RS-14 Water Policy and Governance: Economics of Governance

Topic: 4. Water policy and governance
Date: 2017-05-31
Time from: 09:00:00
Time to: 09:30:00
Room: Salón Isla Mujeres
Chairman: Ronald KAISER (rkaiser@tamu.edu)

Abstracts

Theme:
3. Water security in a changing world
Abstract ID:
431
Submit by:
Kleverton Melo de Carvalho
Author(s):
Kleverton Melo de Carvalho | Maria Elisabete Pereira dos Santos |  
Country:
BRAZIL
Keyword(s):
Global value chains, international water security
Files: 

Abstract

This study discusses water security within global value chains (GVCs). GVCs refer to the cross-border flows of goods, investments, services, know-how and people involved with international production networks. Secondarily, the work seeks to:    (i) problematize the role of international trade in the current scenario of water security; (ii) explore the impacts of virtual water (VW) trade in water security within GVCs; (iii) discuss practices of corporate environmental responsibility that can enhance water security; (iv) evaluate Transatlantic and Transpacific Agreements concerning GVCs and potential impacts of these in international water security. Considering the descriptive and exploratory nature of the paper, qualitative procedures were used, through a content analysis. Articles were used from newspapers, academic papers and official documents, particularly the World Trade Organization (WTO) annual reports. From the article’s main observations, the following can be highlighted:  (i) the water security issue began to make inroads in international trade, driven by issues more related to agriculture, in which water is most commonly used to produce exported goods. This happens because of the long distance transfer of AV, which is defined as the amount of water that has been used to produce goods;  (ii) the review of benefits generated by the exportation process of VW is strategic and urgent for numerous countries, mostly because many importing countries do not have enough water resources in their territories. In recent years, VW circulation has been increasing due to increased exportation from agricultural countries. For this reason, the theme "virtual water” and “water security" should be included in the debate on food security established by WTO in the Bali Trade Agreement (2013), taking into consideration the Doha Round. Finally, there are two analytical perspectives that represent a paradox: (iii) the participation in GVCs has strengthened the implementation of a stronger regulatory frame in domestic environmental laws and governance (including water) by countries, reducing the negative impacts and the risks of participation in GVCs. Furthermore, company-leaders of GVCs have imposed regulations for water security in their chains as a strategic decision. This strategy could be seen in some of the companies in the food, textile and personal hygiene sectors;    (iv) on the other hand, the Transatlantic and Transpacific Agreements, although strengthening GVCs, require a deeper discussion regarding water security. These agreements tend to give greater emphasis to environmental self-regulation, based on voluntary mechanisms and an in-state investors system. This approach favors businesses in opposition of internal environmental regulations. Consequently, there are some risks regarding the reduction of international water security because:  (i) the increasing trade of agricultural products in GVCs, stimulated by Transatlantic and Transpacific Agreements; (ii) the reduction in domestic regulatory protection for water in participating countries of the mentioned agreements.

Theme:
6. Water and sustainable growth
Abstract ID:
399
Submit by:
Alex Godoy-Faúndez
Author(s):
Alex Godoy-Faúndez | Diego Rivera | Roberto Ponce | Douglas Aitken |  
Country:
CHILE
Keyword(s):
Water scarcity, electricity market, copper, renewable energy
Files: 

