Arsenic Mitigation in India	March 27, 2008
Posted by Joseph Taylor at 11:59 AM | Comments (0)

In rural West Bengal, India, life is tenuous for millions of people. Desperate poverty, hunger, and disease are a daily reality. To make matters worse, their water is killing them. With every drink of water and every meal they eat, hundreds of thousands of people are being slowly poisoned by the very water they need to survive.

Residents in eight of this region’s 19 districts are drinking and cooking with groundwater contaminated with naturally occurring, highly toxic arsenic. Tasteless and colorless, the arsenic has slowly seeped into their water sources and then into their bodies. The result: chronic arsenic poisoning of hundreds of thousands of West Bengalis, with many more at risk.

Thankfully, village-by-village, simple, locally developed solutions are making a change for the better. These solutions are providing much more than safe water. They are empowering communities and contributing to local economies by creating new business and job opportunities.

Where did the arsenic come from?

Arsenic is a naturally occurring semi-metallic compound found in groundwater around the world—including those in Bangladesh, Taiwan, Japan, Mexico, parts of the United States and India. Some argue that the increasing occurrence of arsenic in groundwater  might be the result of the rapid and significant drawdown of aquifers as we struggle to meet our water demands.

While arsenic may be tasteless and odorless, the human impact is deadly evident. Early indications appear in the form of dark spots on the chest, back, limbs and gums; then in the more advanced stages, wart-like skin eruptions on the hands, feet, and torso. Continuing exposure can result in enlargement of the liver, kidneys, and spleen, developing into malignant tumors and even disorders of the gastrointestinal, circulatory, and nervous systems.

The arsenic problem hasn’t always been present in West Bengal. It is actually the result of efforts to solve microbiological contamination of surface water during the 1970s and 1980s when tube wells were installed throughout the region. The switch to groundwater came with a deadly price and awareness of the issue was slow to come. Because of the extreme poverty of the region, affected people often hesitated to seek medical care. By then, the damage was done. It was in the late 1980s that scientists began to find evidence of arsenic contamination in the groundwater, and by the 1990s the extent of the health impact became widely known.

Partnering for simple, locally developed sustainable solutions

Water For People began working in India in 1996. Its initial effort was a small pilot program designed to help eliminate the health threats of arsenic in rural village water supplies. Soon Water For People partnered with Bengal Engineering & Science University to develop a local, sustainable solution.

After pursuing a number of options, the university developed a simple arsenic-removal filter for use at community wellheads, incorporating activated alumina.

The wellhead unit consists of a 12-inch diameter, seven-foot, two-inch-tall stainless steel column. Water flows through a 51-inch layer of activated alumina and then through an eight-inch layer of gravel. Every eight to 12 months the filter media is regenerated and the waste safely contained. One wellhead unit can serve up to 300 families and is expected to last for 10 to 15 years, with little maintenance required.

The filter incorporates a simple, highly effective technology, is locally manufactured, easy to operate (no electricity required), easy to maintain, and relatively inexpensive—approximately $2,000 for each wellhead unit. Most important, the technology is sustainable, offering effective protection for years to come.

Working with the local villages, water committees were formed to help implement the installations and encourage ongoing local input and control. To date, Water For People has helped finance the installation of 110 of these units providing safe, arsenic-free water for more than 33,000 people in multiple villages across West Bengal.

Healthy results

In villages where wellhead units have been installed, the incidence of arsenic poisoning has dropped dramatically. People are reporting living healthier and more productive lives.

The difference according to one woman indicates a variety of positive changes.  “I used to have indigestion and chronic dysentery. Now all these problems are gone, and I have an appetite. I used to spend 150 rupees (US$3.43) each month on medicine, and now I save this money.”

Sustainable solutions that provide safe water and economic opportunity.

Dipak Das churns the pedals of his three-wheeled bike earnestly, eyes straight ahead. He’s focused on safely navigating the endless maze of bumps, holes, oncoming traffic, pedestrians, and blowing dust. Immediately behind him packed tightly on the flat platform that’s wedged between the two rear wheels rest 20-or-so jiggling jugs of his most precious cargo—safe, filtered arsenic-free drinking water from the wellhead.

Dipak delivers filtered water to 45 families that depend on the arsenic-free water he delivers. The 2,800 rupees (US $70) he earns each month is a good living by Indian standards. Before, he ran a roadside tea shop, worked longer hours and made less money. Now, his deliveries require only four hours a day giving him time to pursue other business opportunities.

For Nirmal De and his family, their sole source of income is work that is related to the arsenic filter in Daharthuba Village, where they live. He used to work in a plastic toy factory that has since closed. He started out by delivering water to three families. Now that has grown to 50. On every delivery he attempts to sell the service to other families along his route.

Sumitra, his wife, is the paid caretaker for the filter. She spends four hours every morning and three hours every evening operating the pump. She must periodically backwash the filter to ensure its effectiveness. She also keeps the platform clean throughout the day. The pump station has become the center of the community and even has a television to entertain women as they wait. Sumitra tries to make sure that women don’t get too absorbed in their television viewing and lose their place in line. Their older son, Sudip, also helps out at the filtration station and with deliveries.

Besides the water delivery, a variety of other business enterprises often emerge around the arsenic filters. There are vendors who sell jerry cans for carrying the water. Others  sell food and snacks at the wellhead. And at every station, an individual—like Sumitra—earns a salary to collect and record water payments from villagers.

Day-by-day, village-by-village

Water For People makes it a point to support our partners in West Bengal, who in turn work closely with communities. The goal is to obtain commitment to each project from community members, enabling them to take ownership of its long-term operation. In 2006, Water for People opened an office in Kolkata with a full-time country coordinator, Rajashi Mukherjee, to facilitate the work in the region.

