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Handbook of Water Economics: Principles and Practice / Edition 1

Handbook of Water Economics: Principles and Practice / Edition 1

by Colin Green, Henry GreenColin Green


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The Handbook of Water Economics is presented in three sections: theory, methods and applications, providing the latest information in the growing area of water economics and the environment, covering the theory and issues relating to resource management techniques, policy formulation, implementation and evaluation in the water sector.
* Includes strong theory section which links to real world examples in the applications section
* Provides an associated website which will include: formats for EXCEL spreadsheet application covered in the text; bibliography and links to related sites
* Methods section includes coverage of methods of economic evaluation, use of economic instruments and cost-benefit analysis
* Applications section includes case studies on: water availability; sewerage and waste water treatment; navigation; hydro-electric and multipurpose reservoirs; flooding; hydrometric data and coastal zone management
Essential reading for those studying environmental economics modules in Departments of Environmental Management, Geography and Engineering, researchers in hydrology as well as professionals and policy makers in water companies, water authorities, NGO's and government agencies.

Product Details

ISBN-13: 9780471985716
Publisher: Wiley
Publication date: 05/15/2003
Series: Modules in Environmental Science
Pages: 424
Product dimensions: 6.77(w) x 9.98(h) x 1.18(d)

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Handbook of Water Economics

Principles and Practice
By Colin Green

John Wiley & Sons

Copyright © 2003 John Wiley & Sons, Ltd
All right reserved.

ISBN: 0-471-98571-6

Chapter One


The relationship of the economy to the environment is as the leaf to the tree. Therefore, the decisions we take concerning the environment, and the effectiveness of the implementation of those decisions, will determine whether or not we achieve sustainable development. Economics, the application to choice, offers a means of understanding the nature of the choices we must make and, through this understanding, of making better choices.

Nowhere is this dependence of society and the economy upon the environment seen more clearly than in relation to water. Traditionally, the start of civilisation is ascribed to the settlements in the valleys of the Euphrates/Tigris, where the combination of fertile river-deposited sediment and readily available water enabled secure food supplies. The same pattern of settlement can be seen in other parts of the world from the Americas (Williams 1997) to Asia (Mendis 1999). That each society depends on water meant that we began very early on to try to modify the water environment for our purposes; the Shaopi reservoir was built around 590 BC, a navigation canal in Guangxi in 219 BC, and Dujiangyan dam in around 200 BC (Xhang 1999). In turn, the inability tomanage water successfully, particularly under prolonged drought conditions, has resulted in the death of cultures in the Americas (Williams 1997) and Asia (Postel 1992).

One result of the dependence of society on successful water management is that until very recently water engineers saw their purpose as being to determine what the public need, to determine the best means of satisfying that need, and then to construct the required works. By defining the issue as one of necessity rather than desirability, the question of whether or not the project was desirable was finessed; it was instead inevitable. In turn, the task in water resource planning became one of predicting by how much demand for water would inevitably increase in the future and then providing for this increase. The assumption was that all growth is good as well as inevitable, and that economic and social development will necessarily require a proportionate growth in all inputs, including water.

That the identification of the possible options and the decision as to which is the best option were defined as being part of the engineer's job, led inevitably to both a focus on engineering approaches and to the identification of the best in terms of engineering issues. After all, engineers became engineers in order to build things and after all the socially construed role of engineers is to build things. That something could be done became to imply that something should be done. Whilst the result was a number of major engineering triumphs, there were a number of significant failures as well (Adams 1992); a number of expensive projects that had been built to match a predicted growth in demand that did not occur (USACE 1995); a growing recognition of the environmental and human consequences of some projects (Acreman et al. 1999); and an increasing questioning of whether some projects were really necessary (Bowers 1983; Reisner 1993). A significant number of projects have also never delivered successfully; in India, only some 70% of hand pumps are estimated to be working at any one time (South East Region 1999) and some 30% of the public latrines in Bombay are out of service (Operations Evaluation Department 1996).

