Action Group SPADISSmart Water Prices and Drought Insurance to cope with scarcity and droughts

Tackling water scarcity – the critical role of economic incentives

Carlos M. Gómezmario.gomez@uah.es

What drives water scarcity?

It never rains please everyone

Nature is the usual suspect!!

Yet Nature is not the one to be blamed

Where are investment incentives for agricultural

development higher?

Here? Or there?

Soria

Guada

lajara Avil

a

Zamora

Teruel

León

Burgos

Ciudad

Real

Córdob

aSe

villa

Jaén

Málaga

Granad

a

Huesca

Alava

Castel

lón

Alicante

Valenc

iaCád

iz

Almeri

a0

5,000

10,000

Financial Returns: Rainfed vs Irrigated AgricultureSource: Ministerio de Medio Ambiente (2008) Los Usos del Agua en la Economía Española. Informe

Integrado de los Usos del Agua.

Euro

s Per

Yea

r per

hec

tare

Water is different …………………. and makes the

difference

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]

When water is scarce, incentives for investment are high....

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0

10,000

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0

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Hyd

ropo

wer

Cap

paci

ty (

From

wat

er a

vaila

bilit

y) G

Wh

Hyd

ropo

wer

Cap

acity

(Fr

om In

stal

led

Infr

astr

uctu

res)

GW

19401.3 GW

201517.8 GW

75 years of hydropower

development in Spain1940

1.3 GW

201517.8 GW

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Producible Potencia Instalada Hidroel. A 31 de dic

Hyd

ropo

wer

Cap

paci

ty (

From

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er

avai

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lity)

GW

h

Hyd

ropo

wer

Cap

acity

(Fr

om In

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led

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astr

uctu

res)

GW

194034,620 GWh

201518,430GWh

…. But incentives for water conservation and policy coordination are missing

When water is scarce: INCENTIVES push to go

further with supply measures

When water is scarce: Public interventions are more successful in

increasing water demand than supply

40 50 60 70 80 90 100 110 120 1300

50

100

150

200

250

300

Mill

ion

cubi

c m

etre

s

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 supply Curve of Reused and desalinated Water in the Segura River Basin.

Source: EPI Water Project

Nevertheless, when water is scarce……..

going further in depleting groundwater may seem more

appealing

0 20 40 60 80 1000

100

200

300

400

500

600

Renew-able GW ...

Eurocents/m3

Volu

me

(hm

3)

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

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

unused

Water scarcity is after all a governance failure

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0.2

0.4

0.6

0.8

1

1.2

1.4

Million of Cubic Meters

€/m3

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

Freshwaterfinancially

cheap when available

GroundwaterReliable now

but Increasingly scarce

Desalinated water

abundant but financially expensiveReused water

Not abundant but reliable

And rewire incentives for the long term

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 capitalIn the long term: targeting the best water

portfolio

Source: EPI Water project

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20

40

60

80

100

120

140

Water demand, non-renewable groundwaterDesalinated water supply, total costsDesalinated water supply, only variable costs

Volume (hm3)

Euro

cent

s/m

3

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

Mother Nature knows

best But not about everything

Aquifers are not good as income security

providers…. Banks may do better

WTP for income insurance, selected agricultural districts in the TRB and SRB

When water is scarce people is willing to pay for income Security

Source: EPI Water project

Not and easy task... ...but a feasible one

Institutional inertia Technology lock inPolitical will..Coordination………

Better not to wait until the next drought to promote change

Future

“The definition of insanity is

doing something

over and over again and

expecting a different result”

Albert Einstein?

Ben Franklin?

Mark Twain?

Future

Thanks for your attention