Closing the Price/Efficiency Gap Issues and Challenges 24 February 2015

Transcription

1 Workshop on Water and Green Growth Session 3a: Synergizing Water and Green Growth United Nations Conference Centre (UNCC), Bangkok, Thailand Closing the Price/Efficiency Gap Issues and Challenges 24 February 2015 Juhern Kim Deputy Country Representative of the Viet Nam County Program Senior Natural Capital Specialist Global Green Growth Institute

2 Table of Contents 1. Water as Natural Capital 2. Water Pricing: Conceptual Issues 3. Water Pricing: Economic Instruments 4. Conclusion 2

3 GGGI: Moving towards Implementation Our Vision A resilient world of strong, inclusive and sustainable growth Our Objective GGGI Member countries move towards a model of green growth. While this will be differentiated for countries, at its core will be strategies that simultaneously achieve poverty reduction, social inclusion, environmental sustainability and resource security. 3

4 GGGI Value Chain 1) Focused heavily towards in-country delivery; 2) Firmly based on existence of a feedback loop between in country experience and analysis and global products and services; and 3) Tailored entirely to the specific circumstances, demand and capacity of each country Diagnosis Green impact assessment Sector/Sub-sector strategy & planning Design, financing & implementation Development, economic growth and sustainability diagnosis Sectoral green impact assessment and prioritization Macro economic impact assessment Policy and institutions analysis Analysis of costs and investment requirements Development of sectoral/subsectoral investment plans and selection Design: Project and policy preparation Financing: Identification of possible financial structures Implementation 4

5 1. Water as Natural Capital 2. Water Pricing: Conceptual Issues 3. Water Pricing: Economic Instruments 4. Conclusion 5

6 Broken Economic Compass: Need to recognize True Values Pursuing only economic efficiency in current system led by GDP will ultimately lead us to a distorted conclusion. Image source: Forum for the Future. 6

7 Increasing Positives and Decreasing Negative Externalities cost or benefit that affects a party who did not choose to incur that cost or benefit. Externalities can thus be positive or negative F M N S H Image source: Forum for the Future; KPMG (2014) 7

8 Full Dimensional Value Calculation (e.g. Electronics Manufacturers) Buys recycled metals; training; use renewable energy; ensure a living wage, etc. Discharge hazardous chemicals; use child labor; emit GHGs; landfill Source: KPMG (2014) A New Vision of Value: Connecting Corporate and Societal Value Creation; Icon source: Freepik 8

9 Water is core Natural Capital Valuing the invisible: no economic value, then not valuable? Many of ecosystem services are related to water and wetlands via water provision, regulation, purification, groundwater replenishment are crucial in addressing water security, water for food security, and water for energy security. But, its true value has not been properly addressed. While nature is understood to be more than merely natural capital, it is nonetheless a useful metaphor to communicate the value or benefits of nature to people and the wider economy Source: TEEB; Five Capitals Model 9

10 Companies, Water, and Risk Protest at the main gate of the Coca-Cola bottling plant in Plachimada, Kerala, India, April 5, 2006 (Photo by Kasuga Sho) 10

11 How much is water worth to your business? How much is water worth to your business? I suspect that few of us are really able to answer my question. However, as business leaders, we are going to need to. There is a global recognition that water is rarely valued or priced appropriately and as water demand continues to stretch and stress water supply, business will increasingly need to look at the real value of water to their business. ( ) This is not about turning business into an arm of the UN there are real-world implications for our businesses, from looming regulatory, operational or reputational risks, to unseen costs and hidden opportunities for growth. Peter Bakker, President, WBCSD 11

12 Water as Natural Capital : uptake from business

13 Increasing Concerns, Conflicting Choices 55% Increasing global water demand 80% Untreated sewage in developing countries 1.8 billion Unsafe drinking water Inadequate access to sanitation OECD 2012 UN 2011 Onda et al Water (and its relevant ecosystem services) as natural capital Trade-offs (water for agriculture v. water for cities) 13

14 1. Water as Natural Capital 2. Water Pricing: Conceptual Issues 3. Water Pricing: Economic Instruments 4. Conclusion 14

