Tradable Water Rights
Corinne Waelti, seecon international gmbh
Tradable Water Rights
1
Find this presentation and more on: www.sswm.info.
Copyright & Disclaimer
Copy it, adapt it, use it – but acknowledge the source!
Copyright
Included in the SSWM Toolbox are materials from various organisations and sources. Those materials are open source. Following the opensource concept for capacity building and non-profit use, copying and adapting is allowed provided proper acknowledgement of the source
is made (see below). The publication of these materials in the SSWM Toolbox does not alter any existing copyrights. Material published in
the SSWM Toolbox for the first time follows the same open-source concept, with all rights remaining with the original authors or producing
organisations.
To view an official copy of the the Creative Commons Attribution Works 3.0 Unported License we build upon, visit
http://creativecommons.org/licenses/by/3.0. This agreement officially states that:
You are free to:
• Share - to copy, distribute and transmit this document
• Remix - to adapt this document. We would appreciate receiving a copy of any changes that you have made to improve this
document.
Under the following conditions:
• Attribution: You must always give the original authors or publishing agencies credit for the document or picture you are using.
Disclaimer
The contents of the SSWM Toolbox reflect the opinions of the respective authors and not necessarily the official opinion of the funding or
supporting partner organisations.
Depending on the initial situations and respective local circumstances, there is no guarantee that single measures described in the toolbox
will make the local water and sanitation system more sustainable. The main aim of the SSWM Toolbox is to be a reference tool to provide
ideas for improving the local water and sanitation situation in a sustainable manner. Results depend largely on the respective situation
and the implementation and combination of the measures described. An in-depth analysis of respective advantages and disadvantages and
the suitability of the measure is necessary in every single case. We do not assume any responsibility for and make no warranty with
respect to the results that may be obtained from the use of the information provided.
Tradable Water Rights
Find this presentation and more on: www.sswm.info.
Contents
1. Introduction to Economic Tools
2. What are Tradable Water Rights?
3. Implementing Tradable Water Rights
4. Conclusion
5. References
Tradable Water Rights
3
Find this presentation and more on: www.sswm.info.
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.
Tradable Water Rights
4
Find this presentation and more on: www.sswm.info.
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]
Tradable Water Rights
5
Find this presentation and more on: www.sswm.info.
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.
Tradable Water Rights
6
Find this presentation and more on: www.sswm.info.
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)
Tradable Water Rights
7
Find this presentation and more on: www.sswm.info.
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
Tradable Water Rights
8
Find this presentation and more on: www.sswm.info.
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
Tradable Water Rights
9
Find this presentation and more on: www.sswm.info.
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.
Tradable Water Rights
10
Find this presentation and more on: www.sswm.info.
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].
Tradable Water Rights
11
“Linking up Sustainable Sanitation,
Water Management & Agriculture”
SSWM is an
initiative
supported by:
Created
by:
Tradable Water Rights
12