Abstract

Chile has been one of the fastest growing economies in Latin America. The economy is strongly linked to the mining industry and a recent economic contraction within the industry has led to a slowing of Chile’s economic growth rate. A recent decline in copper prices, a reduction in mining investments and lower private consumption has led to a GDP growth rate of 1.9%, considerably lower than experienced in previous years. The drop of copper prices has been attributed to commodities cycles, slowdown in the global economic market and increasing costs of raw materials. The mining industry is a large consumer of electricity for ore processing, consumption is expected to increase considerably in the future as a result of reduced ore concentrations and an increase in the use of seawater requiring desalination and pumping to high altitudes. Competition for consumption of electricity is also very high from other sectors, with the greatest demand from the industrial sector. Overall, demand is expected to increase at about 6% per annum which is likely to impact electricity prices thereby affecting the mining industry. Paradoxically, in Chile, the prices of electricity have dropped recently due to inclusion of more renewable energy by restrictions in tenders in favor of solar and wind energy affecting prices in the hot spot market. The rules to fix prices in favor of renewable energy reduces spot prices, whilst ensuring a greener and more competitive market, the downside, however, is the generation of uncertainties related to backup systems (a necessity due to the intermittence of renewable energy sources). Within the Chilean electrical grid, hydroelectricity provides the greatest source of energy (42%) which is primarily generated in the south of the country. Current electricity generation is therefore highly vulnerable to reduced water availability as a result of climate change, indeed, recent droughts have put great pressure on the electricity market and such occurrences are expected to increase in the future. By using time series of copper and energy prices, as well as qualitative scenarios of climate change and variability, we analyzed different combinations of prices and regulation. Mining companies have the choice to buy electricity on the spot market as regulated clients or directly from generators as free clients with negotiated contracts; it is necessary therefore that the mining companies forecast future prices to determine reasonable prices for long-term contracts. If the contracts were made prior to recent regulations, mining companies received cheaper prices by buying directly to the generating companies. As a result of the new regulations, however, those prices are more expensive than the current spot prices. It is therefore more convenient for the mining companies to buy as regulated client. Further uncertainty in market prices is likely due to necessity of providing back-up to the system to smooth out the intermittency of renewables. The risk of droughts to hydro-electricity and the high costs of storage systems will create new sources of uncertainty to forecast the costs of new long term deals. Therefore, the link between water demand, increasing electricity consumption and future copper prices needs to be made to generate new models forecasting prices for the mining industry.

Theme:
4. Water policy and governance
Abstract ID:
304
Submit by:
José Bento Da Rocha
Author(s):
José Bento Da Rocha | Antônio José Andrade Rocha | Juliana Santos Vianna | Hudson Rocha de Oliveira |  
Country:
BRAZIL
Keyword(s):
Water Producer, Soil management, Water quality and quantity
Files: 

Abstract

The purpose of this work is to discuss the results of the Water Producer Project in the Pipiripau River Basin, DF, Brazil (Produtor de Água no Pipiripau - DF in Portuguese) and to discuss in what extent the Payment for Environmental Services (PES), a voluntary adoption of environmental-friendly practices by rural producers, can be used as an instrument to improve water and soil management, springs restoration, and to increase water supply for urban and rural areas in the Pipiripau River Basin, DF, Brazil. Project execution starts in 2012, with focus in promoting techniques for soil conservation, erosion prevention, and plant cover replacement. The methodology of the study consisted of an evaluation of field work carried out by the managers of the Project partners, as well as an extensive literature review. Results obtained and discussed in this paper include: ( a ) mechanical works aimed at soil conservation and roads erosion prevention in over 100 miles of extension; ( b ) construction of 4.48 sqmi of terraces; ( c ) covering of the soil by over 250,000 seedlings of native species; ( d ) contracting of more than 120 producers for the payment for environmental services; ( e ) the Santos Dumont Channel revitalization to improve agriculture economy in the area; ( f ) monitoring of the water quality and quantity in the Pipiripau River Basin applying cientific researches and development of an environmental education program. Total costs of this project is over US$ 10,000,000. In conclusion, we can say that Water Producer Project in the Pipiripau River Basin, DF, Brazil generates social, economical and environmental benefits relevant to value chain involved, to improvewater quality and quantity and soil management. Rural producers that adopt the project have declared relatively satisfied with the results and would like to renew contracts to its end. 

Theme:
4. Water policy and governance
Abstract ID:
104
Submit by:
Alfonso Exposito
Author(s):
Alfonso Exposito | Julio Berbel |  
Country:
SPAIN
Keyword(s):
Deficit irrigation; water demand; water pricing; water policy.
Files: 

Abstract

This contribution presents an exploratory analysis of the microeconomics of deficit irrigation (DI) as a technique with growing prevalence in water scarce areas. DI consists of the application of irrigation doses below the total irrigation requirements throughout the crop cycle and it has a significant impact on water demand for irrigation at both an individual level and at basin scale. We analyze farmer decisions based upon their subjective beliefs about water production function that farmers could attribute to this technology.

