WIER, WISER and WINER WATER

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Brian and Lynne Chatterton,
Podere valle Pulcini,
Castel di Fiori,
05010 Montegabbione (TR)
ITALIA.

1. INTRODUCTION.

Two convenient poles in the discussion of water policies are WIER (Water Is an Economic Resource) and WINER (Water Is Not an Economic Resource) (Allan 2001). These descriptions of water policies tend to reflect the extreme ends of the policy spectrum. WISER (Water Is a Social and Economic Resource) sits somewhere in the middle of these two extremes. In this paper we discuss some of the elements that could be incorporated into WISER water policies as they are developed further.
WINER was the default position for water for many thousands of years. Earth, water and air play a pivotal role in our existence that set them apart from other resources. They have historically been treated quite differently from other resources or commodities. It was only in the 18th and 19th century that arable land was incorporated into the capitalist system of tradable commodities and then only in the centres of capitalist development. While land had been bought and sold long before that period it carried with it obligations and rights that set it apart from other commodities. The commodity approach to land tenure was particularly strong in Britain and was transferred to the various British colonies of that time. “Land as a commodity” has not been adopted so completely in other countries outside the English speaking zone.
For example, in Italy privately owned forests, harvested by their owners for firewood, still carry traditional common hunting rights that allow the harvesting of mushrooms and the collection of light firewood for personal use. (Chatterton & Chatterton 1999) In the WANA (West Asia and North Africa) region there are rights of common grazing on privately owned arable land after the owner has taken the first pick of the cereal stubble (Chatterton & Chatterton 1996). The transformation of land into an economic resource that can be freely traded reached its apogee in the form of unrestricted freehold title in the 19th and early 20th century. Over the last half century or more the development of planning laws have reduced the absolute commodity status of land as it can only be used for purposes specified by these regulations. The strength or weakness of planning laws varies from country to country and according to the political persuasion of the government in power but even minimum interventionist governments now accept some form of planning of land use in spite of its infringement of the property rights of freeholders.
Water is now under going changes similar to those that turned land from a common property resource into a commodity.

2. WIER OR WINER DEBATE

Elsewhere we have argued that many of the factors debated within the parameters of WIER and WINER have been overtaken by the closure of water resources. (Chatterton & Chatterton 1996 and Chatterton & Chatterton 2001) While a water resource remains open to new entrants attempts to turn water into a commodity to be traded will be defeated as long as “free” water exists outside the system. Conversely, once the resource is closed access rights will emerge in some form that effectively abolish the WINER status of the water whether societies oppose the WIER concept or not. Opposition to the philosophy of WEIR can effectively disguise access rights but it is doubtful whether such opposition can prevent property rights over water altogether. In the long term such a denial of the emerging property rights over water will make any attempt to transform a random allocation of water to a more equitable and efficient form of distribution more difficult and costly.

3. RECONCILING WIER AND WINER THROUGH USE PLANNING

While WEIR and WINER approaches appear to be totally opposing views on the nature of ownership of water they can be reconciled to a limited degree through water use planning. Through planning law it is possible to create two separate water resources.
One resource is for domestic and industrial water. This water is comparatively costly because of its quality and distribution but it remains an open resource available to everyone without the need to purchase the right of an existing owner. Distribution costs will be charged but not access cost.
The second resource is for agriculture, the major user of water in most countries, where closure of the resource makes some form of ownership inevitable. In this case farmers will pay access cost for the water but, unless they are part of a group distribution scheme, no distribution costs.

The concept of open and closed resources operating in tandem is not as bizarre as it may at first seem.
The land resource is in effect closed because as Mark Twain said no more land is being made. Except for a few remote desert areas it is all closed and tenured. To obtain the use of land it is necessary to purchase existing rights. Within this total land resource governments have created a separate category of urban land and in most cases try to keep this resource open. Policy is aimed at maintaining a supply of new urban land so people can have the choice of purchasing new building land or existing urban land. Another example is found in fisheries where the South Australian Government kept a number of fisheries open for recreational fishermen with strict limits on gear and catches while closing the fishery to professionals. The professionals could only gain access by purchasing the rights of existing fishermen. (Chatterton and Chatterton 1981)

One of the difficulties facing policy makers is that in the past the various water users have been neatly divided by the water distribution system. Irrigation water has come from wells or irrigation schemes that pump large quantities of water from canals or pipes. Other water users have obtained their water (with the exception of a few large industrial users) from the reticulated supply. With the expansion of golf courses, other leisure uses of water and larger irrigated private gardens all connected to the reticulated water supply system policy makers will need to determine whether these users receive the priority of open access given to domestic users just because they pay domestic prices or whether they should purchase access for this water in the same way as farmers.