In the second most populous country in the world, Water For People is committed to help meet the most basic water and sanitation needs of thousands of India’s poorest. By partnering with local government entities, nongovernmental organizations, the local private sector and others, success will come, day-by-day, village-by-village.

by David Stevenson

About Water For People

Founded in 1991, Water For People is a Denver-based private, nonprofit international development organization that supports safe drinking water and sanitation projects in developing countries. Water For People partners with communities and other nongovernmental organizations to help people improve their quality of life by supporting sustainable drinking water, sanitation, and health and hygiene projects.

More information is available at http://www.waterforpeople.org/

 

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Water Sustainability: A Looming Global Challenge	February 28, 2008
Posted by Joseph Taylor at 10:26 AM | Comments (0)

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.

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Pricing your water: Is there a smart way to do it?	February 18, 2008
Posted by Joseph Taylor at 09:31 PM | Comments (1)

“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

 

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You Can Buy 40 Different Brands of Bottled Water at the Water Works Restaurant	December 20, 2007
Posted by Don Dunnington at 11:26 PM | Comments (1)

I recently enjoyed a very good dinner at Philadelphia's Water Works Restaurant, housed in the beautiful and historic Fairmount Water Works. On the menu (in fact it's on a separate menu like a wine list) I found more than 40 varieties of bottled water ranging in price from $8 to more than $50.

This restaurant is housed in one of America's first waterworks, a place tourists from around the world once called "Wondrous to Behold." Back in April 2006, I wrote about the waterworks and asked how we had lost our wonder for - and trust in - the miracle of tap water, turning instead to bottled water.

Philadelphia was the first big American city to undertake delivering safe water as a municipal responsibility. The city's "Watering Committee" chose Frederick Graff to build a waterworks on the eastern bank of the Schuylkill River. Graff's initial design called for steam engines to lift water from the river but by 1822 the river itself powered the pumps. Fairmount Water Works, with its beautiful buildings and grounds wedding nature and technology, became an instant international tourist attraction:

• Established in 1801, Philadelphia's water department was the first in America to supply an entire city with drinking water
• Philadelphia's Fairmount Water Works was the model for more than 30 other American water delivery systems
• Fairmount Park, one of the nation's largest urban parks, was established to protect Philadelphia's drinking water supply

Bottled Water's Environmental Backlash

In a Nov. 3, 2007 article, Philadelphia Inquirer Staff Writer Sandy Bauers pointed out the irony that Philadelphia's Water Works restaurant now claims to be "the nation's largest water bar" with 42 brands from Norway, New Zealand, Italy, South Africa, and Fiji.

"Water is dubbed the new wine in culinary circles, and each has a distinct flavor, a specific food it complements," owner Michael Karloutsos told her. She reported that nearly eight of 10 customers buy bottled water."You don't have to take anybody's keys when he drinks two bottles of water," Karloutsos said.

At our dinner, we had several bottles of the $8 Voss from Norway. Both still and sparkling varieties were delicious and a lot less costly than the wine we had with the meal.

Is Bottled Water the Next Wine?

In Experts say the nuances of bottled water are like wine, an Associated Press article dated Oct. 16, 2007, Michele Kayal discusses the nuances of water as a luxury drink:

• Potassium gives water a sweet taste
• Silica imparts silkiness
• Calcium can give water a lactic taste some people find refreshing.
• Others enjoy the cleansing quality of water with a high sodium content.

Kayal  writes, "Long a staple of European tables, bottled water was popular in the U.S. during the early 20th century, but vanished during the Great Depression. It resurfaced during the 1970s, when Perrier was photographed in the hands of glitterati.

"During the past five years, consumption surged 59 percent, making it America's favorite beverage after soda. In 2006, Americans quaffed 8.3 billion gallons of bottled water.

"In the United States, consumers can now pick from about 350 varieties of bottled water, ranging from purified tap water (such as Coca-Cola Co.'s Dasani and Pepsi's Aquafina), to waters bottled from particular sources."

For those interested in becoming connoisseurs, the article includes a sidebar, "TIPS for Appreciating Bottled Water."

In Praise of Tap Water

The Illadelph, a weblog about the city of Philadelphia, posted an article, In Praise of Philadelphia's Delicious Tap Water and It's Totally Negative Carbon Footprint:

"If you choose to get your recommended eight glasses a day from bottled water, you could spend up to $1,400 annually. The same amount of tap water would cost about 49 cents…. ABC News crunched the numbers — taking into account mileage and fuel requirements — and found that even before you drink that one-liter (or a 33.8 ounce) bottle of French water in Chicago, you've already consumed roughly 2 ounces of oil. And that doesn't include the oil used to make the plastic."

One estimate shows it takes 1.5 million barrels of oil to make a year's worth of bottles for the $10.9 billion-a-year bottled water industry in the United States.

The Fairmount Water Works Interpretive Center is a neighbor to the Water Works Restaurant and offers its own bottled water - free - labeled "PhillyTap." According to the Philadelphia Inquirer's Bauers, the bottles are distributed by the city water department:

"Philadelphia public water has a bit of an image problem - 20 percent of Philadelphian's still refuse to drink it. Never mind that, in at least 10 years, the Water Department has had no health-based violations. Or that Philadelphia's water ranked 12th among 93 cities in a Conference of Mayors taste test."

Don Dunnington
Blog Moderator

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Droplet 9 - New Water for Old: Speeding up the reform process	October 07, 2007
Posted by Joseph Taylor at 04:20 AM | Comments (0)

Forward:  This Droplet proposes a pathway for the construction of a water entitlement register that will withstand the test of time.

Droplets explore ideas and propositions which, if developed further, might improve water use. They develop ideas and search for the fundamental concepts and building blocks that one might consider if not constrained by prior decisions.

