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Water Sustainability: A Looming Global Challenge |
February 28, 2008 |
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Posted by Joseph Taylor at 10:26 AM | Comments (0) |
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The future of water is anything but clear. We face a future world fraught with water challenges – too much, too little, too contaminated or inaccessible to meet our needs.
We live in a rapidly changing world in which many of our expectations about natural resources may no longer be met. The seeming abundance of safe, low-cost water may falsely lead us to assume perpetual easy access to all the low-cost, high-quality water we want, when we want it.
The water industry today must examine these assumptions. Although water covers 70 percent of our planet’s surface, less than one-half percent is freshwater available for our use. Most of our planet’s water is in oceans and too salty for many uses. Much of the remainder is locked in frozen glaciers, is remote from population centers or circulating in our atmosphere. So this seemingly abundant resource is actually quite constrained.
What’s changing?
Three factors are having an impact on our freshwater resources:
Population growth – The world’s population is 6.6 billion and growing. As a result, humans are demanding more of the earth’s resources to sustain life and economic activity. Science and engineering have been developing and implementing technologies to alleviate some of this burden. However, there is a limit beyond which little can be done. It appears probable that we are nearing this limit.
Economic growth – Economic growth in water scarce regions increases water demand. Last year the planet’s urban population exceeded the rural population for the first time in history. Fifty percent of the world’s population resides in metropolitan areas, increasing demands on water systems.
Climate change – Planning and design criteria based on historic records may no longer be applicable in a world where water resources are heavily impacted by drought, flooding and/or an increase in mean sea level. As a result, facilities may be found to be at significant risk in the face of rapid climate change.
Then and now
Previous generations had the luxury of the earth’s excess natural “bio-capacity.” The capacity of the natural systems and cycles that renew our “wastes” and enable the conditions to support our human and ecological environments was far greater than the demands of the world’s population.
Currently, however, the growing demand for earth’s natural resources, like water, is creating an imbalance between the earth’s bio-capacity and its inhabitants’ desired standard of living.
The good news is that we never destroy water. The earth’s water supplies are fixed: what we had yesterday is the same as what we’ll have tomorrow. Though many of the resources needed for economic development are being depleted, water – at least in terms of quantity – is a constant.
The problem is the location, timing and distribution of rainfall. Our industry’s challenge is to help communities ensure that water is always where we need it, when we need it, which is not necessarily where it falls to the earth as rain.
Water, water everywhere, but…
Competition for available water is increasing because water is not distributed evenly over the globe. Nine countries possess 60 percent of the world’s available fresh water: Brazil, Russia, China, Canada, Indonesia, the United States, India, Columbia and the Democratic Republic of Congo. However, local variations of population distribution and freshwater supply are highly significant. Many communities, once water-rich, are facing a new challenge as water supply and demand are now imbalanced.
In most European cities with more than 100,000 people, groundwater is being used at a faster rate than it can be replenished. Available water costs more and more to capture or draw from aquifers. Large cities like Mexico City, Bangkok, Manila, Beijing, Madras and Shanghai have experienced significant aquifer drops of between 10 to 50 meters.
Other water scarcity examples include the Yangtze River Basin in China; Australia, now in its 10th year of a record drought; the Colorado River basin, also in the midst of a long-term drought of historic proportions; and parts of the Southeast United States, especially northern Georgia.
Droughts or increased flooding may not be the only unfortunate consequence of changing rainfall patterns. These changes may also result in storm sewers and drainage systems that are inadequate to handle current and future needs because they were built on past assumptions that may now be invalid.
Preparing for an uncertain future
We are moving from what has been viewed as a time of certainty within our industry to a time of great uncertainty; we’re being driven by the forces of change in our climate – and in the water business.
The challenge for key global water industry players, like Black & Veatch, and for our clients around the globe is to develop and implement sustainable solutions that will better manage the entire water cycle and help their customers and communities prepare for an uncertain future.
These solutions will focus on how best to protect water at its source, treat it to the highest standards, deliver it to homes and businesses, and then collect and again treat the wastewater before reintroducing it safely back into the environment. We also seek methods of sourcing “new water” through reuse, aquifer storage and recovery or desalination of water, for example.
Political leaders at all levels and the general public want to know what their utility leaders are doing to prepare for these challenges. They realize that water suppliers, regulators and customers can’t simply discuss or debate the future as it arrives; they must plan and take action today to minimize uncertainty and risk. All stakeholders must work together to craft robust long-term strategies and implement cost-effective solutions for mitigating and, if necessary, adapting to the potential impacts of climate change.
