Javier Calatrava

Agricultural Water Pricing

This document, Agricultural Water Pricing: EU and Mexico, by Alberto Garrido of the Universidad Politecnica de Madrid, and Javier Calatrava, of the Universidad Politecnica de Cartagena, Spain, is one of the background reports supporting the OECD study (2010) Sustainable Management of Water Resources in Agriculture.

An Innovative Option Contract for Allocating Water in Inter-Basin Transfers: the Case of the Tagus-Segura Transfer in Spain

The Tagus-Segura Transfer (TST), the largest water infrastructure in Spain, connects the Tagus basin’s headwaters and the Segura basin, one of the most water-stressed areas in Europe. The need to increase the minimum environmental flows in the Tagus River and to meet new urban demands has lead to the redefinition of the TST’s management rules, what will cause a reduction of transferable volumes to the Segura basin. After evaluating the effects of this change in the whole Tagus-Segura system, focusing on the availability of irrigation water in the Segura, the environmental flows in the Tagus and the economic impacts on both basins; we propose an innovative two-tranche option contract that could reduce the negative impacts of the modification of the Transfer’s management rule, and represents an institutional innovation with respect to previous inter-basin water trading. We evaluate this contract with respect to spot and non-market scenarios. Results show that the proposed contract would reduce the impact of a change in the transfer’s management rule on water availability in the recipient area.

The role of desalinisation to address aquifer overdraft in SE Spain

Aquifer overdraft is a major environmental and water management problem in Southeast Spain. In some areas, availability of desalinised seawater resources is being expanding, which provides an opportunity to address this problem at a lower social and economic cost. We analyse the economic impact of using several instruments to address the problem of non-renewable groundwater pumping in the aquifers of the Guadalentín basin: an environmental tax on groundwater use, the buyback of groundwater rights and the subsidization of desalinised resources. Their impact is assessed using a mathematical programming model that maximises the farm net margin resulting from the use of the available water resources for irrigation in the area. Our results show that, in the current situation of water availability, all the alternatives have significant economic impacts. Moreover, the first two alternatives would be unfeasible from a political point of view. The existence of abundant, though expensive, desalinised water resources in the foreseen future would reduce, but not eliminate, the negative economic impact of such instruments. Furthermore, water demand is so high in this area that even strongly subsidising desalinised water in exchange for reducing the use of groundwater would not allow to eliminate aquifer overdraft.

The diffusion process of no-tillage with herbicides application in Southern Spain's olive groves

This paper analyses the processes of both the adoption and diffusion of no-tillage and of the type of application of herbicides among Southern Spains olive farmers, using data from a farm survey. We estimate several probit models to identify some socio-economic and institutional factors related to the decision to use each practice of no-tillage on a regular basis and several diffusion models to describe the spatial and temporal spread of no-tillage among farmers. Our results show that no-tillage is practised by 90% of surveyed farmers either with the localised (21%) or non-localised (69%) application of herbicides. The diffusion process of no-tillage has been very intense since the mid-1990s, and has been based on the interaction among farmers in the area of study rather than on external factors. Some characteristics related to the adoption of each practice are farm size, irrigation and the continuity of the farming activity by some relative.

Water Pricing in Spain: Following the Footsteps of Somber Climate Change Projections

As many other countries, Spain has to cope with, and be prepared to address, major water challenges: climate change, growing demand, and water pollution. Climate change projections indicate significant reductions of runoff and water recharge and more unstable climate regimes. Improving water allocation has become an urgent need. Water demand management is now one of the most relevant issues in the Spanish water policy agenda. The chapter discusses the controversial topic of water pricing, focusing on Spain. The Water Framework Directive (WFD) foresees that, in order to ensure an efficient and sustainable management of water resources, prices should be fixed according to the principle of cost recovery. But our analysis of all policy-relevant drivers and likely scenarios suggests that reforming water-pricing policies is likely to face numerous obstacles and to raise strong opposition from most water users. And yet, pricing policies in Spain are already innovative and fully implemented for all sectors. So the way to reform is already paved, and we expect that more progress will be made in next WFD planning period (2015–2020).

