55571 Water Working Notes Water Working Notes Note No. 26, June 2010 Private Providers of Climate Change serviCes The Role and Scope for the Private Sector in the Provision of Non-Financial Climate Change-Related Services Relevant to Water Infrastructure J.T. Winpenny Water Working notes are published by the Water Sector Board of the Sustainable Development Network of the World Bank Group. Working Notes are lightly edited documents intended to elicit discussion on topical issues in the water sector. Comments should be e-mailed to the authors. Table of ConTenTs Acknowledgements ...................................................................................................................................................................................................v Disclaimer ..........................................................................................................................................................................................................................v Abbreviations and Acronyms .......................................................................................................................................................................... vi Foreword ..........................................................................................................................................................................................................................vii 1. The Demand for Climate Change Services in Water Infrastructure ............................................................................... 1 1.1 Orientations -- some essential background ................................................................................................................1 Variability and uncertainty.........................................................................................................................................................1 Implications for decision making ..........................................................................................................................................1 No regret and climate-justified projects ...........................................................................................................................2 Vulnerability ........................................................................................................................................................................................3 1. 2 Adaptation and mitigation in water infrastructure ....................................................................................................4 Water resources management ...............................................................................................................................................4 Hydropower........................................................................................................................................................................................6 Irrigation & drainage......................................................................................................................................................................8 Coastal protection ......................................................................................................................................................................10 Inland flood protection ............................................................................................................................................................10 Urban water supply and sanitation...................................................................................................................................11 Water quality & ecosystem services..................................................................................................................................13 1.3 A working typology of CCS ....................................................................................................................................................14 2. The Potential for Private Providers of Climate Change Services .................................................................................. 17 2.1 Status of "private" providers. ..................................................................................................................................................17 2.2 Strengths and limitations of private providers & client constraints..............................................................17 2.3 Transfer of technology & expertise from other sectors ........................................................................................19 2.4 PPCCS in practice. .......................................................................................................................................................................20 3. Developing the Market for PPCCS in Water Infrastructure ............................................................................................... 25 3.1 Overview of the market for CCS..........................................................................................................................................25 3.2 Limitations on demand ...........................................................................................................................................................26 National priorities .........................................................................................................................................................................26 National security concerns .....................................................................................................................................................26 Project pipeline..............................................................................................................................................................................27 Capacity constraints ...................................................................................................................................................................27 Finance ..............................................................................................................................................................................................27 3.3 Supply-side obstacles ...............................................................................................................................................................28 A new, uncertain & marginal market ...............................................................................................................................28 iii Private Providers of Climate Change Services The balance of risk and reward............................................................................................................................................29 Security risk ......................................................................................................................................................................................29 Intellectual property fears .......................................................................................................................................................29 3.4 Conclusion: developing the market .................................................................................................................................29 Annex 1. Definitions............................................................................................................................................................................................... 31 Annex 2. Selective Bibliography ................................................................................................................................................................. 33 Tables Table 1 A typology of CCS ........................................................................................................................................................................15 Boxes Box 1 The Mali Agrometeorology Project ......................................................................................................................................7 Box 2 Strategies and options for flood risk management ................................................................................................11 Box 3 Benefits of hydromet services .............................................................................................................................................11 Box 4 Urban flood risk management in Köln............................................................................................................................12 Box 5 Low cost irrigation services in India .................................................................................................................................21 Box 6 Index-linked flood insurance for farmers in Vietnam .............................................................................................21 Box 7 Beach Nourishment as coastal protection in Barbados .......................................................................................22 Box 8 Management services from a private water operator ..........................................................................................23 Box 9 Categories of CCS.........................................................................................................................................................................25 iv aCknowledgemenTs This report was prepared as part of a broader program of ConTaCT InformaTIon work addressing climate change adaptation in the water sector undertaken by the Energy. Transport and Water De- To order additional copies, please contact the Water Help partment of the World Bank. The report was prepared by Desk at whelpdesk@worldbank.org. This paper is available James T. Winpenny, Wychwood Economic Consulting, UK. online at http://www.worldbank.org/water. The author wishes to acknowledge help and advice given by Guy Alaerts, Richenda Connell, Darren Lumbroso, Robert Merrey, Lyndsay Mountford, Steven Wade and Nigel Walms- ley. Michael Jacobsen was the World Bank task team leader and provided guidance on the structure and contents of the report as well as comments to successive drafts. Approving Manager: Julia Bucknall, ETWWA dIsClaImer This volume is a product of the staff of the International The material in this publication is copyrighted. Copying Bank for Reconstruction and Development/The World and/or transmitting portions or all of this work without Bank. The findings, interpretations, and conclusions ex- permission may be a violation of applicable law. The pressed International Bank for Reconstruction and Develop- ment/The World Bank encourages dissemination of its in this paper do not necessarily reflect the views of the work and will normally grant permission to reproduce Executive Directors of The World Bank or the govern- portions of the work promptly. ments they represent. The mention of private com- panies in the report is for illustration only, from a very For permission to photocopy or reprint any part of large potential field, and does not necessarily imply this work, please send a request with complete infor- endorsement or recommendation. mation to the Copyright Clearance Center, Inc., 222 Rosewood Drive, Danvers, MA 01923, USA, telephone The World Bank does not guarantee the accuracy of the 978-750-8400, fax 978-750-4470, http://www.copyright. data included in this work. The boundaries, colors, de- com/. All other queries on rights and licenses, includ- nominations, and other information shown on any map ing subsidiary rights, should be addressed to the Office in this work do not imply any judgment on the part of of the Publisher, The World Bank, 1818 H Street NW, The World Bank concerning the legal status of any territo- Washington, DC 20433, USA, fax 202-522-2422, e-mail ry or the endorsement or acceptance of such boundaries. pubrights@worldbank.org. v v abbrevIaTIons and aCronyms BOD Biological Oxygen Demand NAPA National Adaptation Programme of Action BOT Build, Operate, Transfer concession contract NFCCS Non-Financial Climate Change Services BOOT Build, Own, Operate & Transfer contract NGO Non-Governmental Organisation BRIC Brazil, Russia, India & China NOAA (US) National Oceanic and Atmospheric CC climate change Administration CCS climate change services NRW Non-Revenue Water COD chemical oxygen demand O&M Operation and maintenance EIB European Investment Bank PES Payment for Environmental Services EU European Union PP Private Providers FRM flood risk management PPP Public-Private Partnerships GHG