35
CONTENTS OF PRESENTATION
•Section 1
Background information
•Section 2
The research process
•Section 3
Conceptual framework
•Section 4
Elements of proposed system
•Section 5
Economic and financial
implications
•Section 6
Implementation schedule
Department: Water Affairs and Forestry
CONTENTS
Water Research Commission
36
OBJECTIVES OF THE WDCS
Address water quality problems: Excessive waste levels
of water
Internalise cost
of pollution
Recover cost of pollution
Incentive to
reduce pollution
Promote sustainable
water use
Obje
ctive
s
Department: Water Affairs and Forestry
Water Research Commission
37
IMPORTANT ELEMENTS: Resource economics
Opportunity cost: forgone opportunity to use
natural resource for other purpose
Polluter-Pays
Principle
Mutual exclusiveness: in water containing
waste cannot be used for other purposes
Water-stressed country: opportunity cost is
high
Opportunity cost paid by polluter
Approaches to
pollution
control
Command-and-control (CAC): regulatory
principle currently in use to manage WQ
Economic approach: Incentive towards the
prevention of pollution
Impo
rtant
elem
ents
Department: Water Affairs and Forestry
Water Research Commission
TYPES OF WASTE CONSTITUENTS
Pollutant type:
38
Indicator
Salinity
Total dissolved salts (TDS)
Nutrients
Total phosphorous (TP)
Total nitrogen (TN)
Nitrates (NO2/NO3)
Ammonia / NH4
Selection criteria
Types of
waste
constituen
ts
Represents broad category of
pollution problems
Significance of impact
Universality of measurement
Measurability
Department: Water Affairs and Forestry
Acceptance of results
Cause-effect linkage
Magnitude of problem
Variability not too
dependent on flow conditions
Water Research Commission
39
WASTE LOAD DEFINED
Waste load
kg
=
(÷1000)
Concentration
X
Volume
m3
mg/l
Applications
WLC < AC
WLC > AC
Discharge and pay charge
Engage in abatement
With WLC = Waste Load Charge
AC = Abatement cost (Waste prevention/
Treatment technology)
Waste load
defined
Principle: Charge high enough to serve as incentive to
engage in abatement rather than to pay charge
Department: Water Affairs and Forestry
Water Research Commission
40
BASIS FOR
SETTING CHARGES
Waste Discharge Charge
Tier 4
Deterrent
Toxic / inhibitory pollutant level
Tier 3
Authorised waste discharge standard
Tier 2
Generally compliant
National Waste Standard
Admin Cost
Tier 1
Basis for
setting
charges
Pollution Level / Concentration
Department: Water Affairs and Forestry
Water Research Commission
CALCULATION OF CHARGE
41
Basic charge: independent of
pollution level based on volume
of discharges (Tier 1).
Load-based charge: Proportional
charge per waste load (Tier 2)
Deterrent charge: progressive
charge per waste load (Tier 3 & 4)
Rebates: better quality than
abstracted
Calculation
of charge
Department: Water Affairs and Forestry
Water Research Commission
42
PRINCIPLE FOR OPTIMAL CHARGE LEVELS
IMPORTANT PRINCIPLES
1. Full cost cripples economy
Marginal Revenue (MR) =
Marginal Social Cost (MSC)
2. Compromise necessary
3. Optimal charge level:
Acceptable impact to economy
Deterrent objective to prevent
costs to third parties
Revenue objective recover
water quality management
Water quality objectives:
pollution levels fitness for
use by downstream users
(river classes)
Apply variable basis for charge
setting (different tiers)
costs
Principle of
optimal charge
levels
Department: Water Affairs and Forestry
Water Research Commission
ATTAINABLE ECOLOGICAL
MANAGEMENT CLASS (AEMC)
43
Median concentration (mg/l)
AEMC
Sustainable
range
Unsustainable
range
TDS
TP
Ammonia TN Description
A 0-163
< 0,1
< 0,007
B 163-228
0,1-0,167
0,007-0,015 2
C 228-325
0,167-0,175
0,015-0,03
3
D 325-520
0,175-0,25
0,03-0,07
4
E -
-
-
-
F -
-
-
-
1
Unmodified or
nearly pristine
Few
modifications
Moderate
modifications
Largely
modified
Seriously
modified
Critically
modified
AEMC
Department: Water Affairs and Forestry
Water Research Commission
ECONOMIC ASSESSMENT (1)
To determine the overall impact
of charge system on economy.
