Economic and Financial Instruments for the Implementation of the Water Related Sustainable Development Goals. Lessons Learnt

Carlos Mario Gomez, University of Alcalá
Xavier Leflaive, OECD

Economic instruments are part of a new approach to water policy. There still is room for improvement in the design and implementation and particularly in adapting particular kinds of instruments to local circumstances including local institutional set-ups.

There remains a great deal of uncertainty especially over the potential role of pricing, and water use right trading systems, for water demand management and allocation.

Decision-making on water management will definitely be improved with better information but cannot be dependent just on that. Information, after all, is not the only (scarce) element of decision-making.

Instead of assuming a foreseeable future, economic and financial instruments must assume that the water future is uncertain. Instruments must be assessed and chosen giving priority to its capacity to enhance adaptability and resilience and to work well under different, and essentially unpredictable, future conditions.

Financial and economic instruments are argued to be able to fulfil one or more social objectives: financial sufficiency of water development, support and promote economic growth and territorial development, and environmental sustainability, amongst others (i.e. equity concerns).

Financial goals should be clearly distinguished from economic incentives, aimed at inducing chosen behavioural changes. Cost-recovery mechanisms do emphasise on revenue collection and is essential to make the provision of water services sustainable. But the way these questions are addressed does not necessarily have anything to do with efficient pricing, whose motivation should be to optimise water use and social welfare.

In water management, information has typically been expensive and can be considered as part of transaction costs.

The effective design and implementation of financial and economic policy instruments typically require more differentiation (and hence more information than command-and-control systems).
But, economic and financial instruments save information as well (i.e. setting a price and observing behaviour is not that demanding as deciding water allocations in a centralized manner, markets might be a way of revealing preferences, etc.).

A critical issue in the implementation of financial and economic instruments is a clear definition of water rights.

Economic and financial instruments are usually only one element of a broader institutional set up. They are often combined with other policy instruments into a water policy or management strategy.
Innovative financial and economic policy instruments are not necessarily new instruments but rather better designed and implemented instruments.

Pricing, payment for environmental services, cooperation, trading schemes and other financial and economic instruments are not always easy to implement (due to high transaction costs, equity concerns, social acceptability, institutional complex demands, etc.). “

What do you think is the role of pricing and economic instruments?

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One thought on “Economic and Financial Instruments for the Implementation of the Water Related Sustainable Development Goals. Lessons Learnt

  1. International workshop Botín Foundation/Rosenberg International Forum on Managing drought and scarcity in semi-arid lands: the cases of California and Spain. January 29, 2015, Botín Foundation, Madrid

    This workshop, opened by Isabel García Tejerina, Minister for Agriculture, Food and Environment, will provide a venue to discuss and compare Californian and Spanish water policies, and exchange ideas and experiences about how to improve them.

    California is suffering through one of the worst droughts of the last 1200 years. Spain’s worst drought since 1950 occurred between 1993-95, though more recently the country has suffered regional droughts in the Eastern half of the country in 2004-2008, and in the Southeast in 2014.

    In both California and Spain, agriculture is by far the largest user, and the urban, commercial and industrial sectors require reliable sources. Environmental conservation, ecosystems’ restoration and the preservation of wildlife are unavoidable goals inbuilt in the Water Laws in Spain (incorporating the European Union Directives) and California (State and Federal legislation). Massive infrastructures built in the course of decades enable both states to cushion and manage current hydrological variability, isolating to a significant extent the water economy from the vagaries of climate. And yet climate change projections suggest that their climatic and hydrological regimes will undergo significant changes.

    Nobody doubts that despite the remarkable means to store, produce, reclaim and transport water in both states, managing droughts and available resources will become increasingly important. Spain and California have quite different institutional frameworks to address water and environmental problems.

    The Rosenberg International Forum on Water Policy and the Botín Foundation, organize the international workshop “Managing drought and scarcity in semi-arid lands: the cases of California and Spain, on January 29, 2015, at Botín Foundation, Madrid (C/ Castelló 18 C).

    This workshop will provide a venue to discuss and compare Californian and Spanish water policies, and exchange ideas and experiences about how to improve them.

    All information can be found here
    http://www.fundacionbotin.org/noticia/international-workshop-botin-foundationrosenberg-international-forum-january-29-2015-botin-foundation-madrid.html

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