“Water is valuable, it is getting scarcer, and we are all wasting it massively”
Jim Winpenny is an independent economic consultant with extensive professional experience in overseas development and expertise in the economic and financial aspects of international water. He reflects on the water-energy nexus and the use of economic policy instruments and financing of water as tools for change.
Does the green economy concept offer us anything new, compared to sustainable development?
I followed the sustainable development discussions closely in the late 80s and 90s and I think the green economy is essentially a rebranding of that. A recent definition of the green economy is “one that is compatible with or driven by actions to reduce greenhouse gases”. The UNEP Green Economy report, which is an important and major report, deals with investment in natural capital, alongside investment in energy and resource efficiency. In much current discussion, adaptation is regarded as the main issue for water, but in my opinion, promoting water in the green economy must also deal with water’s role in the production of greenhouse gases, in other words, mitigation.
Why is water important for achieving a green economy?
Water is a major and inefficient user of energy – in its abstraction , distribution, use and disposal, with major losses at all points representing a waste of energy. Water is also an important input to the energy industry itself, so it’s a two way relationship. For example, thermal power generation and hydroelectricity use huge volumes of water, both in a largely non-consumptive way. So it’s the water-energy nexus that makes water a key part of the green economy agenda. Of course, it is also important that there is sufficient water of the right quality and in the right place to support critical natural habitats and ecosystems.
What change is needed in relation to water in order to move towards a green economy?
Firstly, I think that water service providers need to behave a lot more like businesses, so treating their customers like clients, implementing proper charges, and being more efficient. Although water is ‘a gift from God’ as they say, providing it to people and economies is expensive. Secondly, I think water polluters need to be hit a lot harder by administrative sanctions, penalties and pollution charges. There is far too much water pollution at the moment which is not being controlled or punished. Ecosystems need more protection from encroachment and exploitation. For much of history, we have taken water for granted. We now have to accept that water is starting to become a problem across big swathes of the world .
What are the main barriers to change and how can they be overcome?
One barrier is the idea that water is a free and unlimited resource – it is not. The idea that only governments or other public agencies should be involved in water management and delivery is another mindset that blocks progress. Education and communication play an important role in changing these mindsets. We need studies that demonstrate the real value of water and studies that show how economies can be held back because of mismanagement of water. Countries often don’t act until there is a crisis. We need water stories of countries that have been through or are going through water crises, for example, Australia, Spain, California, India, and Northern China.
I think one of the reasons that water is neglected is because we treat it like a sector, and identify it with household water and sanitation. It’s not a sector at all. It’s a ubiquitous medium which flows through our lives and enters all economic sectors.
Are economic policy instruments such as tradable instruments, subsidies and charges effective tools for change?
Charging can be an effective tool for change. It’s not the only solution, but I do think that any policy mix without charging is toothless. Charging has to be part of an economic policy mix. Volumetric charges for water services have been shown to be effective, particularly for curbing urban and industrial use, and combined with metering of course. For farming, it’s more complex. Charges have rarely been tried for irrigation, and their efficacy there is more debateable. Pollution charges are also important, but have rarely been used at a level that “bites”, even in Europe and the US.
I am more doubtful about schemes for trading water pollution rights, which is something that economists sometimes advocate, but that hasn’t ever really worked except in a few specific locations. On the other hand, the trading of freshwater has been effective in a number of cases, mainly involving farmers, sometimes on a seasonal and in other cases a semi-permanent basis, for example in Australia, Western USA, India and Bangladesh. Trading in permanent water rights has been used by some cities to ensure future water availability. In the US, some cities buy out farms to use their water rights and environmental groups raise money to buy water rights in order to release more water into the public rivers. Of course if we are going to use water markets they need to be properly regulated to safeguard public, third party and environmental interest.
Subsidies are widespread and do affect water behaviour, usually negatively – since, if water is free or cheap, people will overuse it. So, the removal of subsidies or their more selective application would ensure more careful water use.
Can you give an example of an economic instrument that has successfully improved water management or use?
One of the classic cases is East Berlin in the 1990s following reunification of East and West Berlin, when the water service delivery was merged to operate under a common water utility. They discovered that consumers in the West were paying about ten times as much as the East, and consumption and losses were much higher in the East. The extension of metering , the application of a common household tariff, plus the introduction of a groundwater abstraction charge for industry greatly curbed wasteful consumption and losses in the Eastern part of the city.
What’s the best way to change behaviour? Incentives or regulations?
Let me give an example from my country, the UK. I have a water meter in my home, so I keep an eye on my use, and if the tap’s leaking I get it fixed, which I didn’t used to do prior to being metered. I have an incentive to keep my water use down. But the government can also play a part. For example, the government has subsidised the provision of household water butts for collecting rainwater from the garden, and that reinforces the message that you get from the price. Then of course we also have regulation for droughts when it’s prohibited to water the garden from the mains. So we have a policy mix with various kinds of element reinforcing each other.
How could cost recovery and financing of water services and management be a tool for change in moving towards the green economy?
Water is currently underfinanced. If you look around you, a lot of water infrastructure is deteriorating because it’s not being properly maintained and is not receiving the investment it needs. The situation is bad enough in wealthy countries, but it’s even more serious in poorer countries where many people don’t have proper water services. Financing the extension of water and sanitation to all those people who don’t have it would have a big impact on welfare, health and eventually growth. It would also reduce the pollution and degradation that happens when people don’t have access to proper services. To promote the green economy, we must strengthen the financial basis of all aspect of water to make sure it’s properly funded and then it can go on and deliver all these benefits.
What is new for financing water and sanitation for the green economy, e.g. innovations or approaches different to what has been done in the past?
There is a certain amount of innovation in this area. In recent years there has been a new emphasis on the financing of sanitation which recognises that in poorer countries, a lot of sanitation is actually financed by users themselves. We need to think about private solutions to support this, such as micro-finance, possibly with seed capital from aid agencies.
There has been a growth of interest in green bonds which are earmarked for use for environmental purposes, Impact Investors with more socially-oriented motives for investment, and Catastrophe Risk Financing and insurance against water related problems like flooding.
What message would you like to deliver to Rio+20?
Water is valuable, it is getting scarcer, and we are all wasting it massively.