Water Resources Allocation: Sharing Risks and Opportunities

by Organisation for Economic Co-Operation and Development (OECD)

Overview

Water resources allocation determines who is able to use water resources, how, when and where. It directly affects the value (economic, ecological, socio-cultural) that individuals and society obtain from water resources. This report overviews how allocation works in a range of countries and how the performance of allocation arrangements can be improved to adjust to changing conditions. Capturing information from 27 OECD countries and key partner economies, the report presents key findings from the OECD Survey of Water Resources Allocation and case studies of successful allocation reform. It provides practical policy guidance for water allocation in the form of a "health check", which can be used to assess the performance of current arrangements and manage the transition to improved regimes. 

Product Details

ISBN-13:	9781780407616
Publisher:	IWA Publishing
Publication date:	05/14/2015
Series:	OECD Report Series
Pages:	144
Product dimensions:	6.12(w) x 9.25(h) x 0.75(d)

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CHAPTER 1

Re-allocating water in a water scarce world

Key messages

* Allocation regimes determine who is able to use water resources, how, when and where and directly affect the value (ecological, socio-cultural, or economic) that individuals and society obtain (or forego) from water resources.

* Allocation regimes are strongly conditioned by historical preferences and usage patterns. They trace their roots to previous decades or even centuries and have usually evolved in a piecemeal fashion.

* Current and growing pressures on water resources increase the value of well-designed allocation regimes that perform well across a range of conditions (averages as well as extremes) and can adapt to changing conditions at least cost.

Water resources serve multiple purposes and provide value to individuals, ecosystems, farms, firms, and society in various ways. The value obtained from water resources encompasses many forms – from ecological value provided by supporting key species, to socio-cultural value, to economic value derived from productive uses of water, to the existence value of iconic lakes or rivers. How much water is left in water bodies (rivers, streams, aquifers) and how much is diverted for various uses; who is able to use these resources, how, when and where are questions that directly affect the value that individuals and society obtain from water resources. These questions are determined by allocation regimes, whether formal or informal. In this report, the term "allocation regime" is used to describe the combination of policies, mechanisms, and governance arrangements (entitlements, licenses, permits, etc.) used to determine who is allowed to abstract water from a resource pool, how much may be taken and when, as well as how muchmust be returned (of what quality), and the conditions associated with the use of this water (see glossary for key terms).

The growing pressures on water resources and intensifying competition to access and use water is widely documented (OECD, 2012; WRI, 2015; UNESCO, 2012; Vörösmarty et al., 2010; Vörösmarty et al., 2002; Alcamo et al., 2000). Both demand and supply side pressures are on the rise, driven by economic development, population growth, deteriorating water quality and climate change. The OECD Environmental Outlook to 2050 highlights that water resources are already over-used or over-allocated in many places. This is the case where current levels of abstraction exceed the sustainable level ("over-use") or where existing water entitlements (e.g. licenses or permits) to abstract water exceed the sustainable level ("over-allocation"). For example, groundwater in many parts of the world is being exploited faster than it can be replenished and is also becoming increasingly degraded due to the impact of pollutants. Between 1960 and 2000, the rate of groundwater depletion more than doubled (OECD, 2012). Often, adequate environmental flows have not been secured, threatening the health of freshwater ecosystems.

The situation is compounded by climate change. Climate change increases water risks – both quantity and quality, along with disrupting freshwater ecosystems. It also generates increased uncertainty about future water availability and makes historical climate conditions a less reliable guide to current and future planning. Climate change can provoke significant shifts in the timing, location, amount and form of precipitation (for instance from snowfall to rain). More frequent and intense droughts can also be expected in many regions. Beyond changes in both averages and extremes, climate change can also result in "state level" shifts. Increasing variability and less predictable supply pose new challenges for allocation (OECD, 2013a; OECD, 2014a).

These pressures have already made water allocation a pressing issue in a number of countries and an issue that is rising on the agenda in many others, even some traditionally water abundant countries, like Brazil, the Netherlands, France and the United Kingdom. Water allocation regimes in most countries have evolved gradually over time, often in a piecemeal fashion. Their design was driven by past development policies, based on historical water availability, and influenced by social preferences, general economic context and available techniques of previous generations. Some allocation regimes trace their roots to previous centuries and many were not designed to adjust to changing conditions and societal preferences. Growing pressures are making existing inefficiencies in water allocation regimes increasingly costly; 19th century allocation arrangements are poorly equipped to serve a 21st century society and economy.

However, once established, allocation arrangements have proven difficult, and often costly, to adjust. These allocation arrangements exhibit a high degree of path dependency, which manifests itself in both institutional arrangements (law, property rights and policies) and long-lived water infrastructures, such as dams, canals and pipelines. As a result, allocation regimes are usually not well-equipped to deal with mounting pressure on the resource, the emergence of new scientific understanding (of the resource or of related ecological needs), or adapt to shifts in societal preferences, such as increasing value placed on water-related ecological services. The challenges for allocation are aggravated by the entrenchment of weak water policies (under-pricing water or lack of regulating use), which contributes to structural water scarcity, increasing the risk of shortage for users and for the environment.