Taking the long view
The water industry must focus on the long view when facing the challenges of rapid population and economic growth, along with supply deficiencies or wet weather problems. And added to those trends are other pressing issues, like aging water infrastructure, degradation of water quality, changes in water rights and tightening regulations.
That’s why Black & Veatch and other leaders in the global water industry are working to develop innovative solutions to address climate change, water scarcity and sustainability planning. We are seeking triple-bottom-line solutions that meet our clients’ social, economic and environmental goals; are sustainable; and are politically and commercially viable.
Just as in the 1990s, when decision making shifted from capital costs to life-cycle costs, now in the early part of this century, the importance of triple-bottom-line decision making is being recognized and emphasized during all stages of planning.
Managing the future
The ultimate stakeholders in this debate are yet to be born. One thing is certain: coming generations will not take water for granted. Because the future of water is dynamically bound to the present, now is the time for far-sighted leaders to act.
Sustainable planning is no longer an isolated challenge; regional solutions require integrated planning among municipal, industrial and agricultural water users. Proactive watershed management is key to helping a community optimize its water opportunities.
A holistic water review should examine the best combination of solutions for a community – conservation, non-potable reuse, indirect potable reuse, impaired waters from brackish or contaminated waters, desalination or water sharing among adjacent communities. These are not easy decisions – but they must be addressed.
Dan McCarthy
Black & Veatch
http://www.bv.com/
About our author: Dan McCarthy is President and CEO of Black & Veatch’s global water business, with headquarters in Kansas City, Mo.
Pricing your water: Is there a smart way to do it? |
February 18, 2008 |
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Posted by Joseph Taylor at 09:31 PM | Comments (1) |
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“For anything worth having, one must pay the price…..”
John Burrows - an American author, 1837-1921.
Droplet 10: The issue
A recent National Water Commission (NWC) stock take reveals an amazing array of charging regimes for household water use. The stock take of 57 of Australia’s urban supply systems found that
• 25 set a fixed service charge and then add an “inclining block” charging regime on top of this fixed charge that increases the charge per kilolitre (Kl) in a number of steps;
• 4 use an “inclining block” regime without a fixed service charge;
• 1 uses a “declining” block regime; and
• 24 use a “two part” tariff regime that superimposes a volumetric charge on a fixed service charge; and
• 3 apply a service charge only and don’t charge for the amount of water used.
The record for the maximum number of “inclining blocks” goes to Busselton Water with an eight block regime. You pay $0.48/Kl for the first 150 Kl, $0.62 for the next 150 Kl, etc. Over 1,950 Kl per annum, you pay $2.53/Kl. Busselton, however, does not set a fixed service charge. Lower Murray Water is the only water supplier with a seasonal charge. Water is cheaper in winter.
Given the state of our water supply systems, what is the best way to charge for and ration household water use? Have any water suppliers of the 57 supply systems got it right or have they all got it wrong?
Clarification of objectives
Unfortunately, governments tend to use water pricing regimes to achieve equity, environmental, revenue and economic efficiency objectives simultaneously. This approach violates a golden rule in policy development, to avoid conflicts – use a separate instrument to achieve every objective and, once an instrument is assigned to one objective, don’t try to use it to achieve another objective.
Economic efficiency when there’s lots of water
What we pay influences what we do and what we buy. If water is abundant, then the efficient price to set is the long-run marginal cost of supplying one more kilolitre – including management costs, the costs of being the supplier of last resort and providing a return on capital.
The next step in pursuing efficiency is to charge according to the actual costs of delivering water to each suburb in each season. In regions where delivery costs vary significantly, this means that postage stamp pricing arrangements need to be replaced with city or town by town pricing arrangements.
Further, it is also necessary for the cost of upstream environmental and other externalities to be reflected in your water supply bill. To encourage you to manage for downstream externalities, however, these need to be charged separately and in proportion to their extent.
Once built, the cost of maintaining and depreciating all infrastructure becomes part of the long-run marginal cost of water supply. The more supply reliability you want, the more you have to pay per kilolitre. Desalination plants, for example, are expensive and, once built, have to be paid for. Great when there a water shortage but an expensive white elephant if there is lots of water around.
Economic efficiency when water is scarce
When it unexpectedly gets or stays dry, water supplies have to be rationed. There are two ways to ration water use. One way is to introduce water restrictions which impose indirect costs on many people. The other way is to increase the price.
