1. Evaluating Economic Policy Instruments for Sustainable Water Management in Europe The research leading to these results has received funding from the European Community’s Seventh Framework Programme (FP7/2007- 2013) / grant agreement n° 265213 – project EPI-WATER “Evaluating Economic Policy Instrument for Sustainable Water Management in Europe”. Dorset Voluntary Agreement Berlin, 26 th January 2012 Colin Green, Christophe Viavattene, Simon McCarthy, Joanna Pardoe Flood Hazard Research Centre Middlesex University

2. “Voluntary” agreement - Dorset

4. Groundwater in England Groundwater limited resource in England Current abstraction 7 million m 3 /day from groundwater 9% total groundwater abstraction in SW region 30% of supply in SW is from groundwater Majority of boreholes that have been closed are because of cryptosporidium 146 sites closed since 1975; loss of 425,000 m 3 /day (approx domestic consumption of 2.4 million households) 15% monitoring sites nitrates exceed limits Majority of nitrogen load is organic? Annual capital expenditure to deal with groundwater c£15 -36 million; all costs since 1975 c£40 million/year i.e. low compared to all water supply costs

5. Potential N load

9. Transaction costs Costs of ‘ex’change Costs of exchange are why individuals cannot optimise resources Costs of exchange are why markets are not resource efficient Attention is absolutely scarce Internal (cognitive) efficiency does not result in external (resource) efficiency

10. Exchange surplus Quantity Frictional cost Surplus from exchanges that do take place

11. Exchange surplus Quantity F1F1 Surplus from exchanges that do take place Frictional costs after innovation Transaction costs B A If A > B then change worthwhile

12. Q – quantity available Surplus from exchange Quantity What is the ‘Surplus’ from the exchange? Consumer Surplus + Producer Surplus In a perfectly competitive market this reduces to the Consumer Surplus

13. Surplus from exchange Quantity Q – quantity available Maximum it is worth spending to get efficient allocation What are these costs?

14. Institutions Rules are about power “Rules over” define incentives “Rules to” define action space Institutional mapping Privatisation carried out without concern for economic efficiency Companies lack incentives to promote demand management, SUDS, etc Have incentives to install ‘end of pipe’ solutions

15. Policy issues Priorities Difficulty of change – dependency on Primary Legislation

16. Characteristics “Voluntary” agreement is actually means of reducing information costs so that farmers can use resources efficiently Changes that cost farmers money require subsidy – paid under the table Intervention by water company and not by the regulator (Environment Agency)