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Ministry of Energy and Water Development looks after both portfolios). However, effective collaboration does not necessarily require that responsibilities for water and energy be combined into the same institutional portfolio, nor does doing so assure coherent cooperation. Urban water and power utilities have much in common, and much to learn about each other’s reform agenda – both its successes and its failures. Examples in the realm of distribution of urban water and power services demonstrate that the common aims of efficient use and reduction of waste could be achieved by focusing on programmes to reduce unaccounted-for water, as water is a profligate user of energy (see Chapter 28 [Volume 2] for the case study ‘Water and energy linkage in Austin, Texas, USA’). Likewise, the aim of improved bill collection by both services could be attained more easily if a single agency coordinated collection for both utilities. Although there is scope for synergies and win–win results, there is also an array of situations where competition for resources or genuine conflict between water and energy aims can arise, requiring some degree of trade- off. Dealing with trade-offs may require and benefit from negotiation, especially where international issues are involved, as in the upstream–downstream tensions between hydropower and irrigation over the use of water in Central Asian countries (Sections 10.2, 6.6) and the Mekong basin (Section 11.1). Likewise, conflicts have arisen in many countries, for example in Chile between farmers and hydropower companies over the timing of water releases and unused water rights, which has been somewhat mitigated by the imposition of taxes on the latter (Section 13.1). 15.2 Economic instruments There is no silver bullet to bring about the kind of changes and reforms considered in the above paragraphs. Although there is scope for synergies and win–win results, there is also an array of situations where competition for resources or genuine conflict between water and energy aims can arise, requiring some degree of trade-off Governments have to use a variety of measures – incentives and well as sanctions, a mixture of persuasion and penalties. Economic incentives and market-based instruments should be considered in policy packages designed to change behaviour towards water and energy. They can greatly reinforce the impact of other types of measures, such as regulations, public awareness campaigns, exhortations and technological developments. This does not imply that the market should have the final word in allocating water and energy resources and services. Pricing should be used sensitively with a view to its social and distributional impact. Pricing can, however, add a crucial boost to other water and energy policies. Economic instruments include prices, taxes, pollution charges, subsidies, and markets for buying and selling a service, a resource or the rights to use the service or resource. Economic pricing of energy and water services can more closely reflect the economic cost of their provision; provide sufficient revenues for continued operation and maintenance; and avoid waste and distortions due to under-pricing. In 2005, Komives et al. reported that ‘global tariff surveys indicate that the majority of electricity and (particularly) water utilities charge tariffs substantially below levels commensurate with full cost recovery. A significant proportion of utilities charge tariffs that do not even cover operating and maintenance costs.’ (Komives et al., 2005, pp. 165–166). In many countries, subsidies in water and energy are widespread and impose a large and growing fiscal burden. Although it is unrealistic to expect a rapid reversal of this situation, there is scope in many cases for adjusting tariff structures and targeting subsidies to protect the poorest and most deserving consumers, while reducing some of the worst distortions and waste caused by subsidy dependency (OECD, 2009, 2010b,c). Even ‘economic’ tariffs that fully recover financial costs exclude important external costs that the use of water and energy imposes on others. This is partly a matter of internalizing externalities such as pollution and GHG emissions through pollution charges, carbon taxes and so forth. It is also partly a matter of reckoning the opportunity costs of using resources for one purpose, when this deprives some other potential user. Tools such as environmental economic valuation can be used to reflect these costs at the project level. 106 CHAPTER 15 RESPONSES: FOSTERING SYNERGIES AND MANAGING TRADE-OFFSPDF Image | Water and Energy
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