1. Tradable Water Rights 1 Corinne Waelti, seecon international gmbh

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3. Tradable Water Rights Find this presentation and more on: www.sswm.info.www.sswm.info Contents 1. Introduction to Economic Tools 2. What are Tradable Water Rights? 3. Implementing Tradable Water Rights 4. Conclusion 5. References 3

4. Tradable Water Rights Find this presentation and more on: www.sswm.info.www.sswm.info The Economist’s View: Externalities 4 1. Introduction to Economic Tools Source: SAVENIJE & VAN DER ZAAG (2002) Externalities arise because a substantial part of the costs of economic activities is not being paid by the actors responsible but by the general public in form of environmental damage, security, or long-term climatic risks.

5. Tradable Water Rights Find this presentation and more on: www.sswm.info.www.sswm.info...people change their behaviour because the want to achieve maximal benefit at minimal cost. Economic Tools involve the use of prices and other market-based instruments to provide monetary incentives to change behaviour. 1. Introduction to Economic Tools Tools: Water pricing (tariffs) Subsidies Charges (irrigation, wastewater) Tradable water rights Etc. Source: http://www.wsp.org/userfiles/image/november2002.jpg [Accessed: 23.03.2010] 5 With Economic Tools…

6. Tradable Water Rights Find this presentation and more on: www.sswm.info.www.sswm.info How the System Works 6 2. What are Tradable Water Rights? Overall quantitative goal (of pollution or abstraction) Authority Permit Company 1Company 2Company 3Company 4Company 5 Permit trade between companies In a perfectly competitive market, permits will flow towards the highest value user: Permit users gaining lower benefit from using their permits will sell them to users with higher benefit. This trading results in mutual benefit.

7. Tradable Water Rights Find this presentation and more on: www.sswm.info.www.sswm.info Different Types of Water Rights 7 2. What are Tradable Water Rights? Right to…: Water abstraction Consumption of water-based resources (such as fish) Water pollution Further differentiation: Time scale Permanent Temporary One-off Limitation Cap and trade (maximum ceiling) Baseline and credit (minimal performance commitment) Target Absolute Relative JOHNSTONE & TIETENBERG (2004)

8. Tradable Water Rights Find this presentation and more on: www.sswm.info.www.sswm.info System Requirements 8 3. Implementing Tradable Water Rights Secure property rights Water rights must be enforceable Efficient administrative system to ensure market operation What can happen if these prerequisites are not met? Formation of a Monopoly High transaction costs Insufficient monitoring and enforcement

9. Tradable Water Rights Find this presentation and more on: www.sswm.info.www.sswm.info Further Requirements to Consider 9 3. Implementing Tradable Water Rights Legal and regulatory framework Overall cap on emissions and sources Emission quotas for tradable pollution rights Timing and spatial issues Measuring emissions Tracking and enforcement

10. Tradable Water Rights Find this presentation and more on: www.sswm.info.www.sswm.info Efficient Measure, difficult Implementation 10 4. Conclusion  Successfully implementing tradable water rights can be difficult and is generally more challenging than other measures, such as water charges. AdvantagesDisadvantages Internalisation of negative externalities More innovation More environmental certainty Low administrative costs Flexibility concerning distribution Cost-effective Can also address smaller consumers (such as households) Has to be compliance controlled and non-compliance punished Time consuming Risk of guaranteeing too many exceptions Danger of the formation of a monopoly Allocation insecurities

11. Tradable Water Rights Find this presentation and more on: www.sswm.info.www.sswm.info ANDERSON, R. (2002): Incentive-Based Policies for Environmental Management in Developing Countries. Issue Brief 02-07. Washington D.C.: Resources for the Future (RFF). URL: http://www.rff.org/Publications/Pages/PublicationDetails.aspx?PublicationID=9616 [Accessed: 08.08.2012]. http://www.rff.org/Publications/Pages/PublicationDetails.aspx?PublicationID=9616 JOHNSTONE, N., TIETENBERG, T. (2004): ExPost Evaluation of Tradable Permits: Methodological Issues and Literature Review. OECD Publishing. URL: www.oecd-ilibrary.org/environment/tradeable-permits/ex-post-evaluation-of-tradeable- permits_9789264015036-2-en [Accessed: 08.08.2012].www.oecd-ilibrary.org/environment/tradeable-permits/ex-post-evaluation-of-tradeable- permits_9789264015036-2-en KRAEMER, R., KAMPA, E., INTERWIES, E. (2004): The Role of Tradable Permits in Water Pollution Control. Brussels: Ecologic, Institute for International and European Environmental Policy. URL: www.ecologic.de/download/projekte/1850-1899/1872- 03/1872-03_tradable_permits.PDF [Accessed: 08.08.2012].www.ecologic.de/download/projekte/1850-1899/1872- 03/1872-03_tradable_permits.PDF SAVENIJE, J., ZAAG, P. van der (2002): Water as an Economic Good and Demand Management. Paradigms with Pitfalls. International Water Resources Association. In: Water International 27, 98-104. URL: www.colorado.edu/geography/class_homepages/geog_4501_s12/readings/watereconomicgood.pdf [Accessed: 08.08.2012]. www.colorado.edu/geography/class_homepages/geog_4501_s12/readings/watereconomicgood.pdf 11 5. References

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