Our study is constructed upon the following hypotheses, concerning the impact of DI on the microeconomics of water demand:

  1. Farmers maximize returns for the water considering water volume as fixed and land as a variable input, instead of the conventional economic optimum of maximum returns for the land with water as the variable input and land as the limited factor. This behavior is consistent with the perception of the water resources in basins or in locations where water resources are considered the most important limiting factor for agricultural production as it is the case for many farmers around the world, especially for those with extensive crops in dry countries where the strategy is to maximize returns for the water, not land.
  2. In areas where farmers adopt DI as a predominant strategy in response to water scarcity, the structure of the water demand function is also impacted in its elasticity with respect to price, leading to an ineffectiveness of water pricing at curtailing water demand, unless a disproportionate high threshold price is reached.

In order to test the above-mentioned hypotheses, we surveyed farmers of irrigated intensive olive groves located in southern Spain in order to determine: (1) whether farmers have rational expectations regarding the water-yield relationship; (2) whether the decisions regarding the level of water use correspond to the maximization returns for water or, conversely, whether farmers behave as if they are maximizing returns for land; (3) whether threshold estimates, obtained through the elicited marginal product values of water, imply water pricing ineffectiveness.

The analysis of our case study in southern Spain, as it may also occurs in other arid regions of the world, shows that DI and high-tech irrigation are adopted by farmers as a response to water scarcity. The dynamic nature of water policy means that these technologies, which can be labelled as water saving techniques, have a relevant impact on the farmers’ decision process about the applied water doses and the structure of the water demand. The paradox is that after the adoption of these technologies, water demand does not respond to marginal changes in water price. Consequently, water pricing becomes an ineffective instrument, while farmers optimize water use through the maximization of returns for water. These results are of great importance for the governance of water resources in areas where DI is widespread.

We should mention that in 2010–2015 southern Spain produced around 50% of total world olive oil production, so the area under study is the most important in this sector worldwide.

Theme:
3. Water security in a changing world
Abstract ID:
90
Submit by:
Adam Loch
Author(s):
Adam Loch | Claire Settre |  
Country:
AUSTRALIA
Keyword(s):
water trade, transaction cost analysis, public policy
Files: 

Abstract

Transaction costs comprise a significant component of public agency investments to develop, implement, administer and alter policy and program arrangements aimed at achieving social welfare objectives. Private individuals can also incur transaction costs where they interact with these policies, or where those policies result in increased time or resources required to search, negotiate, contract and enforce exchange. Very few studies investigate the impact of transaction costs on private exchange particularly with a view to informing policy-makers on the effectiveness of public investments.

Australia offers an excellent case study context in which to examine this issue, where significant public investment has been incurred to establish water markets. Water markets have been aimed at reallocating scarce resources between users for economic and social benefit, and more recently used to recover environmental water for public welfare gains. As a critical part of that process, transaction costs have been identified as one means of measuring whether the effectiveness of that public investment has resulted in private welfare gains.

We collect and analyse private water trade and use charge data from eight major irrigation districts in the southern Murray-Darling Basin to determine whether transaction costs—inclusive of monetary fees and charges, but also time and effort costs—have been increasing or decreasing over time. Magnitude and direction outcomes over time provide empirical evidence to support an evaluation process based on transaction cost theory. Representative water use/trade scenarios are also developed for three of those districts as case studies in order to determine any differentials present across and within those groups. Our results support the conclusion that public investments have largely resulted in private welfare gains, consistent with objectives enshrined in the Water Act 2008. Some water trade activities, however, require further effort.

Our findings contribute significantly to the very limited transaction cost assessment literature; particularly public transaction costs. Results from this paper are also useful for water managers, irrigators and policy-makers generally, but have wider application. Where government programs are targeted at the management of natural resources under future resource uncertainty, or where public policy arrangements must be carefully crafted toward suitable and feasible outcomes, then the work detailed herein provides innovative and unique evidence of the merit of transaction cost analysis.