Norhan Sadik WCEF2019: The circular economy for Water - Policy, Institutional and regulatory incentives
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The World Circular Economy Forum presents the world’s best circular economy solutions and gathers together the most recognised experts and decision makers in the field. The event is organised by the Finnish Innovation Fund Sitra. Read more: www.wcef2019.com
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Norhan Sadik WCEF2019: The circular economy for Water - Policy, Institutional and regulatory incentives
- 1. www.worldbank.org/water | www.blogs.worldbank.org/water | @WorldBankWater The Circular Economy for Water Policy, Institutional, and Regulatory Incentives Norhan Sadik | Analyst WCEF 2019
- 2. Wastewater Recovery and Reuse Promising Opportunities 1 26% US$ 247 bn. US$ 112 bn. Annually Innovative Technology Sustainable Business and the “Triple Bottom Line” Sustainable Finance Market LMIC SDG6 Investment Gap
- 3. Wastewater Recovery and Reuse Key Policy, Institutional, and Regulatory Challenges 2 1. Policy • Excessive and inefficient subsidies estimated at USD 345bn./year • Strong emphasis on planning and financing new infrastructure • Reliance on public financing without exploring market opportunities • Negative public perception about reclaimed water and reuse products 2. Institutional • Knowledge gap and lack of political will • Poor coordination between levels of government, institutions, sectors and legislation 3. Regulatory • Regulatory standards are restrictive and/or inconsistent • Lack of regulations for water reuse, use of biosolids, and energy generation in WWTPs • Poor incentives for water reuse and resource recovery • Technology selection criteria biased towards expensive technologies
- 4. Boost Resource Efficiency: Water Resource Recovery Facilities (WRRFs) DEMAND-SIDE OF TREATMENT: PROJECTING WASTEWATER INFLUENTS SETTING REASONABLE AND SUSTAINABLE TARGETS FOR EFFLUENT QUALITY SETTING ADEQUATE TREATMENT TECHNOLOGIES DETERMINING SCALE OF TREATMENT SYSTEMS UTILISING MAXIMUM CAPACITY OF EXISTING INFRASTRUCTURE REDUCING ENERGY CONSUMPTION OF WRRFS Building the Utility of the Future – WRRFs Improving Resource Efficiency
- 5. Building the Utility of the Future - WRRFs Creating New Markets A. Water Market • Industrial end-users are most profitable for treated wastewater reuse: in San Luis Potosí, Cerro Verde, Durban and Nagpur sales at competitive prices to industrial customers either partially or fully covered utility O&M costs. • Subsidies required if end purpose is irrigation, aquifer replenishment, environmental remediation etc. as willingness to pay is low due to artificially low groundwater prices. B. Energy Market • Energy business can be profitable as CAPEX is relatively less than WWTP CAPEX costs: La Farfana plant invested USD 2.7m and profits USD 1m from biogas activities. C. Biosolids Market • WWTP bio-solids are usually deposited as potential customers are not willing to pay. • Selling bio-solids can potentially save transport and landfill gate costs, as in the case of SEDACUSCO in Peru which saved up to USD 240K/year. 4
- 6. WASTEWATE R from San Luis Potosí WASTEWATER TREATMENT PLANT TENORIO treated wastewater $ THERMAL POWER PLANT (Federal Energy Commission) Wastewater reused for agriculture (500 ha) 600 l/s450 l/s Wastewater is used in the cooling towers instead of freshwater *Wastewater treatment plant picture is by Tracey Saxby, Integration and Application Network, University of Maryland Center for Environmental Science Environmental enhancement: Tenorio tank wetland Integrated Wastewater Management Plan San Luis Potosi, Mexico • “Take-or-Pay” purchase agreement between the FEC and State Water Commission. Benefits • Treated wastewater is 33% cheaper resulting in savings of USD18M in 6 years. • Better quality services for FEC and farmers. • Increase in agricultural productivity. Key Success Factors • Regulations for use of treated wastewater. • Stakeholder engagement • Raising awareness and education
- 7. DURBAN WATER RECYCLING PLANT TREATED WASTEWATER $SAPREF MONDI $ Wastewater Reuse for Industrial Use Durban, South Africa • Potable water supplied to 400,000 extra people • Postponed investments in new water treatment infrastructure. • 10% reduction of wastewater discharged into ocean. Durban • Treated wastewater is almost 50% cheaper. • Reduced risk related to water availability in case of droughts. Industry • Long term revenues from industry (Build-Own-Operate- Transfer contract 20 years). Durban Recycling Plant • Build-Own-Operate-Transfer (BOOT) 20-year concession which implemented project-specific technologies in line with water quality requirements of the industrial clients and infrastructure re-use prospects.