4. WISER WATER POLICIES


WISER refers to a “social” and “economic” resource. The coming debate is between the relative importance of “social justice” and “economic efficiency” in the formation of water policies. In some instances the two are incompatible but there can be a balance between them.

4.1 Social justice.

The 20th century has seen the world population reach the limit of many resources. In earlier times these resources were not fully exploited because of lower populations and less advanced technology. During this century more and more of these open common property resources have reached the limit of exploitation and have been closed. Fisheries provide one of the most obvious examples in a list that includes forests and rangelands. Water is now joining that list. Once a resource is closed it acquires a value that accrues to the single generation that were lucky enough to have access to the resource at the time of closure. A study of the aftermath of closure of a fisheries resource reveals the inequity that can arise from this initial closure. (Chatterton and Chatterton 1981)

When specifically applied to water inequitable distribution may arise:-

4.1.1 Between various groups of water users.

Inequitable distribution may be between domestic, commercial, industrial and agricultural users or it may be between large and small users in the agricultural sector. If governments wish to reform the distribution of water the earlier such reforms are carried out the lower the cost and the greater the chances of success. As water property rights become more firmly established as legal documents and tradable commodities they become more difficult to redistribute without large compensation payments. The history of land reform throughout the world shows how difficult it is to redistribute a resource once the interests of powerful groups have become entrenched in the political process. In fact the point of conversion from traditional use to legal property rights provides a small window of opportunity where governments can strike a new bargain. Traditional users are seeking property rights and these can be offered in return for equitable distribution.


4.1.2 Between generations of users or owners.


The community may feel that the windfall ownership and profit that accrues to the first generation of holders of water rights is inequitable and the profits should be more widely distributed among future generations. The first generation of holders of water rights acquires these rights free of payment because they did not have to purchase their access rights. The resource was open when they entered. The next generation will acquire their water rights through purchase or inheritance. The first generation will receive a windfall profit when they sell to the second generation. These water rights will eventually be sold or passed to a third generation. At some stage they will be sold and the windfall profit converted to cash. Scarcity of water or the perception that the water resource is limited will be powerful incentive to the second generation of users and buyers to pay a high price for an access right thus adding to the windfall profit phenomenon. The sale price after this initial windfall produced by closure will be determined by normal economic costs and returns, including market speculation and may be higher or lower than the purchase price.
Trying to reduce the windfall profits of holders of the initial access rights is a difficult course of action for democratic governments. The first generation of water right owners are politically active voters. They will protest at any attempts to curtail their windfall profits. The second generation will not have organised themselves into a “potential water users association.” They will not provide the government with any public support for a policy of moderating the windfall profits.
The third generation of water users may not have been born. A great deal agricultural land and water is inherited from one generation to another without cash payments. It is unlikely that the potential inheritors of these rights (second-generation users) will become politically opposed to these windfall profits as they will see themselves as the beneficiaries of them. Most landholders have a deep streak of optimism when it comes to land and believe they can always sell their property on to another farmer or developer at a higher price than they paid for it. The same is likely to apply to water rights.
In spite of the political difficulties the issue should not be ignored. There are mechanisms that can redistribute water in such a manner that the beneficiaries become political supporters of policies that encourage a more equitable generational value.

4.1.3 Water levy

A water levy could be used to increase both social justice and economic efficiency. A water levy would reduce the water allocation provided to water owners by a small amount each year. The introduction of a water levy would create even stronger incentives for farmers to improve efficiency. A condition of a water right could be that the quantity of water is reduced by a certain small percentage each year. The idea of introducing regulated efficiency improvement is not new. With the privatisation of many public utilities it is claimed that market forces will improve efficiency. In addition the terms of the regulation of these utilities often includes forced efficiency improvement as price increases due to inflation are discounted by an “efficiency improvement factor”.
The water accumulated through the imposition of a water levy could be used to sustain an over-utilised aquifer, regenerate environmental areas or be transferred to the open water resource. One of the advantages of the water levy is that it is possible to argue that forced improvement in water efficiency is a benefit to farmers as well as the community. In political terms it may be easier to obtain public support for a 10% water levy spread out over 10 or 15 years than for an equivalent capital tax raised in cash. A water levy would be equally useful as a means of reducing some of the windfall profits of the first generation of owners. It would provide a pool of water that could be redistributed to groups that failed to gain access to the water resource at the time of closure.

4.2 Economic efficiency

It is argued (Musgrave 1972) that the trading of water rights in a water market will improve economic efficiency for the benefit of individual farmers and the community as a whole. There are many ways that economic efficiency can be improved.

4.2.1 The trading of water will encourage the movement of water from low value crops to higher value crops. Of course this can take place on individual farms but is often blocked by a lack of expertise on the part of the farmer, unsuitable soil or climate or a lack of markets for the product in that area. The trading of water provides an additional mechanism for the transfer of the water resource to higher value production.

