The Environment Institute Where ideas grow Water Futures Where is the world headed and what is Alberta heading for? Mike Young Executive Director, The Environment Institute

The Environment Institute Life Impact The University of Adelaide Global water use 70% Agriculture, 20% Industry & 10% Urban After Molden 2007

The Environment Institute Life Impact The University of Adelaide General messages 1.By 2030, over half the world’s population is expected to be living in a water stressed region. 2.Failure to provide reliable access to water and sanitation services is one of humankind’s greatest failings. 3.Demand is growing and costs rising. 4.The aggregate affect of climate change on water supplies is expected to be negative. 5.By 2030 child malnutrition is predicted to increase by 20%. 6.The rate of change and structural adjustment necessary to resolve existing challenges and cope with the new ones expected as a result of climate change and a larger more affluent global population is an order of magnitude faster than has been achieved in recent times.

The Environment Institute Life Impact The University of Adelaide Global water scarcity After Molden 2007

The Environment Institute Life Impact The University of Adelaide Water stress (scarcity) After OECD 2009

The Environment Institute Life Impact The University of Adelaide

The Environment Institute Life Impact The University of Adelaide Water scarcity gap After 2030 Water Resources Group

The Environment Institute Life Impact The University of Adelaide Alternative augmentation costs ($/m 3 )

The Environment Institute Life Impact The University of Adelaide - 1% - 3%

The Environment Institute Life Impact The University of Adelaide With half as much water, how much can you use? Users Environment River Flow Environment River Flow Users River Flow Environment Users

The Environment Institute Life Impact The University of Adelaide Cost issues 1.The recent financial crisis means there is a has brought attention to the need to bring greater economic discipline to water investment and management decisions. 2.Donor willingness to pay for the provision of water infrastructure appears to have declined. 3.A larger proportion of the money needed to finance the necessary investments is going to have to come from user charges. 4.Whilst administratively more challenging, the least cost solution to the resolution of water supply and sanitation challenges is around four times cheaper than those usually proposed. 5.Considerable policy and governance reform is necessary.

The Environment Institute Life Impact The University of Adelaide Pricing arrangements 1.The public and more importantly national leaders need to be made more aware of the consequences of not charging the full costs of water use. 2.Lack of economic discipline is crowding out the innovation and investment needed to solve water scarcity and investment challenges. 3.This raises the cost of solving water supply problems and decreases the rate of economic development. 4.In many cases, the poorest of the poor would be better off paying the full cost of supply rather than exposing themselves to the extremely high cost of obtaining access to water from other sources a central source and the impact of unsanitary conditions on them. 5.When considering the case for the provision of water at subsidised prices to the poor, it is important to understand influence of this practice on the likelihood that services will be maintained. 6.The more targeted cross-subsidies are the better. Blanket subsidies should be avoided.

The Environment Institute Life Impact The University of Adelaide Water pricing $/m 3 m3m3 AC MC

The Environment Institute Life Impact The University of Adelaide Entitlement and planning systems 1.Most entitlement systems are not designed to reward innovation and facilitate rapid adjustment as conditions change. 2.One of the secrets to solving water supply problems is to define entitlements and make allocations in a manner that has hydrological rigour and promotes innovation. 3.Adaptive integrated planning approaches to management need to be underpinned by fully- specified entitlement systems. 4.Where possible, entitlement systems should be unbundled.

The Environment Institute Life Impact The University of Adelaide Water Rights Reform & unbundling Water Tradable Right Price Land Single Title to Land with a Water Licence Entitlement Shares in Perpetuity Bank-like Allocations Use licences with limits & obligations Delivery Capacity Shares Delivery Capacity Allocations Salinity Shares Salinity Allocations National Competition Policy 1993/94 Plus Cap National Water Initiative 2004

The Environment Institute Life Impact The University of Adelaide Return to investment in entitlement systems & trading After Bjornlund & Rossini 2007

The Environment Institute Life Impact The University of Adelaide Enabling conditions 1.Parallel investments in governance, the development of taxation systems, the removal of market distortions and freer trading arrangements for agricultural products. 2.Freer international trading arrangements will significantly reduce the costs of facilitating adjustment and attaining MDG targets. 3.The early introduction of greenhouse gas trading or taxation arrangements in concert with the use of market-based instruments can be expected to reduce the costs of achieving a transition to more sustainable forms of resource use and in particular, encourage greater investment in ecosystem services. 4.Increases in the capacity of a nation to collect income and other taxes will make it easier for nations to transition to full cost pricing arrangements and, where appropriate, provide rebates to the most dis-advantaged.

The Environment Institute Life Impact The University of Adelaide International Trade After Hoekstar & Chapagain 2007

The Environment Institute Life Impact The University of Adelaide Governance 1.There is a need for a much more disciplined approach to the management and administration of water resources. 2.The development of governance arrangements and political support for processes and mechanisms that promote change and structural adjustment is critical to the development of administrative regimes that can cope with sudden climatic shifts and the rapid emergence of extreme water scarcity. 3.Independent Expertise-Based Authorities 4.Independent Price regulators

The Environment Institute Life Impact The University of Adelaide Enhancing supply and supply reliability 1.In the agricultural sector, water use tends to be very inefficient. This is aggravated by the use of electricity and other input subsidies. 2.Subsidised tariffs promote inefficient water use. 3.The removal of subsidies, the development of water trading and full cost recovery can do much to increase water use efficiency. 4.Throughout much of the world there appears to have been under- investment in the maintenance of urban water supply systems. 5.Governments have failed to understand that options for infrastructure finance are inextricably linked to tariff policies. Water flow is conditional upon cash flow.

The Environment Institute Life Impact The University of Adelaide Finance 1.There has been insufficient attention to the economic scrutiny of proposals to invest in new infrastructure and renew existing infrastructure. 2.Proposals need to take much greater account of likely population shifts and vulnerability to climate variability and change. 3.As economies become greener, the costs of water treatment and flood control can be reduced be making greater use of natural environmental processes. 4.Costs will be less if parallel investments are made in the development of mechanisms to enable widespread use of market based instruments. 5.Greater use of the private sector is possible.

The Environment Institute Life Impact The University of Adelaide Financing investment (3 T’s) After Marin and OECD 2009

The Environment Institute Life Impact The University of Adelaide Millennium Development Goals Halve the number people without access to drinking water and sanitation by 2015 – Drinking water goal will be met – Sanitation will not be met

The Environment Institute Life Impact The University of Adelaide Investment required Total cost of replacing ageing water supply and sanitation infrastructure in industrial countries may be as high as $200 billion a year (WBCSD 2005). The world is seriously behind on maintenance

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The Environment Institute Life Impact The University of Adelaide

The Environment Institute Life Impact The University of Adelaide Water reform in Australia Two decades into the process of trying to fix governance Commitment to restoring systems to health Commitment to development of robust entitlement and allocation regimes Commitment to the development of markets to facilitate adjustment, innovation and investment

The Environment Institute Life Impact The University of Adelaide

The Environment Institute Life Impact The University of Adelaide Scarcity and Trading Source: Murray Darling Basin Commission, 2007 Water Reform Trading opened up

The Environment Institute Life Impact The University of Adelaide Volume of Water in the System