Incentive-Based Instruments for Water Management
December 8, 2015
Human transformation of freshwater ecosystems is rapidly exceeding capacity required to sustain the conditions we need to survive and thrive. Water crises are already impacting people around the globe—from river basins in California and China, to the cities of São Palo and Bangkok. Under current population and growth trends, the 2030 Water Resources Group predicts global water demand will exceed available supply by 40 percent by 2030.
Humans have used, benefited from, and shaped the natural environment for the whole of human history. But what we have not done—especially in the course of industrialization and modernization – is find effective ways to integrate natural ecosystems into our economic and social systems. In response to these challenges, The Rockefeller Foundation’s work focuses on incentive-based solutions that harness the importance of ecosystems as an asset for smart development, economic and social progress, and long-term resilience. In our work on agriculture and food security, climate change, energy, and fisheries, we seek new approaches to environmental care that will create incentives for the wise use of resources, and preserve their resilience. And in all of our work we place particular emphasis on the effects of these solutions on the poor or otherwise vulnerable members of society, who are most directly dependent on ecosystems to meet their basic needs and are mostly likely to bear the consequences of environmental degradation.
Freshwater crises are representative of the kind of misaligned incentives we seek to correct. Freshwater allocation and management systems often place little value on the benefits of functioning ecosystems. This, in turn, leads to a vicious cycle in which ecosystem degradation and overuse reduce future water supplies, making even more people vulnerable to water scarcity. As water crises continue to capture public—attentionin January, the World Economic Forum’s Global Risk Report 2015 named water crises the number one economic risk in terms of—impact and decisionmakers worldwide scramble for answers, The Rockefeller Foundation is eager to help support the identification of sound solutions by synthesizing the knowledge and lessons from past and current water management interventions.
The synthesis report that follows examines several incentive-based instruments for improving freshwater management for all users, including poor and vulnerable populations and the freshwater ecosystems themselves. The report examines the economic, social, and environmental performance of three tools, which were selected because: there is growing interest in applying these instruments in a range of settings, they are clearly focused on voluntary transactions rather than sanctions or voluntary standards, they can be applied to improve water quality or quantity, and there is an existing body of literature about their implementation upon which we can build. However, one of the key findings is that these transactions are often not voluntary. The report highlights the importance of finding a fit between a community’s water goals and the water management tool(s) it might choose and, perhaps most importantly, it characterizes the enabling conditions required for their effective implementation. We hope this synthesis review will serve as an entry point for those exploring opportunities to improve the management of freshwater, and will spark the development of more robust solutions to improve our management and maintenance of freshwater systems.