Economic Rights and Regulatory Regimes: Is
there still a ‘right’ to water?
Could trade in water resources promote
water stewardship?
Alice Piure
Strategy and Policy Analyst, Anglian Water
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 longterm benefits (including economic
benefits) for local people and society
at large.”
Source: Alliance for Water Stewardship
What does water stewardship
mean to Anglian Water?
demand for
water will rise but
28%
of the
region is below
sea level
available water won’t
sustainability
reductions
will reduce the water
available for
abstraction
as a low-lying
region there is a high
use of energy to pump
water around the region
population
is
expected to rise –
around 1m homes to be
built in the next 25
years
Climate change
and uncertainty
it is the driest
region in the UK
impacts
Abstraction in the
Anglian Region
5%
2%
4%
1%
Public water supply
Electricity
Other industry
Fish farming
Agriculture (incl
spray irrigation)
88%
Source: Environment Agency, 2012
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
Water allocation
project
• Co-funded by Defra & Anglian Water
• Managed by Anglian Water
• Steering group
Final report available at:
www.cpsl.cam.ac.uk
The Upper Ouse & Bedford Ouse
catchment characteristics
Source: Environment Agency, 2005.
•
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
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
Common Pool
Hands on trading
demo
Improved Pairwise
200
150
Volume, Ml
Development of 2 demonstration
trading platforms/models
100
Hydro-economic model
Interactive workshops to share with
with stakeholders
July – October 2012
50
0
New Licensing with
Trading - Buyers
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.
Phase 2
Trialled two alternative market models:
1. Improved pair-wise trading
2. Common pool model
Current system:
Pair wise trading
Ben
Don
Zara
Frank
• High
transaction
costs
Bill
Roz
• Very thin
market
Modelling an improved pairwise
trading system
Improvements to the
current system:
• pre-approved trades
Ben
Don
• online bulletin boards
Zara
Frank
3 scenarios:
• Current licensing system (volumetric
licenses with Hands Off Flows)
• Current system with improved pairwise trading
• ‘Shares’ licensing system
Models weekly abstractions,
consumptive use, return flows, reservoir
storage and trades.
Estimated demand curves
Real flow data
Bill
Roz
Transaction costs reflect measures to
ease trading and approvals needed
Model suggests who might trade with
whom, how much, and when
Improved Pair-wise trading
You
Right: Hypothetical Screenshot of
an online trading bulletin board
0.1£
/m3
• Abstraction points (green, yellow, orange) indicate extent of
pre-approval
• Red circles show interest in trading
• Online transactions, link to Environment Agency records
Total volumes abstracted across sectors
sectors:
Drastic water
cuts to
abstractors
with
unfavourable
conditions
(stringent HOF
limits)
Volume, Ml
150
100
Current Licensing without Trading
50
0
Volume, Ml
150
Current Licensing with Trading
100
50
0
150
Volume, Ml
Short-term
trading under
either
licensing
system allows
more
favourable
abstraction
patterns
Industry
Energy
Agriculture
100
50
0
New Licensing with Trading
Flow exiting catchment
7000
6000
Flow, Ml per week
5000
4000
3000
2000
1000
0
Current Licensing without Trading
Current Licensing with Trading
New Licensing with Trading
Current
licensing
system is not
able to
maintain
environmental
flows under
very dry
conditions
Improved pair-wise trading
Reactions
•
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
Common Pool
Bill
• Weekly auction
• Users trade “quotas” with
auction manager
• Quotas scaled to match
forecast water availability
Roz
• Low transaction costs
• Trading platform underpinned
by hydrological model
• Auction clears market subject
to environmental flow
constraints
Zara
• Needs suitable (unbundled)
licences
Common pool model
Environmental
Flow
Monitoring
Points
Abstraction
points
Common Pool Model
Reactions
•
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
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 nonagricultural 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.
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
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