LEI Wageningen UR1, Rijkswaterstaat2
Introduction
In the Netherlands, due to climate change, droughts will occur more frequently in future. To anticipate this expected water shortage a national Delta programme of technical measures that should reduce effects of water shortages, has been developed. The research question of this paper is: How to develop and implement a resilient investment portfolio and an associated governance agreement on freshwater supply to allocate temporarily and regionally scarce freshwater resources. Optimal allocation of freshwater is important to ensure maximum well-being (also of the environment) and wealth.
Methods/materials
The issue of efficient provision of freshwater is an economic governance issue. Water is not one private good, but instead a complex, multidimensional resource. Water can be considered a public good and a private good at the same time. Well-designed allocation regimes need to consider both public and private good characteristics of water resources. For the public goods some kind of additional coordination is necessary to establish an optimal allocation of water resources. The public or private good nature of water depends on how and where water is used. The public and private good characteristics can change over time and within the hydrologic cycle. A water market (where prices serve as coordination mechanism) will lead to a efficient allocation of water (if environment is accounted for). This is the first best strategy to reduce the effects of water shortage. The Netherlands do not want to consider water pricing as a policy measure, because it comes with transaction costs (e.g. monitoring) and water has also common good characteristics. Hence, a second best strategy for water pricing is elaborated in this paper.
The approach we propose consists of a sequential analysis of measures, iteratively evaluated in a Cost Benefit Analysis (CBA). We propose a water supply hierarchy, that is based upon the waste hierarchy, as a device to select efficient measures to reduce effects of drought with minimum negative (environmental) effects. The waste hierarchy is a methodology to include external effects easily in the decision making process, and is implemented by the EU. Waste disposal options with minimal external effects (e.g. recycling) appear high in the hierarchy and are preferred over with extensive external effects (landfill).
The water supply hierarchy for 'technical' measures to combat water shortage is: 1. Save water, 2. Substitute water for other inputs, 3. Reuse waste water, 4. Store water (local or regional) 5. Supply water from another location (from a regional reservoir or a stream),
Table 1. The elements and characteristics of the water supply hierarchy and examples of relevant measures
Application of the water supply hierarchy proposes an initial order to analyse technical measures to combat drought. Alike the waste hierarchy a specific cost benefit analysis can be applied to test whether the preferred order in a specific situation differs from the supply hierarchy, or to discriminate between two measures belonging to the same category. We test the water supply hierarchy applying the measures developed in the Dutch Deltaprogramme to reduce effect of future drought regionally.
Results and discussion
The order in which measures are taken into account affects the outcome. Measures are not independent. If the government implements first (public) measures to secure freshwater supply, farmers are likely to implements less measures themselves and this solution deviates from the social optimal behaviour. Due to feedback loops (economic and hydrological) the standard cost-effectiveness approach, in which measures are ranked according to their cost-effectiveness will not automatically lead to the efficient outcome. The water supply hierarchy prefers private measures over public ones. Water users (farmers, industry etcetera) can make costs-benefit trade-offs at low costs, and they have better knowledge of costs and benefits than public investors. Public or collective measures at the next higher spatial level are evaluated whether they can be implemented more efficiently than the measures at user (farmer) level. This approach is repeated at the next level to develop a set of cost efficient measures.
If the private benefits of the measure exceed the private costs, the user will implement the measure. If not, and combined private and social benefits are bigger than (social) costs, financial transfers like payments for ecosystem services are necessary to offer an attractive business proposal for the water user to make society better off. Water users should be triggered to apply measures according to the water supply hierarchy to reduce negative external effects.
Conclusions
Based on the set of technical measures compiled by the Dutch
deltaprogramme, we show that the order of measures taken into account matters and that the water supply hierarchy offers the optimal solution. Advantages of the developed water supply hierarchy and iterative costs benefit approach to freshwater allocation are (i) stimulates innovation (ii) facilitates sustainable development, because negative external effects are reduced (iii) stimulates resilient solutions because it provides water saving incentives at every level (iv) efficient allocation of public and private good characteristics of water due to interactive CBA (v) starting at the user prevents that large scale investments may be become obsolete in course of time due to changing conditions at user level.
de Blaeij, A.T., and Polman, N. and Reinhard S. (2011) Economic governance to expand commercial wetlands: within-and cross-scale challenges. Ecology and Society 16 (1), 33
Bressers, H. Th. and Lulofs, K.R.D. (2002), Charges and other policy strategies in Dutch water quality management. Center for Clean Technology and Environmental Policy University of Twente
Cash, D. W., Adger, W. N., Berkes, F., Garden, P., Lebel, L., Olsson, P., Pritchard, L., Young, O. (2006). Scale and cross-scale dynamics: governance and information in a multilevel world. Ecology and society, 11 (2), 8.