15 Water Pricing: Fundamental Issues (1) Getting the price right would magically solve our water problems? Oil pricing for 150 years, why not water? Water whose property? Water is public good or economic good? 15

16 Water Pricing: Fundamental Issues (2) International Conference on Water and the Environment (1992) UN General Assembly (2010) Present Water should be recognized as an economic value + Water at an affordable price is a basic right of all human beings It is a human right to access to safe drinking water and sanitation Where do we stand? 16

17 Water Pricing: Selling Water in the Market? Source: SIWI 17

18 1. Water as Natural Capital 2. Water Pricing: Conceptual Issues 3. Water Pricing: Economic Instruments 4. Conclusion 18

19 Water Stress (OECD countries) 19

20 Unit price of water and wastewater services 20

21 Water Pricing: Economic Instruments 3T (Tariff, Tax, Transfer) + Payment for Ecosystem Services (PES) Tariff Abstraction/Pollution charges Water markets Tradable discharge permits Water Pricing involve the use of prices and other market-based measures to improve the way water is managed and used, enabling users to recognize the true value of water revenue and incentive effects 21

22 Water Pricing: Tough Choice for Policymakers A dilemma of trade-offs Financial sustainability vs Social inclusion The question is how do you charge water against agriculture, industry, etc.? 22

23 Unit Price Tariff: Inclining Block Tariff (IBT) system Inclining Block Tariff Structure Increasing block tariffs (IBTs): The minimum basic water requirements are provided to households at a very low rate, while for additional consumption, the higher the use the higher the rates. 0 Consumption Volume Around 70% of towns and cities in the developing world are using increasing block tariff regimes. Do IBTs, however, really deliver benefits to the poor? 23

24 Water Pricing: Hidden Issue over Affordability Widening water gaps: IBT in reality fails to assist the poor. - Mike Young Growth Knowledge Platform Conference << Tinbergen Principle? 24

25 Water Pricing: Affordability and Inclusiveness Chile: Means-tested Subsidy scheme to identify families for social assistance Privatization of public water company (1980s) Increased water tariff price Debate on access to water service by the poor Adoption of a subsidy system Law No.18,778 (1989) South-East Asia: Increasing block tariff system is one-size-fit-all solution? Use of price mechanism to regulate demand Indonesia 7 types of tariff (highest category pays 14 times those in lowest); since 2007 poor households are allowed to pay water tariff at subsidized rate. Viet Nam (Ho Chi Minh) Cambodia (Phnom Penh) Inclining block tariff; hike tariffs to help the poor being practiced so that revenues are funded to connect the poor Inclining block tariff; social tariff being implemented to support the vulnerable Philippines Inclining block tariff (price increased 169% after privatization in 1996) Source: Araral and Wang (2013), International Journal of Water Resources Management) 25

26 1. Water as Natural Capital 2. Water Pricing: Conceptual Issues 3. Water Pricing: Economic Instruments 4. Conclusion 26

27 Closing the Price Gap Synergizing water and economic growth Source: UNESCAP - Shifting from trade-offs to synergy between water and economic growth (through environmental tax reform taxing the bads not goods while maintaining revenue neutrality) (e.g. 79% flat taxation rate for the oil companies in in Norway) - What are the situation of major sectors (e.g. agriculture, industry, etc.)? 27

28 Concluding Remarks Trade-offs over water usage matter of policy decision Incorporate concern over inclusiveness into national water pricing scheme Conduct empirical studies to examine status quo (on water pricing) and identify gaps and supplementary measures 28

29 Viet Nam Country Program: Water and Green Growth Project Viet Nam Country Program - Ministry of Planning and Investment (MPI) - Ministry of Construction (MOC) - Viet Nam National Mekong Committee (VNMC) PHASE I: Oct July Scoping Paper; International Conference on Water and Green Growth (speakers from UNEP-TEEB, MRC, UNCCD, WWF, SIWI, IGES, K-Water, ANU, AWS, etc.) PHASE II: 2015: Urban/Industry context: wastewater treatment policy (tbc) Scoping Paper Conference Report 29

30 Thank you.