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Abstract
Abstract. To enable economically efficient future adaptation to water scarcity some countries are revising water management institutions such as water rights or licensing systems to more effectively protect ecosystems and their services. However, allocating more flow to the environment can mean less abstraction for economic production, or the inability to accommodate new entrants (diverters). Modern licensing arrangements should simultaneously enhance environmental flows and protect water abstractors who depend on water. Making new licensing regimes compatible with tradable water rights is an important component of water allocation reform. Regulated water markets can help decrease the societal cost of water scarcity whilst enforcing environmental and/or social protections. In this article we simulate water markets under a regime of fixed volumetric water abstraction licenses with fixed minimum flows or under a scalable water license regime (using water "shares") with dynamic environmental minimum flows. Shares allow adapting allocations to available water and dynamic environmental minimum flows vary as a function of ecological requirements. We investigate how a short-term spot market manifests within each licensing regime. We use a river-basin-scale hydroeconomic agent model that represents individual abstractors and can simulate a spot market under both licensing regimes. We apply this model to the Great Ouse River basin in eastern England with public water supply, agricultural, energy and industrial water-using agents. Results show the proposed shares with dynamic environmental flow licensing system protects river flows more effectively than the current static minimum flow requirements during a dry historical year, but that the total opportunity cost to water abstractors of the environmental gains is a 10–15% loss in economic benefits.
Highlights
Recent projections show that the amount of available water runoff currently appropriated for human needs globally is around 50 %, and likely to rise to 70 % by 2025 (Postel et al, 1996; Postel, 1998)
This paper introduces dynamic environmental flows and scalable “share” licenses into the pair-wise transaction tracking hydroeconomic water market simulator to evaluate how they perform in a water trading context
In the following we review model results focusing on how the two licensing systems diverge in protecting environmental flows, water allocated to each sector, and plausible trades under a short-term spot water market
Summary
Recent projections show that the amount of available water runoff currently appropriated for human needs globally is around 50 %, and likely to rise to 70 % by 2025 (Postel et al, 1996; Postel, 1998). In the US and Australia, government-allocated funds are used to buy back water allocations to leave water in the environment (Brewer et al, 2008; Wheeler et al, 2013; Wilkinson, 2008). These methods are short-term solutions to immediate water scarcity problems and such uses of public funds can be a contentious issue. Reforms of water allocation systems are under way in countries such as the United States, South Africa, Australia, Russia and England and Wales to ensure environmental protection in the longer term (Gleick et al, 2011; Stern, 2013; Young, 2012). In England there are significant institutional barriers to water trading (Environment Agency and Ofwat, 2008; Hodgson, 2006)
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