New water for old: Speeding up the reform process
 
  “The laws relating to the transfer and encumbrance of freehold and other interests in land are complex, cumbrous and unsuited to the requirements of the said inhabitants.”  Torrens Title Act, South Australia, 1857-8.

The issue

There is an important relationship among water resource plans, entitlements, and registers. All three are of equal, essential and vital importance.  Good registers do not fix bad plans. You can’t have a good plan unless it gives effect to a good entitlement system. Like Romeo and Juliet, plans and entitlements go hand in hand.

Knowing what we know today, to produce a good water resource plan, one would expect the planning process to begin by rigorously identifying the separate bodies or pools of water to be managed, and then establishing the rules for assigning water to each pool. The effect of one pool on another would be defined in a way that has hydrological integrity. Water can be assigned only to one pool at a time.

Entitlements to share access to the water assigned to each pool would then be defined and recorded on a register that guarantees ownership security and, through trade, facilitates efficient use and adjustment.

This is clearly not where we are today. Many entitlements were first issued in a developmental era when water resources were relatively abundant and were not defined to manage scarcity, interconnectivity and climate change. Today, many water allocation systems are under considerable stress. So much so, that some plans have been suspended. Entitlement trade, especially among States, remains cumbersome.

Given the circumstances Australia now finds itself in, we wonder whether or not there may be a need to adjust much more quickly than envisaged when existing water resource plans were put together.

What features would a new planning, entitlement and register system have to have to be deemed future proof? Could it be developed so that most entitlement holders would prefer it?

A way forward

In this Droplet, we explore the proposition that it may be advantageous to consider improving plans, entitlement systems and entitlement registers simultaneously. And, that this could be done in such a way that most water users would be keen to transfer their entitlements into this ‘new’ system.

The approach we have in mind draws upon NSW experience in persuading land holders to convert ‘old’ system land titles into a ‘new’ Torrens Land Title system. Conversion was voluntary and implemented over a number of years. The approach also draws upon experience gained when company share registers were moved from individual State registers to a single National register.

Water resource planning and entitlements

Good plans start by rigorously defining the relationship among the pools of water to be made available for environmental use, consumptive use and system maintenance.

Under the ‘new’ system and consistent with the National Water Initiative, plans and entitlements would be aligned in a manner that guaranteed that the water supply reliability would be a function of climate and nothing else. Entitlements would be defined as shares in the water assigned to each pool.  Under this system, whenever one person’s shareholding is increased, another’s must be decreased. The system would have hydrological integrity. Amongst other things, each plan would require the offset of any adverse effects of land-use change or other similar processes on entitlement reliability.

An ‘indefeasible’ register

Good registers define ownership unequivocally. In the past, many of the processes used to issue water entitlements lacked consistency. Typically, entitlements were issued as licences.  At the time, no-one envisaged that these licences would be separated from land title and be used to define assets that could be traded across large distances. When licences were first issued, it was always assumed that they could be changed as and when necessary. As a result of this history, even today, some governments remain reluctant to unequivocally guarantee the integrity of their water registers.

One of the most desirable features of the new register would be ‘indefeasibility.’ Whoever is named on the register as the owner of an entitlement is guaranteed to be its owner. The only way that ownership could be transferred to someone else would be to change the entry on the register. To provide for investment security changes are made only with the consent of all registered interests. Anyone who suffers a loss as a result of fraud, administrative error, etc. would be entitled to just compensation.

Financial risk

Throughout the world, banks are required to hold a proportion of their assets in extremely safe asset classes. Moreover, as a general rule, those who offer to mortgage these safer assets can borrow at a lower interest rate than everyone else.

While this may not seem important, if an entitlement register was defined so that it and its underlying assets were of the highest security, then irrigators should be able to use their entitlement to borrow money at cheaper rates than is presently the case. For this level of security, entitlements would need to be defined in a manner that prevented an entitlement from being forfeited or cancelled. There are many to ways to penalise bad water users. The threat of forfeiture of a water entitlement or, more seriously, the actual forfeiture of an entitlement need not be one of them.

Mortgageability and other interests

Well-defined registers record third party interests and guarantee that these interests will be protected. On the ‘new’ register, electronic access could be given to banks and other similar bodies so that they could clear part or all of a mortgage themselves. When loan payments are seriously in arrears, mortgagees (lenders) would have rights to foreclose their registered interest and sell enough entitlements to enable them to recover their interest. Mortgagors (borrowers) would have an equitable right of redemption. A mortgagee would not be able to recover more than that owed to them.

Trading

Imagine a register that provides maximum investment security and facilitates trading at very low cost. If the new register was built from scratch and designed for electronic trade, it should be possible to complete an entitlement trade in a few minutes.

Enter the name of the person to trade to, let the computing system check whether or not the proposed trade is possible, press the confirm button and the deal is done – done irrevocably! Partnerships with the banking system and brokers could be used to make execution conditional upon payment. No trade should cost more than the $60 or so currently charged for the electronic sale of shares in an ASX registered company.

Where to from here

If we had more space, we would add a lot more detail and also point to all the good work that States and the National Water Commission are doing to build state-of-the-art water resource plans, registers and trading systems. We also recognise the reality of the many water sharing plans and the constraints of plan review timelines and commitments among the various States and the Commonwealth.

In a few months, the results of the CSIRO Sustainable Yield Project for the Murray-Darling Basin will become available. One of the aims of this project is to identify over-committed water resource planning areas. One of the reasons for over-commitment is that some plans do not adequately account for ground-surface water interconnectivity and the consequences of a long drought. When the results of this project are considered alongside the impacts of the current drought, for some areas, it may be worth considering simultaneous improvement of the plan, the entitlement and the register system in a way that benefits all.