Today, this dependence of development upon water management is even more pronounced. The availability and management of water is increasingly seen as perhaps the defining constraint upon development (World Water Council 2000), with an increasing number of countries reaching conditions of water scarcity. By 2025, IWMI (2000) estimates that 78% of the world's population will live in areas facing some degree of water scarcity. To release this constraint on development will involve major investments: the World Water Council (2000) estimates that annual investment in water management will have to rise to US$180 billion from the current US$70-80 billion in order to reduce the number of people lacking basic water or sanitation and to increase average calorific intake to a minimum of 2750 calories per day. Increasing food production to meet this target and to accommodate population growth is a critical problem. An oft-quoted figure is that it takes 1000 tonnes of water to produce 1 tonne of wheat, although the actual requirement depends upon amongst other things the potential evapotranspiration rate in the region (Rockstrom et al. 1999). In turn, whilst each person uses 7 to 100 tonnes of water in their home for drinking, cooking, washing and other purposes, another 1000 to 2000 tonnes of water is required to grow the food that they eat. It does not matter whether this water is delivered directly as rainfall, indirectly by concentrating the runoff from a wider area through rainfall harvesting, or through irrigation. Thus, whilst the average European uses twice their body weight of water in their home each day, the food that they eat has consumed roughly three tonnes of water. Growth in population and a shift toward higher meat consumption translate directly into a demand for more water.

However, it is not just water that is scarce; so, too, over much of the world is arable land, and most of the rest of the land is already in use as forests, wetlands and grasslands. In China, there is approximately 0.10 hectares of arable land per person so that roughly 2.5 square metres of land must supply enough food to feed one person for a day. A major benefit of irrigation is that more than one crop can be harvested in a year; consequently, irrigation in conjunction with high yield varieties and high inputs can yield 8000 kg/ha (Seckler 2000). Thus, 40% of the world's food is currently produced from the 17% of land that is irrigated.

About 50% of the world's population live partly or wholly in arid or semi-arid lands where not only is average rainfall less than 30 cm but there is wide variability in the amounts from year to year. Consequently, the IWMI (2000) estimates that meeting projected food requirements will require an expansion of 29% in the irrigated area together with an increase in irrigated crop yields from a global average of 3.3 to 4.7 tonnes per hectare. Or, alternatively, irrigated cereal yields will need to increase to 5.8 tonnes per hectare if the irrigated area is not to be expanded. Achieving either will require substantial investment. On a more parochial basis, of the £197 billion modern asset equivalent value of the water and wastewater system in England and Wales, £109 billion is the network of sewers (OFWAT 2002a). This is roughly equivalent to £7000 per household. If climate change results in an increase in the intensity of rainfall from the frequent events, as it is reported to have done in the USA (Hurd et al. 1996), then the costs of upgrading the network to cope with increased runoff will amount to a significant fraction of the current asset value.

At the same time, almost any intervention in managing water affects the environment either intentionally or incidentally. Globally, an estimated 20% of freshwater fish species became extinct, threatened or endangered in recent decades (Wood et al. 2000). We have, however, only recently realised the dependence of the economy on the environment; notably the functional value of the environment (de Groot 1987), and particularly the importance of wetlands (Pearce and Turner 1990). Constanza et al. (1997) sought to estimate the global value of the services provided by the environment on the basis of previously published studies. Whilst not too much attention should be given to the resulting values, since the leaf cannot value the tree, their paper further emphasises the dependency of the economy on the environment. Rivers conveniently transport runoff from those usually inhospitable places where there is high precipitation to those areas where it is most useful for human purposes. In addition, for centuries, rivers provided the best transport routes. Similarly, lakes and groundwater store water until we need it.

In the developed world, much of the current investment is going into undoing the damage caused by past intentional or accidental damage to the environment. The modification of the river Rhine for navigation and other reasons (the Upper Rhine has been shortened by 82 km and the Lower Rhine by 23 km) and the reclamation of the natural flood plains for agricultural purposes have created a number of flood problems. The results of the various works on the Rhine have cut the time taken for the flood peak to travel from Basle to Karlsruhe from 2 days to 1 day and from Basle to Maxau from 64 hours to 23 hours. This has tended to increase the risk that the flood peak on the main stem will coincide with that on the downstream tributaries. The discharge for the 200-year return period flood has also increased from 5000[m.sup.3]/sec in 1955 to 5700[m.sup.3]/sec in 1977 (Bosenius and Rechenberg 1996).

