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

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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 Key Challenges: 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)

3 Increasing Concerns, Conflicting Choices Water (and its relevant ecosystem services) as natural capital Trade-offs (water for agriculture v. water for cities) 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. 2012

4 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?

5 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?

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

7 Water Pricing: Economic Instruments 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

8 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?

9 Water Pricing: Hidden Issue over Affordability 1. Widening water gaps: Mike Young (2015) at Green Growth Knowledge Platform Conference, IBT in reality fails to assist the poor. In Australia << 2. A dilemma of Trade-offs between policy objectives: Financial sustainability vs Social inclusion Tinbergen Principle?

10 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 Viet Nam (Ho Chi Minh) Cambodia (Phnom Penh) Philippines 7 types of tariff (highest category pays 14 times those in lowest) Inclining block tariff; subsidies for poor Inclining block tariff; subsidies for poor Inclining block tariff; Source: Araral and Wang (2013), International Journal of Water Resources Management)

11 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 and identify supplementary water pricing scheme for the poor (i.e. direct subsidy, water bill coupon)

12 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. 1/11

13 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

14 GGGI: Water and Green Growth Project PHASE I: Oct July 2014 PHASE II: 2015: Urban/Industry context wastewater treatment (tbc) Scoping Paper Conference Report

15 Thank you.

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

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

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