Growing pressures on water allocation regimes

The lack of a sufficient quantity of water of adequate quality to satisfy demand creates a risk of shortage for certain users. There are a number of drivers (both demand and supply side) that affect the risk of water shortage. The risk of shortage is determined by: 1) the consequences (impacts) of a shortage of water for a given use; and 2) the likelihood of its occurrence. It is driven by the intersection of hazards, exposure and vulnerability. Water shortage arises from conditions of scarcity, which can be defined as "an imbalance between the supply and demand of freshwater as a result of a high level of demand compared to available supply, under prevailing institutional arrangements (including price) and infrastructural conditions" (Winpenny, 2011).

When considering scarcity, it is useful to make a distinction between economic and absolute scarcity. Economic scarcity exists when there has been underinvestment in water infrastructure to supply sufficient amounts of water. Absolute scarcity exists when there is no affordable source of additional water, or where the costs of additional water supplies exceed the benefits of their provision. In the case of absolute scarcity, it is necessary to keep use within the limits of sustainable use. Once absolute scarcity has been reached, the design of the allocation regime becomes crucial (Young, 2013).

The availability of water is not only a question of quantity. Deteriorating water quality as a result of both point source and diffuse discharges, also affects water availability. Degraded water quality changes the economics of resources use, as inadequate quality requires treatment before use and reduces the value that can be derived from certain in-stream uses (bathing, ecosystem functioning, etc.).

Current and growing pressures that contribute to the risk of shortage increase the importance of well-designed allocation regimes. The availability of the resource pool for allocation is determined by the physical characteristics of water resources, investments in water infrastructure, as well as shifting, and increasingly less predictable climatic conditions. In a changing climate, the frequency and intensity of extreme events is projected to increase in many areas. With the "exceptional" becoming more commonplace, these changes mean that the way in which "exceptional circumstances" are currently defined in allocation regimes merit re-evaluation. Finally, changes in aggregate water demand, as well as the composition of that demand, affect the allocation among various uses, reducing or intensifying competition among and within certain categories of uses.

Changing societal preferences are an important factor in determining the repartition between in situ and diverted uses, in particular the determination of environmental flow requirements, and the sequence of priority uses (where they exist). Improvements in water use efficiency effectively change the rates of consumption, affecting return flows and the available resource pool. All of these trends create pressures on existing allocation regimes, increasing the value of flexible, clearly defined, effective and efficient allocation arrangements. These trends and their relevance for allocation are summarised in Table 1.1 and then discussed in the following sections.

Changing patterns of demand

A world economy four times larger in 2050, and with over 2 billion additional people, will need more water. Under the OECD Environmental Outlook's baseline scenario, global water demand is expected to increase by around 55% between 2000 and mid-century. This is primarily due to growing demand from manufacturing (+400%), thermal power plants (+140%) and domestic use (+130%), as depicted in Figure 1.1. As a result, there is little scope for increased use of irrigation water use in most regions. This "squeeze" on irrigation use comes about because domestic and industrial uses are usually prioritised over lower value or less efficient irrigation uses in water allocation regimes (at least in most OECD countries). Water for the environment will also be competing with these demands, adding to existing stressors on freshwater ecosystems (OECD, 2012).

However, trends in water demand diverge between OECD and non-OECD countries. In OECD countries, water demand is actually projected to decrease somewhat (from 1 000 km3 in 2000 to 900 km3 in 2050). This projected decrease in demand in OECD is expected to be driven by efficiency gains as well as a structural shift in the economy towards service sectors that are less water intensive. In contrast, water demand is projected to increase significantly in the BRIICS (from 1 900 km3 in 2000 to 3 200 km3 in 2050) and to a lesser extent in the rest of the world (from 700 km3 in 2000 to 1 300 km3 in 2050). Most of the population in river basins expected to be under severe water stress live in the BRIICS (OECD, 2012).

Nevertheless, it is important to note that aggregate demand projections can be misleading, as figures at the national level can mask regional or local scarcity and temporal issues. The location and timing of demand relative to supply determines the scarcity conditions, and hence, the risk of shortage. Even water-abundant countries, like Brazil or the Netherlands, face localised and seasonal episodes of scarcity. As a result, it is doubtful, that this reduction in demand will be enough to address the serious regional stresses that already exist in parts of Australia, Israel, Mexico, Spain and the United States (OECD, 2013b) and emerging stresses elsewhere.

