Can Water Markets Help Iran?

EghtesadOnline: Managing limited resources of water has long been a challenge not only to water users but also policymakers in most countries. Iran is no exception.

News ID: ۷۴۸۶۵۵

08 October 2019

Geological studies in Iran show that shortages of this vital resource will get worse before getting better in terms of severity and frequency particularly due to high and rising consumption.

Qasem Taqizadeh Khamesi, director of the National Water and Wastewater Engineering Company of Iran (Abfa), who doubles as a deputy energy minister, says a new approach to ease the shortage is could be setting up water markets where buyers and sellers can trade water through short- and long-term leases and permanent sales of their water rights that can be within catchments, between catchments or along rivers, ISNA reported.

This system allows farmers to buy and sell water depending on actual need. Water trading has become a vital business tool for farmers in many countries such as Spain, Australia and the US to name a few, Financial Tribune quoted him as saying.

"Water markets encourage more efficient water use," he says, adding that well-structured markets can and will augment water conservation efforts that so far have made little progress.

Water markets can help make possible allocation of more water to economic sectors that are highly productive. The agricultural sector, for instance, uses more water relative to its economic output than other sectors. So the logical question:  Why should agriculture have priority over other sectors?

"Of the total consumption, 90% goes to agriculture. Household and industries account for 7% and 3% respectively," Khamesi said, echoing the mounting concern of conservationists and economic experts in Iran perplexed by the poor performance of the agro sector and the cost it is imposing on the already struggling economy.

The government has been mulling over establishing water markets since 2016 and comprehensive studies have been conducted, the news agency quoted him as saying.

“The first market will be piloted in Khorasan Razavi Province soon and if it produces the desired results, the system will be expanded across the country."

Comparing two types of trade in the water market, experts say short-term transfers lessen the economic impact of shortages during drought by shifting water to activities and places where the lack of water will have consequences.

Long-term arrangements do entail risk for water buyers if water demands do not match current forecasts. Furthermore, they usually require the storage of surplus water during wet years that is very costly.

Monitoring Regime

Khamesi says water is a means of livelihood for a relatively large number of people and implementing a stringent monitoring regime with the help of law enforcement will not help.

Water markets constitute a regional-friendly measure that can help address scarcity and it is for this reason that academia and policymakers are more inclined to such instruments.

Such markets will very likely draw greater attention as water deficits become more frequent and intense, he said.

Regions where consumers and those in charge are open-minded and admit that water is and will be a precious economic good, can make better use of market instruments to flexibly reduce overexploitation of existing resources, modify consumption patterns and increase water use efficiency.

An added advantage of the mechanism, he noted, is that when jurisdictions move from a centralized allocation of limited surface and underground water resources towards market instruments, power is transferred from regulators and bureaucrats to users.

But this does not mean that governments have no role when water markets are in place. Public authorities have to make sure that water rights are well defined, secure and reflect actual uses that buyers and sellers comply with.

Potential Challenges

Referring to the multitude of constraints, the senior official says the cost of transporting water is another challenge to the successful implementation of water markets. Water is heavy and transportation costs are also high relative to the value of water to users. Consequently, trade is often highly localized or restricted to areas with well-developed water infrastructure.

Such issues notwithstanding, Energy Minister Reza Ardakanian is of the opinion that so long as water remains heavily subsidized, new mechanisms, regulations and even laws are unlikely to work.

Water experts and economists say without proper pricing that unambiguously reflects the value plus scarcity of water, extraction and consumption tend to occur above desired levels and over extended periods the loss is irreparable.

Overall, the potential economic and environmental benefits of water markets make them valuable. As climate change threatens to aggravate the disturbing mismatch between water needs and availability, water markets promise a means of improving the efficiency and sustainability of water use.