IAAE 2006 Water Resource Policy

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IAAE 2006

Who is winning?

Who is bravest?

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IAAE 2006 Water Policy Reform

Much in common India, Vietnam, NZ, China, Australia and USA

Important Observations Substantial gains from trading

But be careful, look beyond water prices and markets (infrastructure, governance)

Setting up markets is a long and tortuous process

Issues Savings – who gets them?

Governance – what structure for large systems?

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IAAE 2006 Water as commodity

1. Input into production system

Intensive margin (Technology)

Extensive margin (Land-use change)

2. Supplier of unpriced ecosystem services

3. Ground and surface systems are connected

Efficient production of all goods and services is the goal

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IAAE 2006 Top down v’s bottom up market development

• China and India are trialling bottom-up Evolving

Progressively expanding the scale

• Australia now trying to align its systems

• Research Questions

1. Decide where and how entitlements should be defined

How many types?

Farmer, village, regional and system level?

2. Governance systems that work across scales – who is responsible

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IAAE 2006Social v’s Private Contracts – Meenakshi

Social Contract (equity)

Private Contract

Tube well owners also have land without wells

Repeat player game

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IAAE 2006 Vietnam – Jim, Mark & Claudia

“Charge-subsidy” reveals problem with pricing approaches Unusual way of describing the first step in a

process of assigning quasi-entitlements and eventually establishing entitlement and allocation markets

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IAAE 2006 Starting up markets – Irene Parminter

•Very difficult to begin, systems takes time to build.

•China is trialling bottom-up approach

•Australia fixing up problems that a plethora of systems created

•NZ is searching for a template for unregulated, fast changing systems

How many formal products in one region?

•Sequencing is critical Markets can allow you to trade into trouble and increase the cost of fixing

problems

•Theory Trading prices for scarcity Then only have to get a supply charges and contracts right and manage

externality

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IAAE 2006 China – Jinxia, Ric and Steve

Moving to trade but have not started on price

Challenges Urban-Rural transfer (Australia & USA too)

Rural-Environment

Major warnings Infrastructure capacity

Supply reliability (India on electricity)

g-water connectivity

Yellow River over-allocation solved administratively! (After 17 in 20 yrs no flow it reflowed in a drought)

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IAAE 2006Climate change and over-allocation John Quiggin

Need state-contingent allocation rules

Market v’s administrative control of storage?(Dams stop small floods)

Unbundle at two scales Individual and system level

Design of robust instruments to manage for system uncertainty is in its infancy

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IAAE 2006 Salinity and Wetlands – Keith & David

Reuse provides opportunity

Discounting

Compensating projects

Permit trading and banking

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IAAE 2006 Environmental water management - Anna Heaney

As markets develop more and more products will emerge

State contingent instruments (Portfolio) Entitlements

Option contracts

Leases

•Counter-cyclic trading has big potential but has challenging governance implications

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IAAE 2006 Frontiers

1. Governance (Institutions)

2. Accounting

• Flow reducing activities (risks)

• System losses

3. Exchange rates

4. Infrastructure management (Privatize?)

5. Third party aspirations

6. Communication

IAAE 2006 Design

Contact:

Prof Mike YoungWater Economics and ManagementEmail: Mike.Young@adelaide.edu.auPhone: +61-8-8303.5279Mobile: +61-408-488.538