Changes in aggregate demand affect allocation, but how demand is repartitioned among various uses is also relevant. Recent trends in abstraction per use in OECD countries reveal a substantial re-allocation of water among various uses (Figure 1.2). Trends indicate a shift towards typically higher value and higher priority uses. For instance, the increase in demand for public water supply (e.g. water supply for domestic consumption), shifting away from irrigation is significant since public supply uses tend to have a higher priority status in allocation regimes. There is also an implication for the type of water demanded (piped, level of quality) and the level of reliability required. While farmers growing annual crops can make adjustments in cropping decisions if rainfall is delayed, a fruit grower, a city or some industries cannot. If overall demand for water may be levelling off and even declining in OECD countries, competition among higher priority uses is in fact intensifying, narrowing the margin of manoeuvre for adjustment during episodes of shortage.

Climate change impacts on freshwater

In a changing climate, precipitation patterns are shifting rainy seasons and affecting the timing and quantity of melt water from snow pack and glaciers. More torrential rains, floods and droughts can be expected in many regions. Climate change impacts on freshwater resources are already evident and are projected to become more significant and to accelerate over time (Bates et al., 2008). Projected changes in the water cycle can have significant impacts on agricultural production in practically all regions of the world resulting in destabilising impacts for agricultural markets, food security and non-agricultural water uses (OECD, 2014a). These changes present a singular challenge for water systems by rendering the historical assumption of stationarity increasingly unreliable as a basis for water management (Milly et al., 2008). This means that a fundamental assumption upon which many water allocation regimes are based will no longer be a sufficiently reliable basis for future planning and allocation (Brown, 2010).

Climate change is bringing about not just shifts in mean precipitation, but also shifts between seasons and between years, as well as extremes, with more frequent and severe floods and droughts expected in some regions. Changes may be gradual or sudden, resulting in "state level" shifts.

Despite abundant evidence of climate change impacts on freshwater, there is significant uncertainty about the precise nature, timing and magnitude of expected shifts at the relevant scale for allocation decisions. The level of confidence in climate change projections for key water parameters decreases as their potential utility for water management decision-making increases (OECD, 2013a). In the future, allocation regimes will need to accommodate considerable uncertainty about water availability and the needs of ecosystems. Increasing variability and frequency of extremes as well as greater uncertainty about future conditions increases the value of well-designed and flexible allocation regimes.

One of the most common mistakes made when considering how best to manage water allocation is to assume that the impact of climate change on water supply will be gradual. Experience has shown that sudden climatic shifts can occur. In the case of Perth, a sudden shift appears to have occurred in 1974, as illustrated in Box 1.1 Since then, the amount of water available for consumptive use in this region has more than halved.

Reductions in rainfall can produce an even more drastic reduction in streamflow. In the case of Jarrahdale, a 14% reduction in rainfall resulted in 48% less stream inflow; 20% reduction in rainfall resulted in 66% less stream inflow. The impact of the reduction in stream inflow has an even greater impact on consumptive use. This is because sufficient base flows are still required before water can be extracted. This means that a relatively small reduction in mean rainfall can ultimately have a massive and disproportionate impact on the volume of water available for use (Figure 1.5).

Deteriorating water quality

Water availability is affected not only by the available quantity of water, but also its quality. Deteriorating water quality constrains water availability (varying by type of use and the degree of quality required). It also affects the economics of water resource use, as poor water quality requires costly treatment before use and also reduces the value that can be derived from in-stream uses (impeding ecosystem functioning, fisheries, bathing, etc.).

Globally, trends indicate that water quality is expected to stabilise or improve in most OECD countries by 2050, while outside the OECD, water quality is expected to deteriorate (OECD, 2012). Declining water quality is mainly due to nutrient flows from agriculture and from absent or poor wastewater treatment. This results in increased eutrophication, biodiversity loss, water-related disease and an increase in costs for treatment prior to use. Worldwide, a significant portion of wastewater remains untreated, especially in developing countries. Water pollution from urban sewage is expected to increase 3-fold by 2050, as compared to 2000 (Figure 1.6), as progress in urbanisation and wastewater collection outpace investment in wastewater treatment.

Another example of deteriorating water quality is in the Netherlands, where increasing salinity in some regions has contributed to the increasing risk of shortage. This is spurring a review of policy options for freshwater supply, including allocation arrangements (Box 1.2).

Water use efficiency gains and changes in rates of water consumption

Improvement in water use efficiency is among the factors behind declining demand in OECD countries. Generally, this is a positive trend, as improved efficiency can relieve stress on water resources and free up water for other uses (in situ or diverted). However, even radical gains in efficiency of current uses may not be enough to avoid a more fundamental appraisal of the allocation of water (OECD, 2012). Furthermore, efficiency improvements can result in unintended consequences for water allocation, when consumption rates change and return flows are not properly accounted for.

(Continues…)

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Table of Contents

Table of Contents: Re-allocating water in a scare world; A framework for water allocation; The current water allocation landscape; Reforming water resource allocation regimes; A "health check" for water resources allocation; Glossary; Annex: Questionnaire for the OECD project on water resources allocation regimes.