SCOPING THE ECONOMIC ANALYSIS OF THE WATER FRAMEWORK DIRECTIVE

1. CONFEDERACION HIDROGRAFICA DEL EBRO MINISTERIO DE MEDIO AMBIENTE SCOPING THE ECONOMIC ANALYSIS OF THE WATER FRAMEWORK DIRECTIVE CIDACOS RIVER BASIN NAVARRA-SPAIN Presentation 3.- Measures in Agriculture Ministerio de Medio Ambiente Gobierno de Navarra

2. Typology of applicable measures • Effectiveness of the measures • Indirect effects • Redistribution effects • Conclusions

3. 1.Typology of applicable measures

4. Key concepts • Two-sided water demand • Wholesale water demand (Q) • Net demand (q) (Real or physical consumption) • q=h Q; (h: global irrigation efficiency) • Q-q = Q  (1-h) = return flows • h= hcond  hdist happlicac • Assume water is priced at wholesale level-define P’ = P/h (P tariff; P’application price) • hNO < hyes

5. P’ (€) Key concepts qbN(p’) A. Water pricing Inelastic demand EbN1 p1/hN Ebn0 p0/hN q (net consumption m3) qbN1 qbN0

6. P’ qbN(p’) qbs(p’) B. Modernisation project hy >hn h Ey,n0 p0/hN Ebs0 p0/hy qbs1 q qbN0

7. P’ qbN(p’) qbs(p’) C. Water pricing + modernisation project hs >hn h p1/hN Ebs1 p1/hs Ey,n0 p0/hN p0/hs q qbN0 qbs1 qbs0

8. P’ qbN(p’) qbs(p’) h EbN1 EaN1 p1/hN Eas1 EaN1 EbY1 p1/hs A B Ey,n0 p0/hN qay(p’) p0/hs h qaN(p’) qaN1 qas1 qbN1 qbs1 q qaN0 = qbN0

9. 2.Effectiveness of measures • Evaluation: • Estimate water demand reductions • Estimate flow increases as result of lower demand • Estimate total cost • Assumption of return flows Measures (excluding incentive pricing)

10. 2.Effectiveness of measures Fix rates vs variable rates Inelastic demand Implications • Lower Profits • No price effect • No indirect effects • No crop changes • Easy to collect/administer P Q • Lower Profits • Indirect effects • Crop changes • Less Easy to collect/administer P Q

11. 3. Indirect effects • Negative, in the rural economy: • Food processing industries • Agricultural input industry • Employment • Positive, in irrigated farms: • More reliable water supply • Higher product prices • Higher farm productivity • Assumptions: • Only measures in which q have (-) effects

12. 3. Indirect effects: 2 examples A) Restoration of the riverine forest to lower river temperature • Set-aside of cultivated land (10meters x 15 km=15 hectares)

13. 3-Indirect effects: 2 examples B) Incentive pricing: • Reduction in water demand • Reduction in land productivity • Procedure: • Evaluate the correspondent Volumetic Tariff needed to: • Recover 50% of the Measures’ costs • Recover 100% of the measures’ costs • Apply water demand elasticity: -0.4. • Estimate new water consumption • Reestimate irrigated land • Estimate direct and indirect effects

14. 3. Indirect effects: 2 examples B) Incentive pricing Strecht 2. CR Olite. Tariff recovers 50% of measures’ costs

15. 3. Indirect effects c) Sensitivity analysis

16. 3. Indirect effects c) Sensitivity analysis

17. 4. Redistribution effects • Measures have also positive effects on the farms’ economies • What would the costs and benefits distribition for the Cidacos’ farms if the most cost effective measures are implemented and all irrigators contribute to pay them?

18. Conclusions • Assumptions about return flows are critical • Different financing mechanisms are not neutral in: • Indirect effects • Water conservation • Agricultural policies affect water demand and the relative costs of the measures • There is a trade-off between the objectives of cost’s effectiveness and institutional feasibility