“Getting water right is fundamental to green growth”
Professor Mike Young is the Executive Director at the Environment Institute at the University of Adelaide and one of Australia’s leading water policy experts. He is the coordinating author of the water chapter of the UNEP Green Economy Report. We question him on the role of water in the green economy, and the usefulness of economic instruments to promote water and green growth.
Why is water important for the green economy?
A green economy must recognise that water is one of the essential inputs that rolls right through almost everything we do in society and every part of the economy. If you misprice water and if you fail to reflect its opportunity costs then you get investment mistakes and resource use mistakes being made throughout the economy. So getting water right is fundamental to green growth.
What’s so new about the green economy concept and how does it differ from sustainable development?
The two are very similar in many ways. However, the emphasis in the green economy is on opportunity, taking risks, and trying to move forward. It focuses on the natural resource sectors of the economy and makes sure we get those right and that they form the basis for green growth. The concept of sustainable development is a bit more conservative and doesn’t embrace innovation and change enough.
What are the priority areas in the water sector for moving forward to the green economy?
The thing we need most in society as we move from almost 7 billion people to almost 9 billion in 2050 and upwards to 10 billion, is a dramatic improvement in the efficiency of water use. We’re not making any more, yet we need to get a lot more production from the same amount of water. For agricultural water use, moving towards mechanisms that encourage efficient use is essential. That often means trying to reflect the opportunity cost of water. In Australia this has been achieved through water trading.
The tricky issue is making sure we supply water to people at its full cost. It’s a very difficult discussion because there is also a commitment to making water freely available to everyone, at least for basic water needs. So there’s a tension there. I am of the opinion that water should be supplied at its full cost to everyone. When there is a need to support people in paying the full cost, then separate instruments can be used. Full cost pricing must be coupled with institutional structures which make sure that water is delivered efficiently and at a low cost.
What is the main barrier to change?
Water is an emotive issue and there is a lot of political interest in it. What the green economy framework says is let’s put all that to one side, get the prices right, and make the necessary investments in water to ensure efficiency of supply. In developing countries where there is inadequate investment in water and sanitation, you find people spending a lot of their time unproductively carrying water at very high economic costs, not to mention the deaths and diseases associated with unsafe water and a lack of sanitation. A green economy approach promotes early investment to prevent these problems, reaping big dividends that have far-reaching impacts throughout society.
What potential is there for economic policy instruments to promote water in the green economy?
Market-based instruments can certainly help improve water use, but under the right conditions. They require very astute institutional and governance arrangements. If you are going to let someone take more water, you need to work out who is going to take less water. The power of a market mechanism is that it enables people to work that out amongst themselves. But that only works when there is a governance arrangement at the top which ensures that when people negotiate a deal, the arrangement is honoured.
There are promising opportunities for developing market arrangements whereby people who use water sustainably get credit for that in the market place and their region certified as ‘sustainable’. We have achieved these kind of market arrangements in the forestry sector and I can see this happening in the irrigation sector as we transition to a green economy.
Can you give an example of a market instrument in practice?
Australia started developing water markets in the early 1980s, but it wasn’t until 2002-2003 that they really started to take off. We were lucky because it was around then that a severe dry period began that lasted eight years. If it hadn’t been for the markets that were in place in the Murray-Darling Basin, we would have lost a lot of our permanent agriculture. We had water being traded quickly and efficiently across state boundaries. Irrigators were frantically investing in new technology and finding more efficient ways to use water. The staggering statistic is that because of the drought, the water available for use had to be cut back by 70%, which was done administratively, but the value of production only dropped by 30%. That’s an amazing outcome and no government could have done it. There were of course problems encountered and lessons learned. For example, in retrospect we realise that still too much water was allocated to use. But everybody agrees that we were much better off with water trading than without it. The government will tell you that, the environmentalists will tell you that and the irrigation sector will tell you that.
What message would you like to deliver to Rio+20?
Embrace market-based instruments, but do so with sophistication and make sure you have enough instruments to achieve all the objectives. Never ever try and use one instrument to simultaneously pursue two objectives – it doesn’t work.