Economic incentives for tackling water scarcity Origin: EIP Water Action Group Smart Water Prices and Drought Insurance to cope with scarcity and droughts

1. Action Group SPADIS
Smart Water Prices and Drought Insurance
to cope with scarcity and droughts
Tackling water scarcity –
the critical role of economic incentives
Carlos M. Gómez
mario.gomez@uah.es

2. What drives water scarcity?
It never rains please everyone
Nature is the usual suspect!!

3. Yet Nature is not the one to be blamed
Where are investment incentives
for agricultural development
higher?
Here?
Or there?

4. 0
5,000
10,000
EurosPerYearperhectare
Financial Returns: Rainfed vs Irrigated Agriculture
Source: Ministerio de Medio Ambiente (2008) Los Usos del Agua en la Economía Española. Informe Integrado de los
Usos del Agua.
Water is different ……
……………. and makes the difference

5. http://www.wri.org/our-work/project/aqueduct
Irrigated agriculture & water
stress
Scarcity is after all an incentive driven problem...
[like fishing where there is no fish]

6. When water is scarce,
incentives for investment are high....
0
5,000
10,000
15,000
20,000
0
10,000
20,000
30,000
40,000
50,000
1940 1950 1960 1970 1980 1990 2000 2010
HydropowerCapacity(FromInstalledInfrastructures)GW
HydropowerCappacity(Fromwateravailability)GWh
1940
1.3 GW
2015
17.8 GW
75 years of hydropower
development in Spain1940
1.3 GW
2015
17.8 GW

7. 0
5,000
10,000
15,000
20,000
0
10,000
20,000
30,000
40,000
50,000
1940 1950 1960 1970 1980 1990 2000 2010
HydropowerCapacity(FromInstalledInfrastructures)GW
HydropowerCappacity(Fromwateravailability)GWh
Producible Potencia Instalada Hidroel. A 31 de dic
1940
34,620 GWh
2015
18,430GWh
…. But incentives for water conservation and policy
coordination are missing

8. When water is scarce:
INCENTIVES push to go further
with supply measures

9. When water is scarce:
Public interventions are more successful in increasing
water demand than supply

10. 0
50
100
150
200
250
300
0 20 40 60 80 100 120 140
Millioncubicmetres
When water is scarce
incentives are high to find new
and “non-conventional” water
sources
Euro cents/cubic metres
275 million cubic metres
already available at a cost
between 0.5 and 1.2 €/m3 in
the Segura River Basin
The Inverse supplyCurve of Reused and desalinatedWater in the Segura
River Basin.
Source: EPIWater Project

11. Nevertheless, when water is scarce……..
going further in depleting groundwater may
seem more appealing
0
100
200
300
400
500
600
0 20 40 60 80 100
Volume(hm3)
Eurocents/m3
Renewable
GW supply
Around 275 million cubic meters of
non-renewable water are pumped
out from groundwater sources at a
cost between 0.2 and 1 €/m3 in the
Segura River Basin

12. When water is scarce,
aquifer depletion can go ahead while
abundant and available sources of water
may remain unused

13. Water scarcity is after all a
governance failure

14. 0
0.2
0.4
0.6
0.8
1
1.2
1.4
0 200 400 600 800 1000 1200 1400
€/m3
Million of Cubic Meters
The supply curve of the Segura River Basin (SE Spain) – In a “normal” hydrological year
When water is scarce……….
We must look after the water portfolio
Transferred water
politically costly
and uncertain
Freshwater
financially cheap
when available
Groundwater
Reliable now but
Increasingly scarce
Desalinated water
abundant but
financially expensive
Reused water
Not abundant but
reliable
And rewire incentives for the long term

15. Give water security a price
To restore incentives for innovation along the
water cycle
And build water security:
Now: making long term investments affordable.
Tomorrow: recovering natural capital
In the long term: targeting the best water portfolio
Source: EPI Water project

16. 0
20
40
60
80
100
120
140
0 50 100 150 200 250 300
Eurocents/m3
Volume (hm3)
Water demand, non-renewable groundwater
Desalinated water supply, total costs
Desalinated water supply, only variable costs
Desalinated water supply
An overprice of 5-10 eurocents on drinking water would be enough to guarantee full water security for
non agricultural uses and to make desalinated water affordable on a regular basis for irrigation
Non-renewable groundwater demand
Source: EPI Water project

17. Mother Nature
knows best
But not about everything
Aquifers are not good as
income security providers….
Banks may do better

18. WTP for income insurance, selected agricultural districts in theTRB and SRB
When water is scarce people is willing to pay for
income Security
Source: EPI Water project

19. Not and easy task... ...but a feasible one
Institutional inertia
Technology lock in
Political will..
Coordination…
……
Better not to wait until the next
drought to promote change

20. “The definition of
insanity is doing
something over
and over again and
expecting a
different result”
Albert Einstein?
Ben Franklin?
MarkTwain?

21. Thanks for your attention