greenhouse gas PPCCS private providers of climate change services GIS Geographical Information System R&D research and development IDB Inter-American Development Bank WBCSD World Business Council on Sustainable IFI International Financial Institution Development IPCC International Panel on Climate Change WRM water resource management IWRM Integrated Water Resources Management WSS water supply and sanitation MENA Middle East and North Africa WWTP wastewater treatment plant foreword Man-made climate change is affecting water infrastructure Therefore, water infrastructure will need to cope with in all regions of the world, affecting large numbers of peo- greater climatic extremes and uncertainty in the future. On ple in their daily life and the development of their societies. the other hand, the water sector also needs to contribute As part of the World Bank Water Anchor's analytical and to mitigate climate change, e.g. through reduced energy advisory work on water and climate change, consultants consumption. These challenges will pose severe tests on have investigated how private sector services to infrastruc- governments and public agencies, whose efforts need to ture may address the challenges related to climate change be complemented by those of non-governmental bodies, while, at the same time, improving development opportu- bringing in additional resources, new perspective and in- nities for people. This report, which is one of the outcomes novative products. However, while the adaptation to climate of the above work, addresses the role of private providers change may require the development of entirely new ser- of non-financial climate change-related services with rel- vices, it will, in particular, require modifications and additions evance for water infrastructure. to existing services already dealing with climate variability. Climate change adds to current climate variability through This report investigates to need for additional services with changes in mean temperatures, in precipitation and in the regard to climate change and analyzes the potential for strength and frequency of extreme climatic events. Many of the private sector in providing these services. The analysis the results of climate change affect human welfare--both focuses on the water sectors likely to be affected by climate directly and indirectly through infrastructure: For instance, change, that is, water resources management, irrigation and increased likelihood of low flow and drought can lead to drainage, hydropower, coastal protection, flood protection, water shortages in urban water supply; episodes of heavy urban water supply and sanitation as well as water quality. rainfall can overload storm drain systems and wastewater In addition, opportunities for mutual engagement of public treatment facilities and cause floodings; rising sea level can and private agencies are analyzed and the perspectives of increase the salinity of water drawn from coastal aquifers, market development are explored. The central aim of the thus negatively affecting urban and rural water supply as report is to deepen our understanding of the opportunities well as agriculture; lower rainfall and increasing evapotrans- for engaging private providers of climate change services in piration can increase water demands for irrigation; chang- climate change adaptation combined with socioeconomic ing river flows are likely to affect hydropower generation; development opportunities. and increased rainfall intensity can lead to soil erosion and thus affect the sustainability of watersheds or the function- ing of reservoirs. Moreover, the water sector can be a driver for climate change itself. For instance, in California and Egypt, a large share of electricity consumption is related to Julia Bucknall water pumping. ETWWA, Sector Manager vii 1. The demand for ClImaTe Change servICes In waTer InfrasTruCTure The demand for climate change services (CCS) derives from CC, and the crucial role of infomatics in mapping the recip- the measures entailed in CC adaptation and mitigation in rocal impacts of CC and water. water infrastructure and the type of services required to implement them. This chapter contains three sections: 1.1 The greater variability of climate around a mean which itself Orientations--some essential background1.2 Adaptation is expected to change under CC is part of the challenge. and mitigation required in water infrastructure1.3 A working Whether the mean is changing, and by how much, will only typology of CCS be apparent after several decades. Changes in the mean are more likely to be associated with wider fluctuations about a trend than with steady changes in climatic conditions. For 1.1 orientations -- some essential water infrastructure, CC will mainly be experienced through background greater variability of temperatures and hydrological condi- tions. Adapting to current variability is an important first step in many cases. As the IPCC have observed: Variability and uncertainty The following extracts from the recent authoritative IPCC "...many actions that facilitate adaptation to climate report Climate change and water1 summarise the consensus change are undertaken to deal with current extreme view on this topic: events."2 "CC affects the function and operation of existing wa- Greater variability around, and changes in, the climatic ter infrastructure--including hydropower, structural mean are likely to be compounded by greater uncertainty-- flood defences, drainage and irrigation systems--as over the boundaries of variation, the possible appearance well as water management practices... of new factors, the significance of past experience, the reli- ability of climate forecasts, and the presence of thresholds, Current water management practices may not be ro- irreversibilities and tipping points. bust enough to cope with the impacts of CC on water supply reliability, flood risk, health, agriculture, energy and aquatic ecosystems....As a first step, improved Implications for decision making incorporation of information about current climate Greater variability and fundamental uncertainty will have variability into water-related management would assist profound implications for decisions about water infrastruc- adaptation to longer-term CC impacts... ture, which typically has a long physical life. These implica- tions are at various levels, and of different kinds: Adaptation procedures and risk management practices that incorporate projected hydrological changes with ˇ the climate risk of such infrastructure should be as- related uncertainties are being developed in some sessed, at a sector and/or project level.3 countries and regions... ˇ traditional ways of dealing with risk in cost-benefit analy- sis need to be fully exploited: these methods include Adaptation options designed to ensure water supply during average and drought conditions require inte- grated demand-side as well as supply-side strategies." 