effects 1) Increase
d price reduces demand (i) Substitutes become
cheaper (ii) Conservation becomes
affordable (iii) Change consumption
preference 2) Increased price increases
supply (i) Marginal projects become
affordable (ii) Provides economic incentives to
reduce water losses 3) Increased price
facilitates re-allocation between
sectors (i) From irrigation to domestic and
industrial (ii) From off-stream to in-stream
uses
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Less Well
Known Effects1) Increased prices improve
managerial efficiency due to increased
revenues (i) Improving maintenance (ii) Improv
ing staff training and education (iii) Making
modern monitoring techniques affordable (iv) Maki
ng modern management techniques
affordable 2) Increased prices reduce the per
unit cost of water to poor people(i) Increases
coverage of poor urban and peri-urban populations
because additional water is available for
extending the system (ii) Reduces reliance by
the poor on water vendors(iii) Makes water
available to tail-enders in irrigation
systems 3) Increased prices leads to
sustainability(i) Reduces demands on resource
base (ii) Reduces pollution loads due to
recycling of industrial water (iii) Make more
water available for ecosystems
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Three important conceptsCOST OM
costs, capital costs, opportunity costs, costs of
economic and environmental externalities. VALUE
Benefits to users, benefits from returned flows,
indirect benefits, and intrinsic values. PRICE
Amount set by the political and social system to
ensure cost recovery, equity and sustainability.
The price may or may not include subsidies.
Prices for water are not to be determined solely
by costs or value.
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General Principles for Value and Cost of Water
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Comparison of Value-in-Use, Costs, and Prices
Charged for Three Sectors in the Subernarehka
River Basin, India
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FULL-COST PRICING
The reliance on full-cost pricing as one major
policy recommendation of the Water Commissions
Report leaves open the question of the exact
definition of these words. There can be at least
three definitions of full cost.
FULL SUPPLY COST
The first, full supply cost, is defined as the
sum of the operation and maintenance costs plus
the capital charges associated with the water
supplied. Although there is little argument about
the components of this cost, there are still
arguments about which discount rate to use to
compute the capital charges. Some would argue for
the market rate, others for the opportunity cost
of capital, and yet others for a social rate of
discount. Depending upon the circumstances the
choice may make a very large difference between
the estimates of full supply cost.
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FULL ECONOMIC COST
The second, full economic cost, is defined as the
sum of the full supply costs plus the opportunity
cost of the water used and the economic
externalities caused by its use. The opportunity
cost of the water used is itself defined as the
value of benefits lost by using the water for
that particular use instead of some other use. So
for example, if the water is to be used for
irrigation and there are other higher valued
uses, such as municipal supply, that could use
the water, then the opportunity cost is the
difference between the price that the other use
would be willing to pay and the price that
irrigation is willing to pay. If there is no
difference in the willingness to pay, then the
opportunity cost is zero, otherwise it is some
positive amount. Estimating the opportunity cost
in actual cases may be fairly difficult, but
never the less is an important part of the cost
to the economy of particular water uses. The
final component of full economic cost is the cost
of economic externalities. These arise as the
consequences of water use by one user causing
economic damages to other users. The obvious case
is of upstream polluters imposing economic
damages on downstream users.
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FULL COST
Finally, there is full cost. This is composed of
the full economic cost plus the environmental
externalities caused by the use of the water. The
environmental externalities are usually defined
in terms of damages to the ecosystem, the public
health of the exposed populations, and the
aesthetics of the impacted areas. In order to
include these in the cost, however, it is
necessary to calculate economic values for the
damages. Once economic values are assigned, some
observers would claim that they are economic
externalities and, hence, should be included in
the full economic cost. One good argument for
keeping them as a separate component is precisely
because of the difficulty of assessing the
economic values.
RECOMMENDATION
In this scheme of things, full cost is greater
than full economic cost that is, in turn, greater
than full supply cost. We believe that, given the
practical difficulties in assessing environmental
externalities in economic terms, we should push
for full economic cost a desirable goal.
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Conclusions Regarding Pricing Policies

• There is ample evidence to support the contention
  that water is already viewed as an economic good
  in many, if not most, countries in the world,
• There is ample evidence for the use of pricing
  policy in water management in many countries in
  and in many different sectors of water use,
• The evidence indicates that unless there is
  integrated pricing of the resource supplied from
  all sources, the use of pricing will not
  necessarily lead to the desired outcomes,
• The literature reflects managerial efficiency
  improvements in response to price policy,
• There are clear examples that water pricing can
  and has improved the distributional equity for
  the poor in many settings, and
• There are clear cases where appropriate pricing
  has led to improved sustainability of the water
  resource.

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