- 8. Compost from sludge Treated wastewater WWTP Wastewater from New Cairo Agricultural Operations Nile River Cement Plant Fuel $$ Access to Sanitation and Wastewater Reuse New Cairo, Egypt Key Success Factors • First PPP in Egypt. Established PPP Unit within MoF and recruited top talent. • Stakeholder engagement and inter- institutional coordination. • Governance committees for oversight and guidance. • Detailed risk analysis and allocation (e.g. inflation, interest rate rises, credit- worthiness)
- 9. Shifting Paradigms: From Waste to Resource The 3C’s 8 Costs Collaboration Catalyse
- 10. www.worldbank.org/water | www.blogs.worldbank.org/water | @WorldBankWater Thank you
Editor's Notes
- Wastewater treatment technologies for water reuse and resource recovery have been progressing much faster than the enabling environment needed to make them economically and commercially viable. Policy Lack of policy direction and political leadership encouraging wastewater reuse and resource recovery Lack of legislative framework and legal structures that limit the use of reclaimed water, such as religious beliefs and laws prohibiting direct contact with treated wastewater Inclusive and participatory planning processes are often overlooked by policymakers Institutions Lack of coordination between and within different government levels, as well as a lack of cross-sectoral coordination between relevant sectors Weak institutional capacity in planning and monitoring of wastewater management Technical capacity in the private sector surpasses the public sector, which lacks the skills and expertise needed to enforce the enabling environment conducive for technical innovation Institutional disconnect between interest and influence over wastewater reuse activities Regulation In many cases, regulatory standards are very restrictive as countries tend to adopt structures and benchmarks that are internationally accepted but not tailored to the country-specific needs. Frameworks do not encourage innovative solutions in providing wastewater services and creating value from wastewater reuse and resource recovery. Due to lack of regulation on reclaimed or recycled water pricing, reclaimed water is often priced below cost recovery due to the public perception that recycled water is of lower quality than municipal water supply, despite higher production costs. Financial Wastewater treatment and reuse is a capital-intensive activity, incurring large up-front costs, without always generating adequate revenues to recover operations and maintenance costs at the medium or long term, and hence requiring subsidies. Subsidies that are not carefully assessed and designed can promote inefficiency. Institutional Knowledge gap and lack of political will: there is a general lack of understanding about the concepts of water resource recovery and how to implement them in practice. Wastewater is still considered a hinderance or a substance to be dealt with and dispose of, rather than considered as a resource. This results in a lack of political will in developing policies and regulation that support and incentivize wastewater reuse and resource recovery. Lack of coordination between different institutions, legislations and sectors: In most countries in the region, regulations in the water sector are not aligned with the energy, health, environment and agriculture sectors, and therefore limit resource recovery and reuse from wastewater (energy, irrigation water, nutrients, etc.). Moreover, responsibilities for the provision of wastewater services are often fragmented between different levels of governments. The national government sets policies and targets, while service provision, including investment, operation and maintenance and monitoring, is usually delegated to municipal governments, who in many cases lack the technical and financial capacities to adequately provide services (Trémolet, S., 2011). There is also a lack of coordination between Water Resources Management (WRM) institutions and those responsible for sanitation service delivery. As a result, sanitation plans are usually not incorporated in river basin planning efforts, leading to inefficient and costly systems. Economic Water is undervalued: Unless water resources are properly valued (as stated in the HLPW “Principles on Valuing Water document”), it will be difficult to promote resource recovery initiatives. The lack of value for water also leads to improper pricing of water resources and water services, which is also a deterrent for resources recovery projects. For example, if industries pay a very low fee to withdraw freshwater, they have no incentive to pay for treated wastewater. Excessive emphasis on planning and financing new infrastructure, without sufficiently considering the lifecycle analysis of the plant and sustainability of the system (e.g., O&M costs coverage) and without evaluating the real capacity of the existing infrastructure and maximizing its use. Reliance on conventional/public financing of WWTPs without taking advantage of market conditions and incentives to enhance sustainability. There is a need for innovative financing mechanisms that can encourage the development and investment on wastewater systems that promote the sustainability of the operation and its natural system. Regulatory Current regulatory standards are often too restrictive and/or inconsistent: countries adopt internationally accepted regulatory standards on water quality that are not tailored to the specific needs of the country. Often regulations are designed without considering the financial implications of their implementation (specially regarding operation costs). More flexible standards that can be complied gradually and that are suited to the objective of the wastewater investment, will encourage innovative solutions needed to provide wastewater services as well as create value from water reuse and resource recovery. Lack of regulatory frameworks and guidelines for water reuse, beneficial use of biosolids and energy generation in WWTPs. In the region there are even regulations that limit or forbid resource recovery at WWTPs. For instance, in some countries, the reuse of wastewater might only be permitted for a specific set of activities such as restricted irrigation, or the use of biosolids might be forbidden in the agriculture sector. There is a need for clear regulations and guidelines to ensure a safe use of human waste derived products and to widen the market potential. Moreover, the lack of regulation on pricing of recovered resources from wastewater deterrs utilities and the private sector from investing in resource recovery projects due to the uncertainty on the return on their investment. There is a need for a new regulatory mechanism, that allows a clear and fair pricing of reclaimed water, biosolids and energy. wastewater reuse and resource recovery: There is a need for new regulatory mechanisms that specifically provide incentives to all stakeholders to consider wastewater systems as resource recovery facilities. There is also a lack of incentives for the water utility to innovate and recover resources from wastewater given that in many countries the benefits and extra revenue reaped from those interventions would go only towards tariff reduction. Social Negative perception about reclaimed water and reuse products: a major challenge to the development of the resource recovery market is the low social acceptance to the use of recycled products from human waste. Moreover, if farmers are already using untreated wastewater, many times they are against treating it because they have the perception that wastewater nutrients will be removed and that their crop yield will diminish. Public awareness and education campaigns are needed to build trust and change this negative perspective into a positive one. Technological Technology selection criteria biased towards expensive technologies without considering all potential possibilities that better suit the local conditions. A related challenge to this point in some countries is the lack of prepared engineers and planners on different wastewater treatment technologies.