In areas where simultaneous change might be in the interests of all, an offer could be made to prepare a new resource area plan that properly accounts for system interaction and change, and then offer to issue new entitlements recorded on a new ‘state of the art’ register. Whilst we recognise that States may be reluctant to allow this to occur, we can see merit in letting the new Murray Darling Basin Authority offer to do this, and then invite all those with interests in a water resource planning area to choose between the ‘old’ and the proposed ‘new’ system. 

For irrigators, this approach would involve no downside risk. There would, however, be a strong incentive for the Authority to get it right – reputations would depend upon it.

If a majority want the new system then, this process could set the standard for all to follow and provide a pathway for the progressive transfer of all water resource area plans and entitlements in the Murray Darling Basin to a single Basin-wide system.

Authors

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 Megan Dyson, Alistair Watson, Stephen Carroll, Murray Smith and our Steering Committee are acknowledged with appreciation.

Copyright © 2007 The University of Adelaide.

Production of Droplets is supported by Land and Water Australia and CSIRO Water for a Healthy Country. Responsibility for their content remains with the authors.

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Droplet 8 - The Unmentionable Option	August 08, 2007
Posted by Joseph Taylor at 01:56 PM | Comments (1)

Forward:  This Droplet explores options for dealing with the question of how to address over-allocation in the Murray Darling Basin. 

Droplets explore ideas and propositions which, if developed further, might improve water use.  Ideas are explored from a fundamental perspective.  They search for the building blocks and concepts that one might consider using if one was able to start without being constrained by prior decisions.

The Unmentionable Option: Is there a place for an across-the-board purchase?
 
“Under the Plan, the Commonwealth Government will invest up to $3 billion over 10 years to address over-allocation in the MDB.  Planned in conjunction with the modernisation programme, this will be achieved by providing assistance to irrigation districts to reconfigure irrigation systems and retire non viable areas (such as those at the end of isolated channels or in salt affected areas).”   A National Plan for Water Security, Jan 2007

The issue

Over 10 years, the $10 billion National Plan for Water Security proposes to use $3 billion to address over-allocation in the Murray Darling Basin and to invest $5.8 billion on “modernising irrigation in Australia.”  By any measure this is a lot of money and will buy a lot of water.  At current market prices, $3 billion would buy around 1,500 GL of high security water or around 5,000 GL of general security water.

To put these numbers into perspective, the total cap on surface water entitlements in the Southern Connected River Murray System is 8,734 GL.  Depending upon how it is measured, the intention appears to be to buy back between 15% and 30% of water entitlements in the Southern Basin.  Some of the water is likely to come from connected groundwater systems but this will not change the magnitude of the proposed investment.

Another way of understanding the size of the proposed change is to look at the permanent water market.  The largest amount of permanent water entitlements ever traded in one year is less than 100 GL.

Given the size of the proposed investment, what should be done first? How should the reform plan be sequenced? How should the market be used? How should irrigators be engaged in the process?

Irrigation in the 21st Century

Many of the irrigation systems present today were designed and constructed to take advantage of technologies, water delivery systems and water measurement systems from another era.  The plan envisages totally different control and measurement systems.

With much less water, much less infrastructure will be necessary – especially if the system is modernised.  Major changes in system configuration, in control systems and in the size and extent of distribution infrastructure can be expected.  Imagine irrigation systems with fewer channels and fewer off-takes.  Fully automated, total channel control systems could be the norm.  Delivery charges could halve.

Sequencing the proposed reforms

With an investment of the scale proposed, there is a risk that wrong infrastructure could be modernised.  Australia could end up investing in the upgrade of redundant infrastructure.  Do it the wrong way around and we could end up with gold-plated irrigation systems without any water to put in them!

Somehow, some-one is going to have to work out which bits of the system can make the best use of the available water, available land and available technology.  No matter how this is done, ultimately, irrigators working through the market will have their say.

Given the reality that the market ultimately will have its say, it may be more efficient to start by buying water and letting the market decide where this water should come from.  Once this has been done, planning for system modernisation and reconfiguration can be undertaken with greater confidence.

The water market

The volume of entitlements involved in the Plan’s proposed voluntary buy-back is at least 15 times greater than the total amount of permanent water entitlements that have ever been traded in a year.

This observation suggests that if the Commonwealth simply stood in the market and started buying water it would need to buy-up everything offered for many years.  Some market engagement is possible and could be part of the mix but, if the proposed time-lines are to be honoured, most activity would need to be off-market.  Otherwise, the market would be massively distorted.  During periods of rapid adjustment, it is critical that the market sends clear long-term signals about future realities.

Off-market mechanisms

There are two main ways that off-market purchases can be made.  The first is to run a voluntary tender process.  Every irrigator would be invited to indicate how much entitlement they would be prepared to sell to the Commonwealth Operator at differing prices.  This option is being widely discussed and is certainly part of the solution mix.

Voluntary tender processes rely on the willingness of people to sell.  With a single large political entity involved, voluntary buy-backs involve considerable gaming.  The irrigators most likely to offer to sell at an acceptable price are those most likely to exit the industry and move to another location.  From a regional development perspective, many communities may prefer a process that encourages local investment. 

One way of retaining more of the money in a district and forcing all irrigators to consider the alternatives is to take a percentage off every water entitlement in each region.  We think that it is worth seriously considering an across-the-board, pro-rata purchase of a percentage of each water entitlement in a region as a worthwhile part of the mix of strategies used to resolve over-allocation problems.

An across-the-board pro-rata purchase

There are currently around 12,000 irrigators in the Southern Connected Murray Darling System.  An across-the-board pro-rata purchase would give every irrigator some money and empower them to decide whether to improve their irrigation system, buy water or invest in something else.  Much of the money would be invested locally.

If $1 billion is shared equally among these 12,000 irrigators, each would receive $83,333.  If $2 billion was invested in an across-the-board buyback, each would receive twice this amount with $1 billion left either for another pro-rata reduction and / or for other off-market strategies.