Implies determining the cost
savings due to reduced pollution.
Cost
PURPOSE
Downstream cost
Downstream cost
Impact of pollution on downstream
abstractors. Cost increases with
increasing waste load.
Waste load
Economic
assessment(1)
Department: Water Affairs and Forestry
Water Research Commission
ECONOMIC ASSESSMENT (2)
To determine the overall impact
of charge system on economy.
Implies determining the cost
savings due to reduced pollution.
Cost
PURPOSE
Downstream cost
Downstream cost
Abatement cost
Impact of pollution on downstream
abstractors. Cost increases with
increasing waste load.
Abatement cost
Cost to dischargers to reduce
pollution increases as waste load is
decreased.
Waste load
Economi
c
assessme
nt(2)
Department: Water Affairs and Forestry
Water Research Commission
ECONOMIC ASSESSMENT (3)
To determine the overall impact
of charge system on economy.
Implies determining the cost
savings due to reduced pollution.
Cost
PURPOSE
Downstream cost
Downstream cost
Abatement cost
Total cost
Impact of pollution on downstream
abstractors. Cost increases with
increasing waste load.
Abatement cost
Cost to dischargers to reduce
pollution increases as waste load is
decreased.
Total cost
=
Waste load
Downstream cost + Abatement cost
Economic
assessment(
3)
Department: Water Affairs and Forestry
Water Research Commission
ECONOMIC ASSESSMENT (4)
To determine the overall impact
of charge system on economy.
Implies determining the cost
savings due to reduced pollution.
Cost
PURPOSE
Downstream cost
C1
Downstream cost
Abatement cost
Total cost
Impact of pollution on downstream
abstractors. Cost increases with
increasing waste load.
Abatement cost
Cost to dischargers to reduce
pollution increases as waste load is
decreased.
Total cost
=
Q1
Waste load
Downstream cost + Abatement cost
Economic
assessment(4)
Department: Water Affairs and Forestry
Water Research Commission
ECONOMIC ASSESSMENT (5)
To determine the overall impact
of charge system on economy.
Implies determining the cost
savings due to reduced pollution.
Cost
PURPOSE
Downstream cost
Downstream cost
Impact of pollution on downstream
abstractors. Cost increases with
increasing waste load.
C1
Abatement cost
C2
Total cost
Abatement cost
Cost to dischargers to reduce
pollution increases as waste load is
decreased.