1 Bates, et. al. 2008, Executive Summary, p.4 2 Quoted in Economics of Climate Adaptation, (2009) p. 27 3 The ECAWG report (2009) contains cases studies at the regional This extract indicates the importance of risk management level. MWH (2009) contains cases studies of multi-purpose water and demand management in adapting the water sector to infrastructure projects. 1 Private Providers of Climate Change Services sensitivity analysis, switching values, risk-benefit analy- To be precise, the IPPC$ defined the no regret criterion as a sis,4 etc. policy that would generate net social and/or economic benefit ˇ decision rules should be used that take into account irrespective of whether anthropogenic climate change occurs. the risk preferences of the agency concerned (minimax, No-regret policies are also more loosely referred to as win- maximin, minimum regret,5 etc). win, or double dividend actions. Examples include demand ˇ these traditional aids to decision making under uncer- management measures, improvements in the efficiency tainty and risk need to be complemented by the use of of water distribution, wastewater recycling, early warning scenario building which constructs multiple imaginary, systems for floods, droughts, and other extreme weather but plausible, futures which cannot necessarily have events, and risk spreading through insurance schemes. It been predicted by extrapolation from current trends. may also include construction of new supply infrastructure, (In one such exercise, three contrasting climatic sce- retro-fitting existing structures, altering operational proto- narios for 2030 were constructed, and projects and cols, developing new water sources, water transfers, etc. The measures which stood up well on each scenario were key issue is not whether the project is a hardware or a soft- considered to be robust.6) ware project, but whether the positive net benefit stream is ˇ robust decision making methods may be utilized. A dependent on the future climate being different from the wide variety of concepts, methods and tools have climate without anthropogenic climate change. been developed to address decision challenges that confront a large degree of uncertainty.7 One specific It may be asked why, if no-regret projects are justified in- sub-set called "Robust Decision Making" is a set of dependently of a CC scenario, they are not already being quantitative methods and tools designed to support implemented. There may be many reasons why they are not. decision making and policy analysis under conditions The projects may not have been adequately formulated and of deep uncertainty.8 Researchers associated with the prepared. Because of their scale or nature, capital and credit Rand Corporation have been particularly active in might not be available. Financial incentives for the sponsors this development. The World Bank is currently work- may not be aligned with the positive economic case. Spon- ing this group of researches to test "Robust Decision sors may have higher subjective discount rates, or different Making" in relation to different types of water infra- risk appetite, from that assumed by the analysts. structure. Such factors are familiar in the market for energy-saving policies and devices, where pay-back periods are often very No regret and climate-justified projects Project design needs to allow for greater climatic and hy- 4 Sensitivity analysis measures the impact on the project's rate of drological variability, and be resilient in dealing with events return of a change in a specific variable. Switching values are the which cannot be foreseen as yet. This may involve post- change in a specific variable required to reduce the rate of return to zero. Risk-benefit analysis compares the risk of action (= its cost) ponement of investment decision to achieve better knowl- with the benefit of action (= avoided loss). edge and/or to incur additional cost of building in resilience 5 Minimax = minimising the maximum expected loss; maximin (e.g. greater storage, which may not be needed, or forfeiting = maximising the minimum likely outcome; minimum regret = current economies of scale in favour of greater freedom of minimising the difference between the worst possible outcome and others. manoeuvre in future). If the additional cost is smaller than 6 Economics of Climate Adaptation (2009). Another interesting wa- the benefits even under current climatic conditions, then ter scenario exercise was carried out by the World Business Council we may consider this investment as a "no-regret invest- on Sustainable Development, (2006). 7 An early overview is provided in: Rosenhead, J. (ed). Rational ment". If on the other hand the cost outweigh the benefits analysis for a problematic world. Problem structuring methods under current climatic conditions, it could be regarded for complexity, uncertainty and conflict. (J. Wiley and Sons).