Water Markets in Spain: Meeting Twenty-First Century Challenges with Twentieth Century Regulations

Water scarcity is a growing reality in many Spanish basins which creates the need for more flexible and efficient market-based allocation instruments. This chapter critically analyzes water markets’ strengths and weaknesses, evaluates some recent trading experiences, and assesses some recent reforms in the Spanish water legislation. Formal and informal trading, and variants in between, have facilitated temporary and permanent water exchanges, with and without explicit support of public agencies. Based on our analyses and other literature findings, we propose a number of reforms that we consider necessary to upgrade water markets in Spain, including some innovations such as optioning rights, and quality-graded water exchanges.

The limited success of formal water markets in the Segura River basin, Spain

ABSTRACT The Segura basin in south-eastern Spain is one of the most water-scarce regions in Europe. Its water economy has characteristics that constitute very favourable conditions for water market activity, and there are significant trading opportunities. However, the traded volumes have been rather small even though most of the water market activity in continental Spain is concentrated there. This paper describes the few formal water market experiences in the Segura basin since water trading was legislated on and regulated in 1999. As a result of this analysis, some hypotheses are made regarding the causes of the limited operation of this economic instrument.

Water buybacks to recover depleted aquifers in south-east Spain

ABSTRACT This article assesses the economic impact of implementing a public buyback of groundwater rights to eliminate non-renewable pumping in the Murcia Plateau of the Spanish Segura basin, home of some of the most depleted aquifers in Europe. We find that, regardless of the policy instrument applied, stopping non-renewable extraction would severely hit the agricultural sector. The buyback of rights would not prevent this impact but the cost of reducing extraction would be borne by the government instead of farmers, making it a potentially more successful alternative. However, the estimated cost for the public budget is very large and probably unaffordable.

Analysis of water markets as an adaptive tool to water scarcity in SE Spain’s agriculture

Abstract. Structural water scarcity is a reality in southeastern Spain, where there has been an important increase in agricultural water demand throughout the last decades, and climate change is producing a progressive reduction of water resources. This scenario will necessarily require the widespread adoption of adaptive measures in irrigated agriculture. These measures may be aimed (1) to increase the water supply (regional transfers, desalination and reuse), (2) to improve the efficiency of water use (irrigation districts modernization), or (3) to manage the demand. Water markets are demand management tools that allow for a more flexible and efficient reallocation of water resources towards higher value users, and thus contribute to improving social welfare by maximizing the income derived from its use, as well as reduce water availability-related hazards and mitigate the economic impacts of drought periods in agriculture. Water markets are allowed by the Spanish water legislation, but there are still numerous gaps on the knowledge about their functioning that must necessarily be covered as an essential starting point to make practical proposals for their improvement. The objective of this study is to describe the current performance of water markets in southeastern (SE) Spain, identifying their limitations and strengths. The activity of water markets in SE Spain over the past three decades has been less than might have been expected given the hydrological conditions and characteristics of the economy of water in the basin, and has been limited almost exclusively to agricultural irrigation. After a characterization of the water markets experiences that have occurred to date, the study shows a preliminary analysis of availability and adequacy of water infrastructure. Especially interesting is the analysis of transaction costs, i.e. those derived from the costs of physical transportation of water and its potential environmental impacts. The analysis of water-energy-CO 2 nexus is also interesting in order to know both the specific energy and the emissions of greenhouse gases associated with water markets, information of strategic interest when assessing the sustainability of water markets over other adaptive measures for irrigated agriculture adaptation to water scarcity, such as seawater desalination or regional water transfers.

Agricultural Subsidies, Water Pricing and Farmers’ Responses: Implications for Water Policy and CAP Reform

Agricultural policies have major impacts on other sectoral policies such as water or environmental policies. In Mediterranean countries with large irrigation acreages, agricultural policy is one of the most important factors affecting irrigation water demand. The kinds of subsidies, barriers to trade or market interventions in place largely dictate what irrigated crops farmers are willing to grow and to what extent farmers are likely to respond to various water pricing policies. While most OECD countries, with the European Union at the forefront, are progressing towards charging water consumers for the costs they impose on the water supply systems, many of them still promote irrigation projects, seek market protection for certain crops, and establish generous grandfathering provisions for irrigators’ obligation to pay higher water rates (OECD, 1999; Garrido, 1998; Dinar and Subramanian, 1997).