Total cost
=
Q2
Q1
Waste load
Downstream cost + Abatement cost
= C1 – C2
Economic
assessmen
t(5)
Department: Water Affairs and Forestry
Water Research Commission
GENERAL NATIONAL CHARGE RANGES
49
TIER 2 CHARGE PER WASTE LOAD (KG )
(Concentration x volume)
TDS (Salts): R0,30 – R0,60
TP (Phosphorous): R2,70 – R5,40
NH4 (Ammonium) / NH3 (Ammonia):
R0,60 – R1,20
General
national
charge
ranges
NOx (Nitrogen Oxides): R0,60 – R1,20
Basic charge: Average R0,04 per m3 depending on
catchment
Note: Specific regional charges to be determined
Specific variable and not group of variables
Department: Water Affairs and Forestry
Water Research Commission
50
CONTENTS OF PRESENTATION
•Section 1
Background information
•Section 2
The research process
•Section 3
Conceptual framework
•Section 4
Elements of proposed system
•Section 5
Economic and financial
implications
•Section 6
Implementation schedule
Department: Water Affairs and Forestry
CONTENTS
Water Research Commission
MANAGING THE SYSTEM (1)
National
Department
of Water
Affairs and
Forestry
51
Policy and strategy formulation
Approval of tariffs (Minister)
Manage Tier 3&4 revenue
disbursement
Monitor & Evaluate system:
1. Effectiveness
2. Operational efficiency
3. Prevent irregularities
Managi
ng the
system(
1)
Department: Water Affairs and Forestry
Water Research Commission
52
MANAGING THE SYSTEM (2)
Catchment
Management
Agencies
Determining & setting of charge:
Compile CMA Strategy
CMA Business Plan (revenue targets/budget
allocation)
Charge setting
Submit for approval
Billing mechanism
Issue licenses & sampling
Auditing: self monitoring system
Manage Tier 1&2 disbursement
Manag
ing the
system
(2)
Department: Water Affairs and Forestry
Water Research Commission
53
MANAGING THE SYSTEM (3)
Only non-core activities
Outsourcing
Not independent of existing
charge mechanisms
Good motivation required
Water Boards as possible
agents
Managi
ng the
system
(3)
Department: Water Affairs and Forestry
Water Research Commission
ELEMENTS OF PROPOSED WDCS:
Billing Mechanism
Financial
Management
System
Charge collection
Customer relations
Monitoring: spot checks
(incident reporting)
Use WARMS system
Invoicing: Accounts Receivable system
(three different accounts for tiers)
Electronic bank transfer
Post Offices
Enquiries
Appeals
Department: Water Affairs and Forestry
54
Elements of
proposed
WDCS:
Billing
mechanism
Water Research Commission
WARMS (Water Authorisation and Registration System)
55
PRICING STRATEGY
WATER USE
TARIFFS
(abstraction)
No
double
counting
Waste
Discharge
INTEGRATED INVOICING
Certificate of
volumetric use
WARMS
Registration system
Registered water use
Authorised water
use
Waste
Discharge
Charge
WAR
MS
Department: Water Affairs and Forestry
Water Research Commission
56
REVENUE RING-FENCING
1. Revenue, not to General
Fiscus
2. Revenue not to DWAF
general account – ring-fenced
for water resource management
3. Ring-fenced to CMA’s for water
resource management
Revenue
ringfencing
Department: Water Affairs and Forestry
Water Research Commission
57
REVENUE DISBURSEMENTS of
RING-FENCED RESOURCES
1. Administration & management costs (Tier 1)
2. Regional treatment facilities (Tier 2)
3. Rehabilitation (Tier 3 & 4)
4. Spillage & exceedance (Tier 3 & 4)
5. R & D (Tier 3 & 4)
6. Transfers, cross-subsidisation
& compensation
Department: Water Affairs and Forestry
Water Research Commission
TRANSFERS/CROSS-SUBSIDISATION
58
(Ex: Urban-Econ Middle Vaal Salinity Study)
GAUTENG
KLERKSDORP
Saline mine water
decanting
Greater cost to
downstream users
Transfer payment
Water Management
Area A
Water Management
Area B
TRANSFER/
CROSSSUBSIDISA
TION
Department: Water Affairs and Forestry
Water Research Commission
59
CONTENTS OF PRESENTATION
•Section 1
Background information
•Section 2
The research process
•Section 3
Conceptual framework
•Section 4
Elements of proposed system
•Section 5
Economic and financial
implications
•Section 6
Implementation schedule
Department: Water Affairs and Forestry
CONTENTS
Water Research Commission
UNDERSTANDING ECONOMIC IMPACT
DUE TO POLLUTION CHARGE
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Charge has negative and positive impacts on economy