Economic research keeps on pointing to the fact that water users respond to price increases. Pragmatic as ever, Quentin Grafton recommends that the best way to set a scarcity price is to estimate the amount of water in storage every quarter and charge accordingly. As dam storage goes down, the price goes up. To drive home the scarcity message, meters need to be read and bills sent, at least, quarterly. In the USA, many utilities read every meter every month.
As outlined in Droplet 5, another way of achieving the same outcome, is to allow urban water trading. Set the maximum amount of water that an average household can use in a quarter and let those who really want water buy it from those prepared to sell.
In times of scarcity, the water supplier collects more money than is needed to cover costs. Some people think that this money should be returned to users, others think it should be used to finance new infrastructure. Either way, it is quite clear that there is a need to change the way we charge for water.
Equity
Many people think that water, especially non-discretionary water (water used inside houses), should be supplied at an “affordable” price. This is why there is so much interest in inclining block tariff regimes. “Affordable” is code for not having to pay for the full cost of the water delivered. The idea is that the first amount of water you use should be cheap. Those who use lots of “discretionary” water (gardens, pools, etc) should have to pay more for it. The result is a cross-subsidy from large water using households to small water using ones. At first glance, this may seem reasonable.
But when you dig a bit deeper, it becomes clear that inclining block tariff regimes transfer money from disadvantaged households to richer ones which, as a result of the block regime, gain access to cheap water. Concerned that inclining block systems are inequitable, John Quiggin has shown that if you want to help disadvantaged households, it is better to set a uniform charge and then pay rebates to every-one or only to those in need. In short, use separate policy instrument to chase each objective you are interested in. Remember, however, that a typical person uses around 46 kilolitres per year. At current prices, the cost of water used per person is less than the cost of running an old fridge in your garage.
Inclining block tariffs are inequitable also because most of them are implemented on top of a fixed service charge. For the 25 NWC’s water supplier utilities who combine an inclining block tariff with a fixed service charge, the average fixed service charge is $124 per household. If you use of 100 kilolitres per year and are charged $0.50 per kilolitres for this first block of water, the real cost per kilolitre delivered to you is $1.74/ kilolitres. This is not cheap water.
Revenue
The real reason water supply utilities set fixed charges is that this guarantees them a revenue base. These utilities are monopolies but it is hard to argue that they should not be subject to the same pricing disciplines as other businesses. In summary, inclining block tariff systems represent a clumsy attempt to achieve efficiency and equity objectives simultaneously. We believe they should not be used.
Where to from here
With all these arrangements in place and if we leave sewage connection charging arrangements for another day, several guidelines for household water pricing emerge.
1. Send an efficient price signal to everyone by charging them the same for every kilolitre of water they use.
2. Send a scarcity signal to all water users. Read meters and send out a bill quarterly. Expect un-metered apartments to start applying for meters.
3. Inclining block tariff systems should be phased out – they are very inequitable.
4. Fixed water service charges should be phased out – for a monopoly, revenue protection is unnecessary.
5. Only help those in need and use targeted programs to do this. Consider increasing Centrelink and pension payments instead.
6. In times of abundance, supply water at the long run marginal cost of securing an additional unit of water. Plan well but recognise that the cost of building excess supply capacity can be high. Take some risk and use scarcity pricing and/or trading to get out of short-term trouble.
7. In times of scarcity, change the price every quarter according to a formula or use an independent price regulator to do the same thing or give households the option to trade water.
8. Keep water restrictions to a minimum and contemplate using them only after the scarcity price has risen by several orders of magnitude.
Mike Young, The University of Adelaide, Email: Mike.Young@adelaide.edu.au
Jim McColl, CSIRO Land and Water, Email: Jim.McColl@csiro.au
Acknowledgements
Comments made on earlier drafts of this Droplet by Neil Byron, Lin Crase, Graham, Quentin Grafton, Neil Palmer, John Quiggin, John Ringham and our Steering Committee are acknowledged with appreciation.
References
NWC urban water stock take: http://www.nwc.gov.au/nwi/docs/UrbanWaterChargingStocktake_Feb%2021.pdf
John Quiggin on rebates:
http://ceda.com.au/nnx/doc/quiggin_water_ace_200702.pdf
Quentin Grafton on scarcity pricing: http://www.crawford.anu.edu.au/degrees/idec/working_papers/IDEC06-10.pdf