4.2.2 Farmers have an additional incentive to improve the efficiency of water use as they can sell any surplus water they generate.

4.2.3 In Australia the establishment of a water rights market is expected to reduce salinity for the benefit of irrigators and the whole community. Water can be traded out of all areas but only traded into areas where it will have a low impact on saline drainage.

5. DEFINING THE NATURE OF WATER RIGHTS

Defining water property rights and water use planning are the core of WISER water policies. These two fields of law are also crucial in defining the true nature of land ownership. It is possible, for example, to introduce a freehold system of ownership but claw back some community benefits through strict planning controls. Alternatively ownership can be a conditional lease where the conditions provide a more equitable distribution of benefits among different groups in the community.

5.1 Some options for property rights


The WIER group believe that the definition, ownership and trading of water will lead to greatly increased efficiency of water use. The WINER group see water as a fundamental right or public service that should not be turned into a tradable commodity. The debate is one between efficiency and justice. There are many forms of property rights but the land tenure terms “freehold title” and “conditional lease” provide two convenient models for the discussion of WISER policies.

5.1.1 Freehold title.

This is the form of title that gives the greatest “commodity” value to water. It is the form of title favoured by WIER advocates as it allows the easy development of markets, trading in water rights and improved efficiency in water use. There are few restrictions or conditions on the ownership of water rights.
More restrictive conditions, it is claimed, would complicate the efficient operation of a water market.
In Australia irrigation water rights have been separated off from the land in the form of freehold, saleable and tradable water rights. Only minimum restrictions apply. (Chatterton & Chatterton 2001) Water can be traded out of any area but only traded into areas where it will have a low impact on salinity. It is hoped that gradually as water is traded the overall salinity problem in the Murray - Darling basin will be reduced.
As well as providing a simple commodity to trade the freehold title provides owners with a strong incentive to invest. The ownership is permanent. Banks will lend for long periods on the security of freehold water rights and farmer will have the resource to make efficiency improvements through better irrigation and drainage.

5.1.2 Conditional leases

A conditional lease provides the opportunity to include many management and social conditions into the water right. It allows the community to retains some rights and provides a graduated enforcement process that may be politically acceptable to water users. Conditional leases have been used in parts of the Australian rangeland to try to prevent overgrazing of pastures and to allow public access. (Chatterton & Chatterton 1982) A typical conditional lease is granted for a reasonable period of time. “Reasonable” can mean 25 or 30 years which is the period required for long term investment and security for lenders providing funds to lease owners. Lease owners are granted complete security for the period of the lease which can be bought, sold, and mortgaged.

In addition the lease would carry certain conditions:-

* Management conditions.

For instance, conditions could include the control of saline drainage water, the gradual reduction in water use or improving some environmental aspect. These conditions could be framed in such a way that they provided moving standards. A farmer would need to reduce saline discharges by certain percentage over each five-year period rather than imposing universal limit for all farmers in a river basin.

* Enforcement

Every five years the lease is reviewed. If the conditions of the lease are being met the lease is renewed for another period of five years so the total term of the leases remains at 25 years. Provided management is good the lease term is infinite but in five yearly stages. If the conditions of the lease are not being met the lease is not renewed but neither is it cancelled. The balance of the lease (20 years) remains. The farmer has the option of selling the lease (still valid for 20 years) or undertaking the necessary measures needed to meet the lease conditions. At the next review in five years time if the conditions are met the lease will be extended by 10 years to the full period of 25 years. Provided the conditions are met from then on the lease is renewed every 5 years in perpetuity.
Those who take no action to comply find themselves under increasing pressure as a failure to meet the conditions at every review period will mean the eventual cancellation of the lease when the full term of 25 years has expired.
Generally legislative approaches to farm management have not been a great success. For example Mussolini’s attempts to force farmers in Italy to burn their olive prunings or to reduce the goat population were not great success but these compulsory measures were inflexible and the penalties suddenly and severely applied. Conditional leases can be established with terms that are suited to the local requirements. Enforcement is gradual and farmers face pressure to comply rather than immediate confrontation.
Public support is essential for the long term success of water management regimes. If measures are introduced through legislation there is a danger of putting the great majority of farmers outside the new law. They are then united in their continuing hostility. The conditional lease allows a more gradual approach in which everyone is immediately included with a 25 year lease. It hoped that the majority of farmers can comply within the five year review period thus leaving the minority without widespread support. Even this minority is not immediately penalised but have many options to return to full tenure.

* Ownership conditions.

