Exploring the challenge of valuing water

Student rapporteurs provide a thematic breakdown of Valuing Water for Sustainable Development.

On 7 November 2017, Oxford’s Smith School for Enterprise and the Environment and the Environmental Change Institute, in collaboration with the Oxford Water Network, hosted a high-level forum, bringing together academics and representatives from a variety of international organisations, including the OECD and the World Bank, to explore how valuing water can contribute to sustainable development. This forum built on related discussions within the United Nations/World Bank High-Level Panel on Water and its Valuing Water Initiative, and the OECD Roundtable on Financing Water.

Students from the Oxford MSc in Water Science, Policy and Management participated throughout the Forum and its side events. Here they capture some of the major themes from the Forum.

What were the key themes?

Theme 1: Water is often undervalued. But the solution is not simply to increase the price of water for end-users.

As the title of the conference suggests, the overall theme reflected a concern that society struggles to value water across its diverse social, environmental and that this impedes achievement of the SDGs. Dr Tushaar Shah from the International Water Management Institute shared an example from India that succinctly and creatively illustrates this problem and the diversity of solutions available. He explained that in various regions of India the government has heavily subsidized solar irrigation pumps for farmers, incentivising farmers to pump large quantities of groundwater. This is, in turn, depleted groundwater. So, what to do? Dr Shah has suggested an innovative solution: the government should buy back the energy captured by the farmer’s solar panels, so that in effect, energy now becomes the farmers’ cash crop.

James Dalton, Director of the IUCN Global Water Programme brought a reminder that undervaluing water leads to the overall failure to value ecosystems and the benefits they provide to society. He shared an example from Fiji, where water quality degradation in coastal regions destroyed the coral reef ecosystems. Only after this loss did society recognize the value of the coral ecosystem and the community suffered economic consequences. IUCN has produced guidelines that assist in valuing ecosystems before any intervention takes place in order to help guide proactive valuation of water flows for ecosystems benefits.

There is also a gap in the global financial system’s capacity to value water. Ambika Jindal, Vice President of Sustainable Finance at ING shared that traditional banks currently do not know how much of their portfolio is exposed to water risk. Valuing water from a financial perspective would mean translating water risk into credit risk, and this would trigger the analysis of banks’ portfolios from a water risk point of view. This is changing. In the World Economic Forum’s 2017 Global Risks Landscape report, water crises are prominently featured in its Global Risk Interconnections Map. In turn, as banks increase their understanding of the value of water to sectors of the economy that are capable of generating significant revenues, this will unlock financing.

Theme 2: The SDGs have created a sense of urgency to increase investment in water infrastructure.

Summarizing the urgency, Sophie Trémolet from the World Bank shared that the investment needed to reach the SDG’s target for the water sector is estimated at $114 billion on an annual basis, which is roughly triple the current level of investment, citing the work of Dr Guy Hutton presented earlier in the Forum. With that in mind, she suggested that the World Bank and development sector, more broadly, need to be more strategic about the use of “concessional finance.” In other words, loans and grants from donors need to be more catalytic, and could be used to secure private finance.

Dr Alex Money from the from Oxford’s Smith School for Enterprise and the Environment went on to share a framework for “blended finance” that matches public and private financial instruments with “baskets” of water infrastructure projects that have diverse financial and social returns. This model has the potential to mitigate risk and increase investment in projects that have greater social impact. However, as he put it, “stuff conceptualized is never the same as stuff done.”

In response, Dr Rob Hope also from Oxford’s Smith School, shared cases from Bangladesh and Kenya. In these country contexts, research conducted as part of the REACH Programme has focused on identifying the local financing available for water infrastructure and operations and maintenance costs. In Kenya, his research team consistently finds the need for subsidy, and so they created of an innovative water services trust fund. This fund provides financing for service providers on a performance basis. As he succinctly put it, “It’s as much about investing in institutions as it is about infrastructure”.

Theme 3: Water scarcity and shocks are creating pressure for reallocation and markets.

Water markets were a major topic at this forum to facilitate decentralized and voluntary water-use trade-offs, especially in times of drought. Dr Dustin Garrick from Oxford Smith School made the case that water markets should not be confused with a “free market” approach to water resources, since “the solution to market failure is not going to be free markets, but well-governed and regulated markets.” Although the global experiences with formal water markets are still limited, informal reallocation and markets are more prevalent than currently recognised and evidence is patchy.

Dr Garrick and colleagues from the World Bank and Water for Food Institute of University of Nebrasak launched a Water Markets Partnership to measure, map and compare global experiences with formal and informal water markets. A first step will involve a global synthesis report and continued development of an Oxford-led water reallocation database to track the extent, design and performance of water reallocation and markets globally. The water markets partnership aims to take an interdisciplinary approach, leveraging the understanding of hydrology and climate science to improve water allocation in river basins.

One of the objectives of the Water Markets Partnership is to understand the objectives, governance structures and institutions that work well in markets, and those which do not work as well. Several presenters noted the need for this analysis since there are significant challenges of ensuring compliance and creating transparency in water markets Dr Nicholas Brozović from the University of Nebraska-Lincoln highlighted the way that these issues are more pronounced in markets for groundwater allocation. Often, the infrastructure is geographically diffuse, privately owned, and abstractions are difficult to verify. He proposed that one way to do address these issues would be to separate the market’s regulatory function (compliance) from the financial function (negotiations, price and transfer of funds). These two functions can be separated, for instance, through the creation of a clearinghouse for water transactions.

When well-functioning, water reallocation and markets have the potential to play a significant role in managing water risks, a capacity that has broader implications than just the allocation of water uses at the basin level. Kathleen Dominique from the OECD asked the question, can better water allocation systems enable innovations in financing for water, and vice versa? She explained that water reallocation and markets create a whole system of rules, rights, entitlements, regulations that help decide when and how access to water is allocated, mitigating risks among different water users. In this way, improved allocation regimes could help make the risks of water-related investments more explicit and better monitored, changing the investment climate for water resources.

