Report from: XVI World Water Congress Special Session: Cancun Mexico 2017
Main Conclusions and Outcomes from the IWRA 2017 Session on“Sustainable watersheds: Emerging economic instruments and finance for water security”
– Good monitoring, choice of models, clear policy objectives and impact investment … the right instrument for the right objective –
On Friday 2nd of June 2017, the Economic and Finance Instruments for Water Security Working Group hosted a session (PDF, 766kb) at the IWRA World Water Congress in Cancun. The main objective of the session was to “explore emerging economic and financial instruments for enhancing water security worldwide in a changing climate with a particular focus on understanding which instruments are the most suitable for a given watershed or basin.”
The session was hosted by the co-leaders of the Group: Dr Heidi Asbjornsen, from the University of New Hampshire, USA; Dr Elena Lopez Gunn, from ICATALIST, Spain and the University of Leeds, UK; and Dr Dionisio Perez Blanco, from the Euro Mediterranean Centre on Climate Change (CMCC), Italy. The event was well attended and was followed by an open discussion with the audience. The session had four excellent speakers who provided examples on the latest research and experiences from across the world.
Dr. Roy Brouwer, Professor of Economics and Executive Director of the Water Institute at the University of Waterloo, Canada gave a presentation on “A global assessment of institutional-economic factors explaining the environmental performance of payments for watershed services” (PDF, 2mb);
Dr. Dolores Rey, Lecturer in Water Policy and Economics at Cranfield University, UK, gave a presentation on the “Economic instruments for water allocation in England and Wales” (PDF, 582kb);
Dr. Alex Mayer, Professor of Environmental Engineering at Michigan Technological University, USA gave a presentation entitled “The challenge of optimizing payment for watershed services programs: Modelling socio-hydrologic systems in Veracruz, Mexico” (PDF, 4mb); and
Dr. Monica Altamirano, Specialist in Public-Private Partnerships at DELTARES, Holland spoke on “A Financing Framework for Water Security” (PDF, 2mb).
Key item 1: Importance of monitoring effects of economic and finance instruments
Conclusion and Recommendation 1: Experience over the last 15 to 20 years reflects the lack of actual monitoring to check effectiveness of the measures. The importance in the future of ensuring monitoring of biophysical and socioeconomic impacts and transparency in, e.g,. payments for ecosystem services.
The first item for discussion centered on the evidence from around 20 years of experience on payments for ecosystem services. Professor Brouwer commented how often these mechanisms include the possibility to provide payments – not just for watershed services but rather for ecosystem integrity. What is worrying is the lack of monitoring of their effects. Professor Bouwer commented how it is not so much subsidising farmers in Europe or in developing countries but rather to see them as stewards of our landscape, of finding the right balance.Thus, the importance of thinking of these agents as stewards providing a service but equally trying to establish a more direct link to the beneficiary from the service. Asking questions from this service providers on: what are we paying them for, and are we getting what we want. Often these payments also have co-benefits like biodiversity or carbon sequestration.
Key item 2: User finance models versus government finance models
Conclusion and recommendation 2: to understand the differences between user finance models versus government finance schemes. Also the difference (and inherent difficulties) of monitoring single objective schemes versus multiple objective schemes. The first is harder to monitor than the latter.
The second item for discussion focused on the difference between user finance models like e.g. hydropower for sediment control versus beneficiary finance models. E.g. the water funds and lack of transparency on measuring the effects. The organisations putting the money want to see the effects. Is the reason why user finance models are preferred because these instruments are easier to measure? Professor Bouwer commented how often the government finance schemes have multiple objectives versus user finance. In his experience, the difference between the government finance versus the user finance models, is that user financed with a single objective are often easier to monitor.
Key item 3: Clearly stated policy objectives
Conclusion and recommendation 3: It is important to not have confounding objectives. Clearly stated policy goals and know what is the most cost-effective measure.
The third item for discussion focused on policy objectives, not just on the need for adequate monitoring. Most importantly, when government finance is involved it is important to state clearly beforehand the policy objectives. In some cases, the direct cost associated e.g. like dredging is cheaper and would not have required monitoring. The main issue are clearly defined policy objectives from the outset.
Key item 4: Investment in good quality monitoring data and time
Conclusion and recommendation 4: Importance of investing in collecting good underlying data to understand the system and over time, to be able to understand the system and how changes like e.g. land use change, affect the system
The fourth item for discussion focused on the watershed sustainability index, for e.g. a stable water supply. The methodology, for watershed councils in other areas e.g. what would it take to replicate these approach to other parts of the world? Prof. Alex Mayer commented on the fundamental importance of the underlying data, the metrics, the importance of the willingness to invest in the primary data, which is expensive. Finally, monitoring the effects over time (normally decades) to see the effect of e.g. land use change is important. Primary data and how these are combined together, to tease out what people value in the trade-offs for example.
Key item 5: Blended finance and Impact investment
Conclusion and Recommendation 5: In terms of blended finance and impact investment, it is also key for would be investors to be able to measure performance. This includes social or environmental goals
The fifth item for discussion focused on blended finance (the combination of different finance mechanisms), and on multi-objectives from the nexus approach (e.g. land/water/food/ecosystems), and what could be confounding multiple objectives once you start to introduce e.g. poverty alleviation. The difference between primary environmental objectives versus secondary objectives. For example, the use of a tool for the water utility to communicate the benefits and to optimise the tool for the water utility. E.g. Is the sustainability index geared towards this client?. Therefore the need to acknowledge that we are in this phase now of an integrated approach yet we want to secure finance and funding, how do we balance this without losing the value? Dr Monica Altamirano commented how it is difficult to measure impact investment. If we think of monitoring, in blended finance you also need performance measuring, somebody may want to invest on social goals, but he/she also wants to measure performance on those stated policy objectives. For example, the potential to stack them to get bankable projects. However, for these policy mixes it is fundamental to have the right regulatory framework, which combine the best tools for the impacts of these policy mixes, thinking also on the impact on behaviour of the key agents.
The session finished with a short summary of next steps, namely:
A Special Issue from the session in the Journal of Water Resources and Economics (WRE entitled “Sustainable watersheds: emerging economic and financial instruments for water security “. We thus invite people to contribute to this special issue. The special issue will contain a selection of around 5-7 papers. All submitted papers will go through a standard double-blind review process and the normal quality standards of WRE apply. We are looking for papers with a strong economics foundation and a quantitative focus that make a substantial, novel and relevant contribution to the literature (call for papers in attachment). If you would like to contribute, please go to the WRE journal special issue webpage.
Contribution to a book currently under preparation – a Handbook on Water Resources – to the section dedicated to economics and finance.