Charge has positive impacts on environment, but unquantified
Economic costs and benefits:
Dischargers (treatment not core business):
• increase in cost of production: charge/abatement
• resulting in: decrease in profits/decrease in production
Downstream activities:
• decrease in cost of production
• resulting in: increase in profits/increase in production
Waste treatment activities:
• increase in production
Understandi
ng
Economic
Impact
• resulting in: economies of scale, decrease in unit cost of production
Department: Water Affairs and Forestry
Water Research Commission
RELATIONSHIP BETWEEN ECONOMIC
AND ENVIRONMENTAL FACTORS
ECONOMY
61
Reduction in
downstream
costs
Increase in
abatement
activities
Reduction in
waste
discharges
Reduction in
production
ENVIRONMENT
Environmental
status quo
Economic
status quo
Costs
CHARGE SCENARIOS & COSTS
Department: Water Affairs and Forestry
Relation
ships
between
Factors
Charges
Water Research Commission
DETERMINING ECONOMIC IMPACT:
MAIN ASSUMPTIONS (Scenario)
62
Progressive charge (Tier 3 & 4) to serve as deterrent
Charge covers partial abatement costs (32% optimum)
No partial abatement solutions at firm level
No non-economic managerial decisions
Econo
mic
Impac
t
Department: Water Affairs and Forestry
Water Research Commission
63
IMPACT TOTAL ECONOMY
Impact
WDCS load-based charge
-R258m
Municipal treatment costs
-R30m
Downstream benefits
+R431m
Benefits minus costs
+R144m
Overall
Impact
Department: Water Affairs and Forestry
Water Research Commission
TOTAL ECONOMIC IMPACT
Cost
Overall impact is positive
Is it fair??
Downstream cost
C1
R144m
C2
Abatement cost
Total cost
32%
Q2
Q1
Waste load
Total
Economic
Economic
assessmen
impact
t(5)
Department: Water Affairs and Forestry
Water Research Commission
OPERATIONAL COSTS (TIER 1 DISBURSEMENT)
Total WQM costs
A. Original WQM costs under CAC (General fiscus)
B. Additional administrative costs under WDCS
Current staff costs
A
Current monitoring costs (travel, sampling)
Current legal enforcement costs
R41m
Auditing, disbursement of funds
Setting charges
B
Billing, collection
Customer relations, appeals
Monitoring (increased during phasing-in period)
Information management
Department: Water Affairs and Forestry
R12m
Operati
onal
Cost(1)
Water Research Commission
OPERATIONAL COSTS (TIER 1 DISBURSEMENT)
Total WQM costs
A. Original WQM costs under CAC (General fiscus)
B. Additional administrative costs under WDCS
C. Reduced WQM costs under WDCS
Current staff costs
A
Current monitoring costs (travel, sampling)
Current legal enforcement costs
R41m
Possible reduction of legal costs
Auditing, disbursement of funds
Setting charges
B
C
Decreased monitoring costs due
to self-monitoring by dischargers
80% reduction in monitoring of significant
impactors
Billing, collection
Customer relations, appeals
Monitoring (increased during phasing-in period)
Information management
Department: Water Affairs and Forestry
R12m
Operati
onal
Cost(2)
Water Research Commission
67
CONTENTS OF PRESENTATION
•Section 1
Background information
•Section 2
The research process
•Section 3
Conceptual framework
•Section 4
Elements of proposed system
•Section 5
Economic and financial
implications
•Section 6
Implementation schedule
Department: Water Affairs and Forestry
CONTENTS
Water Research Commission
68
IMPLEMENTATION SCHEDULE
Phase 2
(Dec 2002)
Final strategy
(2003)
Piloting: important
catchments
(2004)
(2005)
General implementation
Catchment management
Extend scope to
diffuse sources
(2010)
Disburse
Revenue
(2006)
Implement
ation
schedule
Department: Water Affairs and Forestry
Water Research Commission
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ISSUES TO BE DISCUSSED
Waste load vs volume abstracted
Tier 1 based on load or only volume
Charges to vary according to river class
Downstream compensation
Cross-subsidisation between sectors
Issues to be
discussed
Department: Water Affairs and Forestry
Water Research Commission
70
MORE INFO &
CONTACTS
DWAF Website:
www.dwaf.gov.za/Dir_WQM
Robyn Arnold
[email protected]
MORE
INFO
Department: Water Affairs and Forestry
Water Research Commission