Gonzalo Delacámara

Water Trading in the Tagus River Basin (Spain)

Population and economic growth, coupled with rapid and extensive urban development, pushed to the limit the capacity of the upper and middle stretches of the Tagus River Basin to meet an increasing water demand, within the range of available resources and current water regulation infrastructures. In this context, voluntary agreements to transfer water use rights from agriculture to urban uses gained social support and political acceptance as an alternative to cope with the recurrent water supply deficit during dry periods. This was mainly because of their lower cost as compared to the best available alternatives already in place (efficiency improvements, use of strategic reserves, additional water works). Since the early 1990s pioneer voluntary agreements to formally transfer water between water utilities and irrigation districts sprung up for the first time in Spain. This chapter assesses two trades in the Madrid Region (including the capital city, Madrid’s metropolitan area and other towns). These trades can be arguably considered as ‘embryonic’ examples of formal water use right trades in Spain.

Defining and Assessing Economic Policy Instruments for Sustainable Water Management

This first chapter sets the scene for the work presented in this book. Based on a review of the literature, the chapter introduces a definition of economic policy instruments (EPIs) and a classification of broad categories of EPIs relevant for water policy that will be used to present the following parts of the book (prices, trading and other instruments) and following chapters/case studies under each part. A literature review is presented to justify the relevance on the selection of the three broad categories of instruments selected. Further, this chapter introduces the state of the art in the application of water EPIs and their ex-post evaluation, which is followed by the presentation of the criteria that is used for the evaluation of economic policy instruments that has been applied to all the case studies in the book. In this context, criteria are grouped into three outcome criteria and three process criteria. Outcome-oriented criteria describe how the EPIs perform. They include intended and unintended economic and environmental outcomes and the distribution of benefits and costs among the affected parties. These steps consider the application of cost effectiveness and cost benefits analysis for example to assess ex-post performance of the EPI. Process criteria describe the institutional conditions (legislative, political, cultural, etc.) affecting the formation and operation of the studied EPI (particularly relevant if we are assessing the possible impacts from the use of economic instruments), the transaction costs from implementing and enforcing the instruments and the process of implementation.

Water Trading: An Introduction

Rather than setting water prices and leaving quantities to economic agents, water authorities may rather choose to cap water quantity and set the necessary conditions for voluntary trades to happen. From a wider perspective of water use (one not only constrained to water withdrawal and consumption but also to the disposal of polluting substances), water rights or entitlements could also be defined as pollution credits and be traded in water quality trading (WQT) schemes. This chapter presents a wide array of experiences both on water quantity and water quality trading. A successful experience on nutrient credit trading in the Great Miami River (Ohio, USA) is presented along with a non-fully successful one in North Carolina, from which insightful lessons can be drawn in terms of optimising the incentive design. Furthermore, a salinity offsetting scheme in Australia is also analysed. In terms of water quantity trading, incipient experiences in central Spain (Tagus river basin district) are analysed together with mature and dynamic experiences of deep markets in Chile, the Murray-Darling Basin (Australia) and Colorado (USA).

Key Conclusions and Methodological Lessons from Application of EPIs in Addressing Water Policy Challenges

This final chapter presents the overall balance of collection of cases presented in the whole book. In line with the structure of the book, rather than assessing the EPIs themselves, this analysis focuses on their potential and actual contribution to the goals of water policy as the main criterion to discuss the screening, design and implementation of the EPIs. Furthermore, the discussion focuses on two critical aspects that may determine EPIs’ success or failure: the first one is the need to deal with the multiple goals that are distinctive of water policy; in the water policy arena any instrument is expected to serve to development, financial, environmental and other social goals at the same time and any instrument must consider the trade-offs implied. The second relates with how the EPIs chosen match within the institutional set up which, at least, is essential to define property rights and to reduce transaction costs, and then to make a given EPIs a viable option to improve water governance. Through the revision of the cases presented in the book this chapter stresses the difficulties as well as the importance of building fact based evidence about the virtues of EPIs. In the absence of that, EPIs selection and design is mostly guided by its presumed rather than its actual contribution to water policy. The chapter also contains a balance of the contribution of EPIs to help improving water quality, reduce scarcity and manage drought risks and to protect and restore river ecosystems and concludes with the main lessons learnt from the wide set of experiences covered all along the book.

Voluntary Agreement for River Regime Restoration Services in the Ebro River Basin (Spain)

The construction of the Mequinenza and Ribarroja dams back in the 1960s modified the hydrology and changed the physical and environmental conditions of the Lower Ebro River in northeastern Spain. These conditions have stirred the uncontrolled proliferation of macrophytes, which have become a relevant concern in the area since 2000. Among other environmental and economic impacts, macrophytes threaten hydroelectric power infrastructures, increasing operating costs and reducing the productivity of power-generating plants. Macrophyte blooms thus became the catalyser for collaboration between the hydropower operator and the Ebro River Basin Authority, within a larger consortium with academic experts on floods and sediment flows, to deliver controlled water floods (flushing flows). The economic instrument assessed in this chapter consists of the voluntary acceptance, based upon public and private incentives, to deliver a set of pulses or artificial floods designed ad hoc for the partial restoration of the river regime in the Lower Ebro. Since 2003 and with the exception of 2004 and 2005 (dry years) and also 2008 and the spring of 2009 (natural floods), flushing flows have been regularly performed twice a year (at the end of spring and autumn) and have resulted in macrophyte removal rates as high as 95 % in areas close to the dam.