- Pricing of wastewater: The CEA and CFE agreed to charge the wastewater at 67% the price of groundwater for industrial uses; thus reducing operational costs & protecting the aquifer Water cost for industrial uses in San Luis Potosi is amongst the most expensive in the country at 1.14 US$/m3, while recycled water is 0.76US$/m3 (2012).
- Durban Water Recycling (Pty) Ltd 51% OTV France (Veolia), 18.5% Umgeni, 18.5% Khulani, 10% Marubeni, 2% Zetachem
- Policy – the starting point has to be a high level political leadership and commitment that is encapsulated in clearly articulated national R&RR policy statement. R&RR may also be included in broad policy statements about water, natural resources or climate change. The essential elements then need to be cascaded down from the national / federal level to district / state and local level policies on R&RR. Another key component for successful implementation of wastewater R&RR is to raise public and stakeholder awareness of the benefits of wastewater R&RR. Public consultation and stakeholder engagement should be part of the policy development and implementation. In almost all the success cases reviewed, public consultation and engagement were mentioned as one of the key factors for successfully implementing wastewater R&RR. Institutions – responsibility for water and wastewater is always divided across different state institutions, and modifications may be needed to align with the requirements of R&RR. The practice of basin level planning needs to be institutionalised, and for this it may be necessary to establish basin institutional structures, if these do not already exist. Other institutional arrangement can also encourage wastewater R&RR, especially if the institutions allow or require collaborations between different levels of governments as well as between different sectors. Another example is through national level committees formed with a specific mandate to develop wastewater R&RR. Case studies also shown that contractual arrangements between public entities are important in clearly specifying roles and responsibilities of each party with regards to wastewater R&RR. The potential for wastewater R&RR can be realised when government departments collaborate in the development of sector strategy and/or masterplans. Also, as pointed out above, private sector participation in wastewater R&RR is important both in providing technical expertise and technology, and/or providing initial investment in the infrastructure and technology. PSP highlights the need to create an inducive enabling environment for investment through having a clear policy and regulatory framework. Regulatory framework – there is need for both technical and economic regulation of R&RR. At the technical level, the establishment and enforcement of standards for re-use water and for biosolids appropriate for each country are important in building public confidence and creating the market needed for R&RR investments to be viable. However, it is important that these standards are flexible and adaptable to local conditions, as standards that are too strict may disincentivise the development of wastewater R&RR. Economic regulation has a similar function, for example in requiring cross-subsidies from tariffs on fresh water to allow the price of reuse water to be set initially at a low level to allow the market to grow. Economic regulation can also be used to stimulate and create competition in the bioresource market. There is also need to align regulatory framework from different sectors relevant to wastewater R&RR, as overlapping regulation can also create negative incentives. Financing – in LAC and other developing regions, the financial resources required to achieve the SDG levels of wastewater recovery, plus the additional upfront investment requirements of R&RR, are well beyond what national governments can afford. The role of the private sector is therefore crucial, with various forms of public-private partnerships (PPPs) being the norm for large projects. Blended finance is typically necessary, this involving subsidies from national government and cooperative partner sources, together with private equity and debt finance to be recovered through user tariff revenues. The level of subsidy that is warranted is to be determined by economic and financial analysis of the wastewater project carried out at the basin-wide level. To provide incentives for on-gong efficient performance, the subsidies should be disbursed on the basis of achieved results. Recently a new trend of financing mechanisms has started to be used to fund environmentally friendly investments called green finance. Green finance refers to any financial instrument (including equity, debt, grant, guarantee, credit and bonds) granted under contract to a public or private organisation, in exchange for the delivery of positive environmental externalities that are additional to business as usual. It provides a specific incentive for projects that integrate environmental protection with economic profits, such as wastewater R&RR.