Economic Rights and Regulatory Regimes: Is there still a

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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
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Water stewardship

• 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.

• Water Stewardship is the use of freshwater that
  is socially and economically beneficial as well
  as environmentally sustainable.

• 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.

• Source Alliance for Water Stewardship

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What does water stewardship mean to Anglian
Water?
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Abstraction in the Anglian
Region

• Source Environment Agency, 2012

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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

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Water allocation project

• Co-funded by Defra Anglian Water
• Managed by Anglian Water

• Steering group

Final report available at www.cpsl.cam.ac.uk
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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.
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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
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Phase 1 Findings

• 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

Source, HR Wallingford et al, 2012.
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Phase 2

• Trialled two alternative market models

• 2. Common pool model

• 1. Improved pair-wise trading

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Current system Pair wise trading
Ben
Don

• Very thin market
• High transaction costs

Zara
Frank
Bill
Roz
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Modelling an improved pairwise trading system

• 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
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Right Hypothetical Screenshot of an online
trading bulletin board
Improved Pair-wise trading
You

• Abstraction points (green, yellow, orange)
  indicate extent of pre-approval
• Red circles show interest in trading
• Online transactions, link to Environment Agency
  records

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

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Common Pool

• 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

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Common pool model
Environmental Flow Monitoring Points
Abstraction points
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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 isnt 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

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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.

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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

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Possible next steps?

• 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

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