To avoid a sudden shock to the system and allow all to think carefully, payment could be made up-front.  This could be implemented by taking the pro-rata amount of water taken off the top of every entitlement and leasing it back for two irrigation seasons at no cost.  It would give each irrigator time to carefully evaluate the options, watch the market and decide on the best investment decisions to make.

If each irrigator was paid full market value, then the benefit of continued access to this water for two further seasons could be regarded as a compensation for disruption.  As many would choose to buy-back water and some would choose to sell more water, all government charges associated with permanent water trades could be waived for two years.  To maximise opportunities for adjustment and clearly signal a preference for extensive modernisation, part of the $3 billion could be used to pay all exit fees.

Taxation issues also need careful consideration.  For some people, compulsory acquisition arrangements may be more advantageous than those that apply to the voluntary sale of an asset.
Where to from here - Getting the option mix right

The Murray Darling Basin Commission has just announced that it is prepared to buy water for the environment from willing sellers and put in place a mechanism to allow people to express an interest in doing this.  As a result, we will soon know how much water is likely to be offered voluntarily and what effect this process will have on the water market.

No-one knows how much water will be made available voluntarily and how much will need to be recovered using a compulsory mechanism, but, given the size of the current market, we expect that the amount likely to be sourced voluntarily will be much less than that which the Plan proposes to acquire.

We are not suggesting that all the $3 billion should be spent in one hit via an across-the-board, pro-rata purchase with a two season lease back, but we do think that such an approach has merit and should be part of the mix of strategies used. Side by side with a standing offer to buy more water from willing sellers under the same terms and conditions, rapid progress could be made in a way that retains confidence.

Variants to consider include implementation at a slower rate and the idea that the water market could be deepened by buying back an extra 1% or each entitlement and putting this 1% back into the market so that it is deeper and starts with a significant volume of water that is available immediately for purchase.

We consider it essential that the forthcoming legislation should contain sections enabling implementation of an across-the-board pro-rata purchase.  The next step is to work out how much needs to be sourced from each region.

by Mike Young, The University of Adelaide
Email: Mike.Young@adelaide.edu.au
and Jim McColl, CSIRO Land and Water
Email: Jim.McColl@csiro.au

Acknowledgements

Comments made on an earlier draft of this droplet by Drew Collins, Peter Crawford, several government officials, several irrigators and our Steering Committee are acknowledged with appreciation.

Copyright © 2007 - The University of Adelaide

 

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Water Meters in a Bountiful Land	June 09, 2007
Posted by Mike Thomas at 11:40 AM | Comments (1) | TrackBack (0)

Water meters are a great tool for leak detection, demand management with an appropriate pricing structure and may even have benefits such as delaying infrastructure upgrades. But what do you do when there is a clean plentiful supply of water?

I've recently moved from the drought stricken climate of coastal Australia, where even public showers at the beach have been permanently shut off; to Castlegar, on the Columbia River valley in British Columbia, Canada.
 
My History

In previous a job, I was part of a team that provided supply and demand advice to municipalities around Australia. In many cases a key part of the demand management was related to the installation, maintenance and reading of water meters, combined with a balanced pricing structure for the supply of that water to households and businesses.

Most of the arguments for water demand management stemmed from a lack of water, shrinking dam levels, rivers drying up and increasing populations. Even so, water meters are not the best solution for all situations.
 
Back to today...

Why Water Meters?

This was the question posed by the staff of our local council in a public forum to discuss the issue a couple of nights ago. Note that this was a meeting to gain input from the residents, not to impose the city's ideas onto an unwilling public! Four main reasons were given as to why the city of 7000 residents was considering the voluntary installation of water meters...

1. Conservation
2. Equality
3. System Performance
4. Long Term Financial Implications

Now, I'm all for conserving water, I'm probably the "greenest engineer" in this valley, but I do see conservation from an Australian perspective, where we would literally run out if we don't curb our consumption. That is seriously not an issues here, the water we use, or the water we don't use... it all flows down the river eventually. Probably of more importance is making sure the wastewater is as clean as possible from the backend of the treatment plant.

The equality argument wears a bit thin on me. For all of you who understand the cost of supplying already clean water to residents; a bit of chlorine, some pumping with minimal lift, we're looking at less than 3 cents a day for the average household. Thee are massive fixed costs, pipeline replacement, reservoir, treatment facility and pump maintenance as appropriate, and these should be shared between everyone who chooses to connect to city supplied water. 

The argument that all other commodities, i.e. gas and electricity were on a per consumption basis is commonly posed, generally power and gas companies have shareholders and are expected to turn an annual profit, the needs of the consumer are pretty low down on the priority list when there's a monopoly and money to be made. So whether your neighbor is using double or half the water you are, we're talking less than two cents a day of actual cost difference between households.

System performance arguments are the most compelling in this situation, but probably reflect previously misspent funding more than current administration problems. The network is slowly reaching capacity on Maximum Day Demand conditions, which around here typically span a couple of weeks in July and August each year. The consumption in these months is about 4 times higher than the average over the whole year.

Demand management activities and public awareness of capacity issues may provide a solution to this time period where problems are likely. This is where a review of results in other similar communities may show benefits in softer solutions such as funding installation of low-flow showerheads, water restrictions, dual flush toilets, household leak detection programs and even enforcement of summer watering bylaws.

If the current trends of consumption continue, then upgrades of the system become necessary. A figure of $500,000 to $1,000,000 replacement cost per kilometer of pipe is pretty reasonable for the type of works required. The argument was made that if the city can defer or eliminate the replacement of pipes, we would be saving money as a community.