Daily, G. C., S. Polasky, J. Goldstein, P. M. Kareiva, H. A. Mooney, L. Pejchar, T. H. Ricketts, J. Salzman, and R. Shallenberger. 2009. Ecosystem services in decision making: time to deliver. Frontiers in Ecology and the Environment 7 (1):21-28.
Eijgenraam, C.J.J., Kind, J. Bak, C. Brekelmans, R. den Hertog, D. Duits, M. Roos, K. Vermeer, P. and Kuijken, W. 2014. Economically Efficient Standards to Protect the Netherlands Against Flooding. Interfaces 44(1):7-21. http://dx.doi.org/10.1287/inte.2013.0721
Finger, R and Lehmann. N. (2012) Policy reforms to promote efficient and sustainable water use in Swiss agriculture. Water Policy 14 (2012) 887-901
Gupta, J., Pahl-Wostl, C., and Zondervan, R. (2013). ‘Glocal’ water governance: a multi-level challenge in the anthropocene. Current Opinion in Environmental Sustainability, 5(6), 573-580.
Klijn, F., van Velzen, E., ter Maat, J., and Hunink, J., 2012, Zoetwatervoorziening in Nederland; aangescherpte landelijke knelpuntenanalyse 21e eeuw (freshwater supply in the Netherlands, tightened national analysis of shortages). 2nd (corrected) edition. Deltares, 2012.
Johansson, R.C., Tsur, Y. Roe, T.L., Doukkalid, R., and Dinar, A. (2002) Pricing irrigation water: a review of theory and practice. Water Policy 4 173–199
Jongeneel, R. and N. Polman (2014) Farmer groups as a device to ensure the provision of green services in the Netherlands: a political economy perspective. Paper presented at the 14th EAAE Congress, Ljubljana, August 26-29 2014
Lebel, L., Garden, P. and Imamura, M.. 2005. The politics of scale, position, and place in the governance of water resources in the Mekong region. Ecology and Society 10(2): 18.
Olmstead, S. M. (2010). The economics of managing scarce water resources. Review of Environmental Economics and Policy, 4(2), 179-198.
OECD (2013) Providing Agri-environmental Public Goods through Collective Action. Paris
OECD (2014) Water governance in the Netherlands: Fit for the future?, OECD Studies on water, OECD publishing.
Plant, R. and Prior, T. (2014) An ecosystem services framework to support statutory water allocation planning in Australia. International Journal of River Basin Management. 1-12
Rygaard, M., Binning, P.J., Albrechtsen, H-J. (2011) Increasing urban water self-sufficiency: New era, new challenges, Journal of Environmental Management, Volume 92, Issue 1, Pages 185-194
Reinhard, S., & Folmer, H. (Eds.). (2009). Water policy in the Netherlands: integrated management in a densely populated delta. Earthscan.
Van Dantzig, D., 1956. Economic decision problems for flood prevention, Econometrica nr. 24, pp. 276-287.
Varian, H.R. (2010) Intermediate microeconomics : a modern approach. 8th ed. New York, New York: Norton
Veldkamp, T., Polman, N. Reinhard, S. and Slingerland, M. (2011) From scaling to governance of the land system: bridging ecological and economic perspectives. Ecology and Society 16 (1)
Ward F.A. (2007) Decision support for water policy: a review of economic concepts and tools. Water Policy 9 (2007) 1–31
Ward F.A. and Pulido-Velazquez M. (2008) Water Conservation in Irrigation Can Increase Water Use. Proceedings of the National Academy of Sciences of the United States of America, Vol. 105, No. 47 (Nov. 25, 2008), pp. 18215-18220 Water boards (2008) Climate Change and Dutch Water Management. A Case Study Report, World water Assessment Programme