Tradable Water Rights Corinne Waelti, seecon international gmbh 1

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Tradable Water Rights
Corinne Waelti, seecon international gmbh
Tradable Water Rights
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Tradable Water Rights
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Contents
1. Introduction to Economic Tools
2. What are Tradable Water Rights?
3. Implementing Tradable Water Rights
4. Conclusion
5. References
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1. Introduction to Economic Tools
The Economist’s View: Externalities
Source: SAVENIJE & VAN DER ZAAG (2002)
Externalities arise because a substantial part of the costs of economic
activities is not being paid by the actors responsible but by the general
public in form of environmental damage, security, or long-term
climatic risks.
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1. Introduction to Economic Tools
With Economic Tools…
...people change their behaviour because the want to achieve maximal
benefit at minimal cost. Economic Tools involve the use of prices and
other market-based instruments to provide monetary incentives to
change behaviour.
Tools:
• Water pricing (tariffs)
• Subsidies
• Charges (irrigation, wastewater)
• Tradable water rights
• Etc.
Source: http://www.wsp.org/userfiles/image/november2002.jpg [Accessed: 23.03.2010]
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2. What are Tradable Water Rights?
How the System Works
Authority
Overall quantitative goal (of pollution or abstraction)
Permit
Permit
Permit
Permit
Permit
Company 1
Company 2
Company 3
Company 4
Company 5
Permit trade between companies
In a perfectly competitive market, permits will flow towards the
highest value user: Permit users gaining lower benefit from using their
permits will sell them to users with higher benefit. This trading results
in mutual benefit.
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2. What are Tradable Water Rights?
Different Types of Water Rights
Right to…:
•Water abstraction
•Consumption of water-based resources (such as fish)
•Water pollution
Further differentiation:
Time scale
Limitation
Target
• Permanent
• Cap and trade
(maximum ceiling)
• Absolute
• Temporary
• One-off
• Relative
• Baseline and credit
(minimal performance
commitment)
JOHNSTONE & TIETENBERG (2004)
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3. Implementing Tradable Water Rights
System Requirements
• Secure property rights
• Water rights must be enforceable
• Efficient administrative system to ensure market operation
What can happen if these prerequisites are not met?
• Formation of a Monopoly
• High transaction costs
• Insufficient monitoring and enforcement
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3. Implementing Tradable Water Rights
Further Requirements to Consider
• Legal and regulatory framework
• Overall cap on emissions and sources
• Emission quotas for tradable pollution rights
• Timing and spatial issues
• Measuring emissions
• Tracking and enforcement
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4. Conclusion
Efficient Measure, difficult Implementation
Advantages
•
•
•
•
•
•
•
Internalisation of negative
externalities
More innovation
More environmental certainty
Low administrative costs
Flexibility concerning distribution
Cost-effective
Can also address smaller consumers
(such as households)
Disadvantages
•
•
•
•
•
Has to be compliance controlled
and non-compliance punished
Time consuming
Risk of guaranteeing too many
exceptions
Danger of the formation of a
monopoly
Allocation insecurities
 Successfully implementing tradable water rights can be difficult and
is generally more challenging than other measures, such as water
charges.
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5. References
ANDERSON, R. (2002): Incentive-Based Policies for Environmental Management in Developing Countries. Issue Brief 02-07.
Washington D.C.: Resources for the Future (RFF). URL:
http://www.rff.org/Publications/Pages/PublicationDetails.aspx?PublicationID=9616 [Accessed: 08.08.2012].
JOHNSTONE, N., TIETENBERG, T. (2004): ExPost Evaluation of Tradable Permits: Methodological Issues and Literature Review.
OECD Publishing. URL: www.oecd-ilibrary.org/environment/tradeable-permits/ex-post-evaluation-of-tradeablepermits_9789264015036-2-en [Accessed: 08.08.2012].
KRAEMER, R., KAMPA, E., INTERWIES, E. (2004): The Role of Tradable Permits in Water Pollution Control. Brussels: Ecologic,
Institute for International and European Environmental Policy. URL: www.ecologic.de/download/projekte/1850-1899/187203/1872-03_tradable_permits.PDF [Accessed: 08.08.2012].
SAVENIJE, J., ZAAG, P. van der (2002): Water as an Economic Good and Demand Management. Paradigms with Pitfalls.
International Water Resources Association. In: Water International 27, 98-104. URL:
www.colorado.edu/geography/class_homepages/geog_4501_s12/readings/watereconomicgood.pdf [Accessed: 08.08.2012].
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