If the community has carried out a program of water reform (similar to land reform) to distribute water rights more equitably among the farming community it may be necessary to introduce conditions on the leases to ensure that these
reforms are not reversed through the free trading of water rights. If freehold title is granted there is no reason why water cannot be merged into large holdings but the conditional lease provides a mechanism to maintain equitable distribution and yet allow normal commercial lending in the form of mortgages to continue.
A government, after a program of water reform, may wish to maintain a policy of “owner-user” for water where water rights cannot be held by people or corporations outside agriculture or over a certain volume limit. Conditional leases would still allow outside institutions to provide mortgage funds and acquire water rights through foreclosure where loans had not been repaid. They would be required to dispose of them or fail the five yearly review. Continual failure at each five year review would reduce the value of the conditional lease and lead to eventual cancellation. There would be a strong incentive for the new institutional owner to sell the lease on to an authorised user.

5.2. Water use planning.

Conditional leases provide a convenient and flexible mechanism for achieving a balance between social justice and economic efficiency but if the lease option has already been forfeited (as in Australia) then planning regulations could be used instead. The water levy could be introduced on freehold titles through this mechanism. Planning laws often require owners of freehold land to donate a certain percentage of their land to community use when the land is subdivided.
The discussion so far has been limited to water used for irrigation. Water used for irrigation is a low value use of water. Water used in industry acquires a higher value, domestic water a higher value still and drinking water the highest value of all. Even in Australia with the granting of freehold titles for water and the establishment of water markets the sale of water to other uses or
other farmers outside the major irrigation areas is prevented. (Chatterton and Chatterton 2001)

5.3 Changing water use

As with land there will be considerable profits to be made from a change of water use. In the case of land these development or betterment values have largely accumulated in the hands of speculators who attempt to anticipate where future changes in land use will occur. With water the process will be continual and there is no reason to allow the change of use premiums to leak away to a small group of irrigators who will make large windfall profits. It will be in the interests of owners of water rights to blur the boundaries between areas of water use. The benefits to the economy as a whole will be greater if the groups of water users are kept apart and the profits made from a change of water use are devoted to improved infrastructure and pollution control rather than providing further windfall profits to a selected few. If farmers can sell their water rights into other sectors (industrial and domestic users) they are likely to get much higher prices than those current in the farming sector. This high price will be to their considerable personal benefit but the price of water rights for the agriculture sector as a whole may come to reflect the price of these sales outside agriculture. This would impose a heavy capital cost on farmers continuing in agriculture. In the other sectors of the water resource distribution prices are already higher but it is not necessary to purchase water rights.

6. ENVIRONMENTAL WATER

The use of water for environmental purposes becomes a critical issue as water resources are exploited at volumes near their absolute limit for agriculture and other uses. The reservation of a share for river flow, wetlands and other environmental purposes will be influenced by economic factors but will ultimately be a political decision within a WISER framework.
The use of conditional leases would enable environmental conditions to be imposed where it is appropriate that water is used for both purposes. The introduction of a water levy would give policy makers a pool of additional water and some could be allocated to environmental purposed.

7. CONCLUSION

The development of a WISER framework for water management is an acceptance of the political nature of water resource management. The basis of politics is the allocation of resources within society so it should come as no surprise that as water resources come nearer to their limits of exploitation that allocation becomes more important than further development. The concept of political allocation may seem obvious but it will be resisted by many water managers who have been trained in either the hydrological tradition that sees water management in terms of engineering work to develop further supply. It is also contrary to the economic tradition that sees water as another commodity whose price, demand and allocation is determined by simple market forces.
The WISER framework accepts the importance of economics but tempers it with a redistribution of benefits to other groups besides existing water rights owners. The WISER approaches allows for politically determined policies that over ride the more extreme effects of market forces. It accepts that efficiency is important but not necessarily the only determinant of water policies.

References.

Allan Tony 2001 The Middle East water question - Hydropolitics and the Global Economy, I.B. Taurus, London & New York.

Chatterton B. & Chatterton L. 2001 "The Australian water market experiment," Water International. Vol 26 No 1 March 2001 pp 62-68

Chatterton, L. & Chatterton B., 1996 Sustainable Dryland Farming: Combining farming innovation and medic pasture in a Mediterranean Climate, Cambridge University Press, Cambridge, U.K.

Chatterton B. & Chatterton L. 1996 “Closing a water resource; some policy considerations.” Ed. Howsam P. and Carter R. C. Water policy: allocation and management in practice, E & FN Spoin, London pp 355-361

Chatterton B. & Chatterton L. 1982 "The politics of pastoralism," Australian Habitat, Vol 10 No 6 Melbourne, Australia.

Chatterton B. & Chatterton L. 1981 "How much compromise can fisheries management stand? Premiums and politics in closed coastal fisheries," Marine Policy Vol 5 No 2 I.P.C. London.

Musgrave, W. F. 1972 “The Political Economy of Resource Use: Water.” In Natural Resources of Australia, Prospects and Problems for Development. J.A.
Sindeb ed. Sydney ANAAS and Angus and Robertson.