Economic instruments for water management in Spanish Mediterranean basins

Resum

The scarcity of adequate water has been historically a complex policy challenge in Mediterranean basins. The conventional response to this problem has focused on the construction and exploitation of water works to meet the increasing water demand and, when that was not enough, on the regulation of water demand through command and control policies. Yet, the evident technical success in harnessing the potential of water for economic growth in the past has come along with new significant challenges. Coupled with production and population growth, the demand of water services has soared up. Besides, climate-change has significantly altered water availability, giving rise to a water supply crisis which is perceived by many experts to be one of the top global risks. Conventional policy making seemed incapable to overcome these challenges and demanded some innovations. However, path dependency, the transaction costs of policy reforms and other constraints have resulted in policy makers insisting upon conventional water policy. Supply policies have escalated, regulatory policies have become more complex (and more difficult to enforce) and the water crisis has been aggravated. Abundant evidence suggests that this policy mix has ended up increasing water demand, reducing water availability and undermining the robustness and resiliency of the system and its ability to cope with the water crisis. Considering its failure, the longevity of conventional water policy is striking. In many areas, only the exhaustion of traditional supply sources has been able to stop it. Eventually, the financial and environmental costs of developing new water works have begun to exceed the economic benefits in the marginal uses of existing supply in many basins, and this has made conventional policies unviable. Also, budgetary constraints as a result of the financial crisis have increased the opportunity costs of water infrastructures, preventing or delaying further water works. It is increasingly accepted that this vacuum in water policy needs to be filled in with innovative policies that help achieve water policy objectives through an effective and efficient management of water demand. However, achieving the collectively agreed goals of water policy through the actions of individuals is a challenging task. Experience shows that individuals with common objectives cannot be always counted on to act voluntarily to achieve them (this explains the non-compliance problems of regulatory instruments). Therefore, the challenge is to find suitable tools that motivate collective action through the use of incentives. Evidence in other environmental fields has shown that the best way to manage incentives is through economic instruments. Economic instruments replace the traditional notions of control and government-led planning by those of incentives, motivation and multi-level governance. If successfully combined with conventional policies, economic instruments may help to progressively overcome the current water crisis. However, developing an effective and efficient economic instrument for water management is not an easy task: whereas science has developed technical water management to a very large extent, considerations of social, political, institutional and financial order (i.e., economics) are still treated in an incipient form, with major problems persisting. This thesis wants to help bridge this gap and presents a series of methodologies and stylized facts that are used to assess the contribution that economic instruments can make to water policy in Mediterranean basins. This is done through six scientific papers illustrated with applications to different areas located in Mediterranean river basins in Spain. First, the thesis assesses the reasons that explain the exhaustion of the traditional supply-side approach, as well as the key factors behind the rise and failure of the extensive command and control based policy that came precisely to complement it. Then, this work examines the role that economic instruments may play, in conjunction with conventional policies, in reverting the negative trends observed under the current water crisis. It is concluded that economic instruments have the potential to improve the status of overexploited water bodies, but they are not a panacea: an adequate design, institutional setup and policy mix are also needed to start paving the road out of the water crisis.