The city is growing, new construction and building permits are likely to be at the highest level for over 20 years, people are moving out of the larger cities, looking for a quieter lifestyle, some are retiring and wanting gardening space, some are moving here for the employment opportunities, more affordable housing and a great place to raise kids. The city will need to replace many of their aging watermains, likely including parts or all of the distribution main in the next decade, water meters or any form of demand management are not going to prevent that eventuality.

Government Funding

This program would be mostly paid for by provincial funds under grants and taxes, which can be used for municipal infrastructure programs.

It's difficult to imagine how many of the municipalities around Canada could survive without the regular injection of funds for capital works programs they receive in the form of grants or tax credits from the provincial or federal governments. Instead of being held absolutely responsible for the upkeep and maintenance of their potable water systems, sources of funding such as the B.C. Community Water Improvement Program and other infrastructure grants are highly sought after by municipalities of all sizes, though often without adequate planning or thought as to the best way to spend any money that may be received.

The way these grants are structured typically revolve around a set percentage of capital or planning cost funding, so the municipality puts in 25%, the province fronts up for the remaining 75% to a maximum dollar value that is determined at the stage of granting. My experience with this method of funding is that many municipalities see the offer of money and cook up a project to suit. In many, maybe most cases, the value to the community is pretty good, but sometimes, the ideals set out in the funding documentation of say a sustainable development or building a better community water network, look different on paper to the funding administrators in the provincial government compared to the reality on the ground.

Discussion

I'd be interested to hear everyone's thoughts on this issue. Conservation seems like a great ideal, but with the amount of water running through this valley, it is like asking someone to stop breathing! Equality is an argument only if the true fixed and volume based costs are revealed, then a fixed fee and per kilolitre fee could be established. What are your thoughts on voluntary water meter installation? Should it be all or none? How are the true costs of water supply managed in your municipality? Should levels of government be accountable for how they spend funding such as the gas tax money?
Leave a comment with your thoughts. Thanks!

About the author:

Mike Thomas is a Civil Engineer designing and managing residential and municipal projects in Castlegar, BC, Canada. He is dedicated to providing sustainable designs for sustainable communities. You can read more of his work at UrbanWorkbench.com

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Irrigation Water: Use it or trade it because you can't save it!	March 27, 2007
Posted by Joseph Taylor at 09:55 AM | Comments (0) | TrackBack (0)

"He who controls the past, commands the future." George Orwell

The issue

Large dams reduce water supply variability and provide access to water when we need it.  Surprisingly there has been little research on when to release water and when to store it.

In most rural systems, water users accept all the water that is given to them. The old adage was “use it or lose it.” With trading, the adage has changed to “use it or trade it as the government won’t let you save it!”

Would Australia be better off if all irrigators were allowed to decide when to use water; when to trade water; and when to leave unused water on their account and carry it forward to the next season?

In the River Murray system and as a once-off drought response measure, this year Victorian irrigators are being allowed to carry forward any unused water. For many years, NSW general security irrigators have been allowed to carry forward water. For the first time ever and as an emergency response measure, NSW high security entitlement holders have been allowed to carry forward unused water.

Should any irrigator be allowed save water for the future by leaving it on their account and have it automatically carried forward and made available to them in the next season? We think the answer is “yes”.

Should carry forward accounting rules be consistent among states and among entitlements? We think that the answer is “yes.”

Allocation risk

In the past, storage management and inter-temporal decisions have been taken in the public arena. In the Murray Darling Basin, via a process that allows quite a large amount of flexibility, States first agree on how much water to keep in an unallocated reserve and how much to allocate to each State’s account. Each State then decides how much water to keep on their account and how much to allocate.

Recently several States made seasonal allocation announcements that they could not honour. One of those not honoured was water that some NSW irrigators had carried forward from the previous irrigation season.  We recognise that it has now been announced that, as soon as feasible, water accounts will be re-credited with this water but this decision has significantly reduced irrigator interest in carry forward.

In this droplet, provided there is storage space in the system, we assume that policy will be changed to define any seasonal allocation carried forward to be of the highest security. Bank water and after adjustment for storage losses you can use it whenever you like. If irrigators are to be encouraged to make astute water saving decisions, they need to be confident that their storage decisions will not be undermined by government.

The economics of carry forward

The community impacts of not allowing irrigators to carry forward water are considerable. Donna Brennan has estimated that lack of carry forward in the 2002/3 drought year cost Victoria’s Goulburn Valley over $100 million. She also found that the maximum price paid for a seasonal water allocation was three times higher than it would otherwise have been if irrigators had been allowed to carry forward water in previous years.

With less price volatility, an economist might predict that the value of water entitlements would rise.

Expanded trade versus supply reliability

In another paper, Brennan points out that expansion of interstate trade into NSW where some carry forward is possible will mean that less water will remain in Victoria’s storage account. Pressing alarm bells, she observes that the expansion of interstate trade without the introduction of carry forward arrangements will make the Goulburn Valley worse off.  Water previously left in the system and shared among Victorian irrigators will now be transferred to another account.  This means that subsequent allocations to Goulburn Valley irrigators will be less than they otherwise would have been.

The solution, Brennan argues, is to give each individual irrigator the opportunity to choose between using, carrying forward or trading water. If irrigators are allowed to trade water across space and, with adjustment for losses, store water both irrigators and the community should be better off.

We believe that all water users in all States should be given the opportunity to optimise all water management decisions including those about how much water is carried forward from year to year.

Who owns the air space?

Just as it makes sense for irrigators to carry forward water, it also makes sense for an environmental manager to carry forward water. Given this observation, one can imagine a situation where a dam is full.  In such a situation, it is critical to work out whose water gets spilled first.

One simple way of providing access to airspace is to allow carry forward or, as some states prefer to call it, carry over on a first-up, best dressed basis. This is fine while there is a lot of space in the dam but when it gets close to full, there may not be enough space to give everyone their full allocation.