Much of flood management in Germany today is consequently concerned with removing some of these past modifications to the catchments, the river corridors and the river channel itself and to reducing runoff, recreating storage in the flood plain and in restoring the natural form of the river (Bismuth et al. 1998). The Flood Action Plan (International Rhine Commission n.d.) is the archetype of this approach. The same principles are being applied to other rivers in Germany: for example, the planned recreation of some 28 wetlands on the Elbe (BMBF 1995). Similarly, in the Netherlands, both the plans for the river Meuse (de Bruin et al. 1987) and for the Rhine (Ministry of Transport, Public Works and Water Management 1996) involve the recreation of wetlands and a degree of river restoration. On smaller scales, river restoration, or 'daylighting' (Pinkham et al. 1999), is increasingly common in other countries (Brouwer et al. 2001; Riley 1998). In the USA, a number of dams have now been demolished (Pritchard 2001) and the discharge regimes of others are being modified to provide a more natural variation in the flow regime of the river downstream (Acreman et al. 1999).

Already in the UK, the costs of collecting and treating wastewater exceed the costs of providing potable water, and the Water Framework Directive (European Parliament 1999) will further increase these costs in Europe. The salts leached from irrigated soils have caused severe problems (Postel 1993), whilst pesticide and fertiliser residues, along with animal manure, are a widespread problem (Nixon 2000; USEPA 2000). Over-abstraction of groundwater has caused major problems in cities as diverse as Mexico City and Bangkok (Briscoe 1993), and some rivers, of which the Yellow River is simply the best known, also run dry because of over-abstraction (English Nature and the Environment Agency 1999).

In short:

water is critical to social and economic development,

over much of the world, both arable land and water are scarce,

managing water is highly capital-intensive, and capital is also scarce; and

there are environmental consequences to almost any intervention in the water cycle whilst the economy depends upon the environment.

In turn, water management is about seeking to change risks, to alter either the probability of some event or the consequence of that event whether that event be a drought, a flood, or a pulse of pollution. The individual risks may be vanishing close to zero or to one, but in principle the decisions are always about choosing risks. However, since choices are always about the future, we are seeking to choose the future but the one thing that the rational person can be absolutely certain about is that the future is inherently uncertain. So, we are seeking to make choices about risks under conditions of uncertainty. Indeed, I shall argue later that uncertainty is a precondition for a choice to exist.

Achieving sustainable development therefore requires us to make 'better' decisions: to be more successful at avoiding mistakes; to make more efficient use of available resources including water; and to maintain the environment as the necessary support for the economy. But, 'better' decisions are not simply technically better; they have to be socially better as well. We need to be more successful in resolving the multiple and frequently conflicting objectives that we bring to decisions; in particular in regard to equity considerations. These objectives explicitly include a regard to gender equality, not least because women are often the principal sufferers from existing water problems (Mehta n.d.). Moreover their position has often been made worse by past projects (Rathgeber 1996) because they were seen as not having separate interests of their own but simply as part of a household production unit (Haddad et al. 1997). The adequate resettlement of those who, given the population density across much of the world, will be displaced by a project is now recognised as a question of justice and as necessarily involving that they will have a voice in the decision process (WCD 2000).

From the Dublin Declaration (ACC/ISGWR 1992) onwards, it has been accepted that public involvement in all levels of decision making is both an objective in itself and also essential if management plans are to be successful. Thus, the Government of New South Wales's (n.d.) guidelines on preparing River, Groundwater and Water Management Plans state that 'Community involvement is critical in identifying potential issues, differing values, opportunities and constraints, and available alternatives at a catchment level.' Similarly, in the UK, the DETR (2000) stated that: 'Public participation in making decisions is vital. It brings benefits in making an individual decision and also for democracy more generally. ... It is also a moral duty. Public authorities work for the public. To do so in a way that the public want and to ensure that they know what the public needs, they must involve the public when they make decisions.'

Adding new objectives and recognising the complexities has made decision making and identification of appropriate options more difficult where the options themselves are more complex. Twenty years ago, designing a flood alleviation scheme was easy: the engineer simply drew a straight line from A to B, built a concrete trapezoidal channel and called it a 'river improvement' scheme. Today, environmentally sensitive solutions can involve sewing together into one integrated system a myriad of small-scale local works.

However, we are of limited intellectual capacity and the decisions that face us threaten to be too complex for us to adequately understand the nature of the choice we must make. In his classic paper, G.A.


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