In essence, the presenters identified ways that water markets can improve the local valuation of water, but also reduce the risk for investment in water resources. This brings the role of markets back to the overarching theme of the forum, valuing water for sustainable development.

This post was written by Adrienne Lane, with contributions from Silvia Cardascia, Sagar Dhakal, and Esteban Boj Garcia: current students of Oxford University’s Water Science, Policy and Management MSc programme.

Valuing water for sustainable development: a student perspective

Students from Oxford University’s Water Science, Policy and Management MSc share their experience of Valuing Water for Sustainable Development, a one-day forum hosted by Oxford University on 7 November.

All 28 Master’s students from the Water Science, Policy and Management course attended the high-level forum on Valuing Water for Sustainable Development, where we got to experience the closest thing in academia to feeling star-struck. The lineup of presenters included many of the authors on our course reading lists.

So, did we get the magic number for the true value of water? Unfortunately, no. Throughout our course, and at this forum also, it has been reiterated that water’s value is not synonymous with any given price that water-users pay. The value of water includes the social, environmental, and economic benefits it provides to society in its multiple uses. The forum presenters made the case that taking this holistic approach to valuing water is what will improve water resources management and help achieve the SDGs.

Dr Michael Hanneman has been a formative contributor to the field of environmental economics. He shared a pragmatic perspective on this topic. He noted that there are at least two key moments in policy-making when you have to explicitly value water. First, there’s the process of developing a benefit-cost analysis for a given policy or project, which should take into account both efficiency and equity considerations. Second, there’s the moment when society actually makes users pay for water by setting a price.

He explained that the process of setting prices is typically difficult, and this is especially true if the goal is to set a price that accounts for the full cost of water delivery and services. In theory, water prices could be based on an assessment at the municipal level of the infrastructure costs, the operations and maintenance costs, and the depreciation costs. This might sound straightforward, but water is an essential good: it is essential to life, and pricing water for full cost-recovery always brings up social equity issues.

In addition, Dr Hanneman noted that water utilities are more capital intensive than other utilities (i.e. gas, electricity, telecommunication) and water projects have to be financed upfront. That means that today’s water users have to pay for infrastructure that is going to serve three or four generations into the future. Therefore, distribution of water infrastructure costs and benefits across time also brings up questions of intergenerational equity.

To make things even more complicated, Dr Giulio Boccaletti from the Nature Conservancy reminded us that water management is not all about capital investments in cement and pipes. Achieving the SDGs requires an understanding of the connection between ecosystems and infrastructure. Across the globe, innovative schemes incentivise watersheds upstream to deliver water downstream, blending ecosystem-infrastructure management.

At the end of the day, what is an MSc student to think about valuing water and the prospect for achieving the SDGs? Well, we have a lot more to learn. The Oxford MSc student contingent definitely felt privileged to participate in the forum and extend our learning beyond the classroom.

This post was written by Adrienne Lane, with contributions from Silvia Cardascia, Sagar Dhakal, and Esteban Boj Garcia: current students of Oxford University’s Water Science, Policy and Management (WSPM) MSc programme. 

A second WSPM student blog exploring themes emerging from the forum can be found here. 

 

The legacy of a water pioneer

W. Mike Edmunds was a giant of his field: his influence continues to endure.

On 2 November, the Oxford Water Network, in collaboration with the British Geological Survey, hosted the 2nd W. Mike Edmunds Memorial Lecture at Christ Church. Mike was an eminent hydrogeologist and dearly missed faculty member of Oxford University’s School of Geography and the Environment.

Speaker, Dr Abi Stone, who began her career in hydrogeology as a postdoc under Mike, drew from their past collaboration. Dr Stone outlined how pore moisture within sand dunes can be used to provide a record of past climate in drylands. You can find out more about this research in a blog Dr Stone wrote for this website last year.

Last week, the Hydrogeology Journal published a profile of Mike’s professional life entitled ‘Professor W Mike Edmunds: a pioneer in applied hydrogeochemistry and champion of international collaboration’. This article captures the impressive breadth and impact of Mike’s career, touching upon his trace element geochemistry, arid zone hydrology/palaeohydrology, and work translating science into policy.

Mike left behind a remarkable body of work, with research undertaken across the globe. His son Paul recently began the process of mapping this research. This effort has now grown into Reswhere.org, an open collaboration platform to georeference environmental research. The website will launch soon and Paul is seeking feedback on the initiative. Following the lecture, he gave a brief overview of the Reswhere.org and invited those present to contribute.

He’d like to extend this invitation to the broader Oxford Water Network. If you are able to help, get in touch with Paul directly.

Below is short message from Paul:

We are currently auto-georeferencing and uploading links to openly available online abstracts/full articles/papers, via Google Scholar, Microsoft Academic Research, ResearchGate etc.

However, we realise that there will be vast amounts of information not searchable, or even available online, but perhaps sitting in silos which are less accessible.

We are now keen to develop partnerships with research institutions and relevant public bodies and individuals who could help to feed back into the application.

To register interest please get in touch – I would love to hear from you.

At this time we would be keen to:

  • Receive any general feedback / suggestions for the project.
  • Receive any links to existing groundwater / water resource research databases, either online / offline which could benefit from being mapped.
  • We would also like to include project databases in the long-term so also happy to receive feedback on this.
  • Hear from any students & researchers who may be interested on working on the project.

I hope to be able to share the first version of the website by the end of December so please register your interest by sending me an email and I will update you as soon as its available.

Best regards,

Paul Edmunds

pedmunds@reswhere.org