When a dam is nearly full, and if one thinks that storage priority should be issued in proportion to entitlement, it is possible to have a rule that ‘carry-forward’ water is always the first to spill. This means that when storages approach full capacity irrigators have an incentive to use or trade water rather than to save it.

Another way of allocating access to storage space in a dam is to set a limit on the maximum amount of water that may be carried forward. While it would be possible to unbundle this maximum storage right from an entitlement and make it tradeable, the benefits of doing this are likely to be minimal. In a free trading environment, irrigators can be expected to sell their water to someone who has access to unused storage in order to avoid losing an opportunity to profit from saving it.

One of Australia’s most sophisticated carry forward systems can be found in Queensland. Following trials in the Queensland’s St. George System, a continuous sharing approach has been developed. Each entitlement holder is allocated a maximum storage right and daily adjustments for evaporation losses are made to all unused allocations irrespective of the time when they were issued. To prevent carry forward causing delivery problems, the right to have water delivered within a season is capped.

Customers who ‘cap out’ within a season but who still have water available within their storage share are able to purchase seasonal delivery rights from others.

Where to from here?

Failure to optimise storage management and water supply decisions is costing Australia a lot of money. Just as it makes sense to allow water trade within a season, it also makes sense to allow trade from one season to the next.

Obviously, all would benefit from more research on the question of how to optimise the storage and release of water recognising the complexity of connected multiple storages and tributary inflow systems. To us, however, it seems obvious that the costs of not allowing individual participation in the process of deciding how to optimise the amount of water that is carried forward from year to year and how much is used are very high – too high.

Once the opportunity for private carry forward is introduced then it will be necessary to review Government storage and allocation policies. In particular, it may be necessary to ensure that the introduction of carry forward does not increase the total amount of water used. In particular, some entitlement reliabilities and some allocation rules may have to be redefined.

From a Murray Darling Basin perspective, this droplet raises an important question: “Should the proposed new Murray Darling Basin Agreement be drafted in a manner that allows permanently for carry forward of unused allocations or should this privilege remain limited to the few?”

Finally, under the current Murray Darling Basin Agreement it is possible for South Australia to request access to Victorian and NSW dams.  With the new commitment to managing the Murray Darling Basin System as one, all irrigators – including those in South Australia – could be given an immediate opportunity to carry forward water.

Mike Young, The University of Adelaide, Email: Mike.Young@adelaide.edu.au
Jim McColl, CSIRO Land and Water, Email: Jim.McColl@csiro.au

Hyperlinks to further information (Click on the entry)
- Brennan, Donna (2007) Missing markets for storage and their implications for spatial water markets. Paper presented to AARES Conference, Queenstown, NZ, 14th February 2007.
- Brennan, Donna (2007) Managing Water resource reliability through water storage markets.
- Vanderbyl, Tom (2007) Implementation of continuous sharing in Queensland. SunWater, Brisbane.

Acknowledgements

This droplet benefited significantly from comments made by our ever diligent Steering Committee, Donna Brennan, Tom Vanderbyl, Al Watson, Bob Douglas, Trevor Jacobs, David Dole, and Peter Hoey.

Copyright © 2006 The University of Adelaide

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Urban Water Pricing: How might a water trading scheme work?	February 04, 2007
Posted by Joseph Taylor at 03:47 AM | Comments (0)

“What’s good for the goose, is good for the gander"
– a proverb of unknown origin.

The Issue:  In response to increasing water scarcity, River Murray irrigators have watched the cost of buying a water allocation on the temporary market rise from $44 in January last year to $380 per ML – a 764% increase. Over the last year, the value of a permanent water entitlement rose by 52%.

Contrast this “scarcity” price signal with that given to households in cities like Adelaide. These households face a fixed two-tier pricing structure. The first tier, up to 125 kL per annum, costs $0.50 per kL. The second tier – for any amount above 125 kL – costs $1.16 per kL. Recently, the charge for second tier water was increased a paltry 6.4%.

What would happen if urban and rural Australia were subject to the same price disciplines for water? Should the old proverb, ”what is good for the goose is good for the gander” apply? In a drought, should urban households – like farmers – expect to see annual water prices go up seven times?

Well-designed rural water trading arrangements have the potential to bring significant improvements in water use.  What would happen if urban households and industrial water users were able to buy and sell water entitlements and water allocations – just like irrigators? Could it be made to work? Is it worthwhile?

In this droplet, we search for a way to make household and industrial water rights tradeable – to expose urban and rural Australia to the same price discipline. Can a pragmatic, low-cost way be found to do this?

Valuing and Charging for Water

Essentially, there are two ways that water supplies can be managed. Either, a quantity limit – a cap – can be placed on the water supply and the market left to help decide who gets to use water; or the charge per kL fixed and restrictions used to reduce consumption in times of scarcity. Under the former approach, prices rise with scarcity. Under the latter mechanism, increasingly severe restrictions are introduced as scarcity increases. You pay the same but get less access to water and experience considerable inconvenience as the level of restrictions increase.

Conceptually, the more that the price per kL is allowed to increase in times of water scarcity, the less the need for restrictions on when and how people can use water.

Experience

The idea of linking urban and rural water markets is not new and is happening.  In Queensland, the Shire of Gayndah currently holds an entitlement to more water than in needs and sells the surplus back to irrigators on an annual basis. SA Water has been buying water from River Murray irrigators.

In Arizona, urban developers in cities like Phoenix and Tucson are required to certify whether or not any block of land they sell has guaranteed access to a water supply for the next 100 years. Given this requirement, most developers choose to buy enough water to guarantee supply to any development.

In Beijing, each person in a household is allocated a quota.  When the metered amount of water they use exceeds this amount by more than 20% they are required to pay double for this water.

