INTER-AMERICAN DEVELOPMENT BANK REGIONAL POLICY DIALOGUE Water Charge Instruments for Environmental Management in Latin America: from Theoretical to Practical Issues France Country Case José Gustavo FERES, Céline NAUGES and Alban THOMAS thomas@toulouse.inra.fr INTER-AMERICAN DEVELOPMENT BANK REGIONAL POLICY DIALOGUE

The Old Paradigm No integrated water management approach Separate treatment of users categories Separate approach to quantity and quality aspects in water regulation Environmental policy based on command-and-control mechanisms Not adapted to the context of growing conflicts related to water availability and water quality

The 1964 Water Act Principles: Decentralization Integrated approach to water-related problems Planning Participatory decision-making process

The New Approach to Water Management Policy Institutional Arrangements River basin as basic management unit River Basin Committees (RBCs) Water Agencies (WAs)

River Basin Committees and Water Agencies RBCs Consultative bodies “Water Parliaments” composed by Water users Governmental representatives Stakeholders WAs Executive branches Financing of private and municipal investment projects intended to reducing pollution and increasing water availability

Water Charges Objectives Who pays ? Two components Financing investments defined in the working program established by WA and approvd by RBCs Induce water use efficiency Who pays ? Farmers (minor, just some animal breeding activities) Households Industrialists Two components Water withdrawal Effluent emission

Water charge design process

Institutional and legal barriers Institutional barriers RBC composition Insufficient knowledge available to WAs with respect to water environment, external costs and consumer behavior Legal barriers Dubious juridical nature of water charge

Implementation Path First period: 1967 – 1992 Low water charge levels, to ease acceptability Second period: mid-nineties Higher water charge levels, to correct for discrepancies between environmental objectives and actual achievements of WA policy Enforcement of the “polluter pays” principle Third period: late nineties to the present Account for socio-economic consequences of household price increases Incorporation of a larger part of the agriculture sector in the water charge system

Environmental Outcomes Significative reduction in industrial and domestic pollution levels Failure to control for agriculture emissions and to modify use patterns, since a majority of farmers are not incorporated in the water charge system

Institutional and legal factors Agricultural water pollution charges Difficulties in the implementation, since subsidies granted by WA could come into conflict with European agricultural subsidy policies. Separation between WA and environmental agencies Lack of information sharing between WA (responsible for water charges) and environmental agencies (in charge of regulation enforcement)

Public Debate & Political Acceptability Weight of water charges are gaining in importance, and so are complaints by residential water users Residential users are the main contributors to the WA budget, while being at the same time the less favored stakeholders in the system

Subsidies and charges 1992-1996 (in million French Francs) Users Total Charges Total Subsidies and Loans Ratio of subsidies and charges Residential 29,645 35,232 119% Industry 6,684 7,317 109% Agriculture 245 1,076 439% Total 36,574 43,625

Subsidies and loans allocation (in million French Francs) Project type VI Working Plan (1992-1996) % of total loans and subsidies VII Working Plan (1997-2001) Pollution control 35,652 83 47,216 Resource availability 7,275 17 9,742

Subsidies and Loans Allocation Problematic issues Small agents are not targeted by WA, who prefers to direct subsidies toward large users or polluters Absence of project managers prevents WA’s intervention, making difficult the implementation of non-source pollution control measures

Major Drawbacks Farmers Virtually exempted from the water charge system (except for some animal breeding activities) Not charged for nitrogen and pesticide pollution

Residential users Water charges do not give an accurate price signal Effluent emissions charge is not based on real consumption but on expected total water consumption Cost-recovery and political constraints Cost recovery ceilings limit price incentives Residential users are more reluctant to new water charge increases Industrial users Lack of transparency and equity in the effluent emission charge system

Recommendations Role of WA Design of the charge Co-owned company or a public organism committed to environmental objectives ? Design of the charge Clear guidelines for the computation of the effluent emission charge Need of a continuous evaluation process to analyze the effects of the charge system on uses and on the environment

User information Need for more transparency and information to promote efficient water use. Especially for residential users, since they do not gain directly from rebates, exemptions and subsidies Strengthening of residential users’ participation on RBCs

Creation of a national water committee Goals Coordinate efforts among regulatory instances (WA, regional directions for industry and environment) Definition of environmental objectives at the national level, especially to implement European directives Centralize data collection, process and analysis

Towards a sustainable implementation path Two-stage implementation path First stage: Simplified water charges, to allow users to become familiar with the charge system only a subset of major pollutants being considered for taxation just most important users being charged Second stage: widening of the charge system Set of pollutants is widening up to cover other important substances, including non-point source pollution Unit charges are gradually increased depending on final environmental objectives