Allocating Water to Commercial and Industrial Users

Many businesses, like irrigation farms, use large amounts of water. Arguably, there is little reason why a large commercial business cannot be given a water entitlement and required to enter into a water supply contract with a water utility. A price for delivery of a kL of water would be struck in a manner similar to that set by rural water supply companies. There are many different ways of deciding upon the initial entitlement to be given to each business. One option is to give each business an entitlement equal to the maximum amount they have used in any of the last 3 years.

Household Entitlements and Allocations

One of the simplest ways to introduce household trading would be to make the first 200kL tier of water given to each household tradeable. Families and households would then be able to sell off any savings they make. For water use above 200kL, there are two choices. Either a) set a scarcity price for the second tier, or b) “cap” the volume of the second tier pool.

Under a scarcity pricing regime, if the charge for the first tier was $1.00 per kL and the second tier charge was regulated to rise as reservoir levels fall, one might expect a scarcity price to vary from $3.00 to $5.00 per kL. Facing charges like these, there would be an incentive for low water users to sell of part of their first tier to large water users – especially if first tier water was not subject to restrictions in all but exceptional circumstances.

An alternative to the scarcity pricing approach is to cap access to second tier water. Once “capped,” second tier entitlement shares could be sold using a tender process, where anyone – including water utilities – could bid for a share of the available pool. Every quarter shareholders would be notified of the tradable allocation that they could either use or sell.

At the household level, many variants are possible. To protect people under financial pressure, the first 100 kL entitlement issued to each house could be made non-tradeable.

Urban Household Water Trading

With low-cost internet trading platforms, like e-Bay, and a choice of water brokers, trading in household water entitlements and quarterly allocations is conceivable. The average household bill is around $330 per annum and most of these costs are unavoidable.

If first tier water was available at $1.00 per kL, a household with a large water-dependent garden and a swimming pool would have a strong incentive to buy a low-cost first tier entitlement to secure low cost access to the water they need access to every year.

If any household exceeded its first tier allocation, their nominated broker or by default their water supplier would be required to restore balance to their account by purchasing unused allocations and adding the cost of doing this to their next water bill. Households who use less than their allocation would have the opportunity to sell this saving.

It would also be possible to make urban subdivision approval conditional upon the purchase of a water entitlement sufficient to supply the proposed development – as already happens in Arizona. New or expanding industries would also be required to buy water entitlements sufficient to cover their needs.

Water Industry Implications

From a water utility perspective, introduction of urban trading raises many questions. Utilities would still have to charge for delivery and infrastructure maintenance.  Amongst other things, part of each water utility’s bulk water entitlement would be broken up and transferred to those that buy access to second tier water.

There may be lessons to learn from electricity and gas reform.  The part of their business that manages infrastructure may need to be separated from that the retail part that buys and sells water. Access to delivery capacity may need to be rationed.

As households and industry become exposed to the value of scarce water resources, competition from privately managed sewage recycling, stormwater capture and desalination businesses would increase. Water saving and alternative source development might become profitable. If the annual price saving per kilolitre was $2.00 per year, one can imagine a 100kL tier one entitlement rising in value to over $2,000.

Many buildings are managed collectively and many houses are rented. In each case, someone will need to decide who should pay the water bill and who would hold any entitlement issued.

Where to from here?

We think the concept is worth serious evaluation and, for large industries, could be readily implemented. A broader pilot trial, with no long term guarantees, would be worthwhile.  One option would be test urban trading in a large regional centre that is on extreme water restrictions.

Prof. Mike Young
Mike.Young@adelaide.edu.au
Water Economics and Management
Earth & Environmental Sciences
The University of Adelaide
AUSTRALIA 5005

Other Contributors
Jim McColl, CSIRO Land and Water, Email: Jim.McColl@csiro.au
Tim Fisher, Board Member, Land and Water Australia, Email: jiazhu51@optusnet.com.au

For further information read:
“A market solution for water. Malcolm Turnbull thinks we should have as much of the stuff as we want, a long as we pay for it.” AFR 25/11/06

Acknowledgements

The role of Tim Fisher in developing the ideas presented is acknowledged through co-authorship. Darla Hatton MacDonald, Ross Young, Sally Walkom, Bob O’Brien and several members of our Steering Committee provided important input into the development of this droplet.

Copyright © 2006 The University of Adelaide.

This work may be reproduced subject to the inclusion of an acknowledgement of its source. Production of Droplets is supported by Land and Water Australia and CSIRO Water for a Healthy Country. Responsibility for their content remains with the authors.  They neither reflect the views of Land and Water Australia nor the views of CSIRO.

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A look back at Water in Colorado in 2006 (Part II)	February 01, 2007
Posted by John Orr at 05:34 PM | Comments (0) | TrackBack (0)

Here's the second part of the Colorado Water Year in review, Conservation, Storage and Supply. This is cross-posted at Coyote Gulch.

 

Conservation

To their credit Denver Water continued to push conservation. After several years of drought water consumers were in conservation mode. Aurora, Morrison and Thornton had the sense to impose watering restrictions. Folks in Fort Collins kept arguing for conservation over building more storage. Farmers learned that more efficient watering methods can actually hurt water quality and reduce stream flows. Towards the end of the year Boulder introduced customer water budgets.

Storage and Supply

One of the best sources for sustainable water is runoff from the snowpack. As in every year since the ancestral puebloans roamed southwest Colorado, securing water rights, along with building and expanding storage was at the top of many lists. Big plans for new storage were discussed up in northern Colorado including Chimney Hollow Reservoir and Glade Reservoir along with an expansion of Halligan-Seaman Reservoir. Proponents of the proposed Genesee Dam introduced a plan for visual mitigation. Colorado Springs tried to move on Jimmy Camp Reservoir while Pueblo looked at expanding Clear Creek Reservoir. Colorado's U.S. Senators hoped to transfer control over some of the Big Thompson project to local management.

Late in the year the