( as an insurance premium to avoid future losses in the CC 1989) 8 See for example: Lempert, Robert, Popper, Steven and Bankes, scenario. Following tradition, we would call this a "climate- Steven: Shaping the next one hundred years. New methods for justified" investment. quantitative, long term policy analysis." Rand Corp. (2003) 2 The Demand for Climate Change Services in Water Infrastructure short, yet projects are not taken up.9 Similar factors apply to Ultimately, there is a limit to how far vulnerable popula- water demand-management programmes, where consum- tions can be protected from variability though their water ers in both households and industries seem reluctant to infrastructure. Protection against hazards can never be take up appliances and technologies that, on paper at least, absolute. In certain circumstances the most feasible form of promise rapid pay-back. No-regret projects may be attrac- adaptation may be to ensure that at-risk populations are ad- tive on paper, but may still need active promotion, and the equately warned and prepared for hazards, and that social CC scenario may give them the extra benefits and impetus and financial safety-nets exist to compensate and provide required to make them happen. for them ex post facto. Specifically, disaster preparedness and insurance should be part of the adaptation tool-kit. In comparison, projects in the climate-justified category would only be justifiable if specific predictions of the cli- matic and hydrological futures turned out to be accurate. Three categories of markets for climate change Climate-justified policies have to be planned and imple- services mented against the backdrop of an uncertain future. The There are many kinds of CCS as well as a multitude of po- keynote criteria for these projects are resilience, robust- tential service providers. In order to reduce this complexity ness, flexibility and intelligence (ability to provide services to proportions that are manageable for analysis and useful or management over a range of possible conditions). for operational purposes, this section proposes three mar- Depending on circumstances, these projects may have co- ket categories of CCS: benefits outside a CC scenario. A harder look at co-benefits may lead to projects being considered as "no-regret" rather ˇ Reforms to policies, governance and institutions. This than climate justified. Climate change is therefore another is a broad category of actions concerned with the "rules reason to conduct a thorough review of all project related of the game" under which water infrastructure is man- costs and benefits. aged. In general, these are "soft" actions not involving major investments in hardware, though this does not In practical terms, water projects may fall into a spectrum, imply that they are easier to implement than the latter, the opposite ends of which are no-regret projects, and quite the reverse in fact. Examples include the creation "pure" climate-justified projects, with many in between.10 of river basin management bodies, introduction of wa- The IPCC adopts a pragmatic stance on this issue: ter demand management policies, setting new regula- tory and public safety criteria, creation of stakeholder "..adaptation measures are seldom undertaken in re- fora and consultation procedures, implementation of sponse to climate change alone"11 institutional reforms of water utilities, tariff reforms, etc. An important "overhead" that can be grouped in this Vulnerability category is the provision of relevant information for Certain types of project are especially vulnerable to CC and water investment and management. Strategy formula- will in particular benefit from being subjected to risk analy- tion is also included here. Although prime responsibility sis and management. They include12: 9 A factor stressed in McKinsey, (2009). ˇ Highly capitalised or unique projects 1 0 In terms of the Economic Rate of Return of projects, the no-regret ˇ Engineering structures with long lifetimes projects will cluster at or above the cut-off rate of return (say 10%), and will be boosted by any extra benefits (including avoided losses) ˇ Multi-purpose infrastructure systems in a CC scenario. In contrast, climate-justified policies would have ˇ Projects with long-lived streams of benefits and costs ERRs well below 10% and could only be contemplated in a CC ˇ Systems susceptible to climate anomalies or extreme scenario. The distinction between the two project categories would appear after sensitivity analysis and estimation of switching values. events 1 1 Quoted in Economics of Climate Adaptation (2009) p. 27. ˇ Rural and urban water supply 1 2 Alavian, et.al., 2009. 3 Private Providers of Climate Change Services for initiating and implementing these actions rests with second also requires a strengthening of the capacity of the governments and public agencies, private providers public client to successfully manage the PP and carry for- (PPs) can offer a full range of advisory services and add ward the latter's work. Anecdotal, but persuasive, evidence value at each stage. is that there is an urgent need for the creation and strength- ening of public capacity to plan and manage the adapta- ˇ New investment, capacity expansion and major re- tion and mitigation efforts outlined in this report. Capacity habilitation and adaptation (e.g. in dams, reservoirs, building is a cross-cutting issue for CCS, common to the irrigation systems, levees, new water intakes, waste- three functional categories discussed above, and to all the water treatment plants). This category includes new sub-sectoral categories which follow. technology embodied in investments in new systems and installations. ˇ Changes in the management and operation of exist- 1. 2 adaptation and mitigation in water ing systems and facilities (e.g. greater use of more infrastructure sophisticated modelling, forecasting, new operating protocols, greater energy efficiency, water loss reduc- This section discusses the needs for NFCCS in seven sub- tion programmes, conjunctive use of surface and categories of water infrastructure or related services of groundwater, water catchment management, etc.) interest to the Bank, namely: water resources management, hydropower, irrigation and drainage, coastal protection, inland flood protection, urban water supply and sanitation, Capacity building and finally water quality and environmental protection. Water is not a sector known for its dynamism or innova- The discussion will be in the context of the three market tion. In many parts of the world the physical infrastructure categories of CCS used in section 1.1., allowing for overlaps of water is deteriorating, its governance and institutions and commonalities. are sclerotic and swollen with political patronage, and its skilled and experienced human resource capital is erod- ing. This is not the ideal starting point for the rapid and Water resources management (WRM) drastic change that water infrastructure and its related WRM affects all aspects of water use throughout the water services confront over the coming decades. cycle. The main needs stressed in this section relate to the governance category, namely, the greater use of coherent The hidden assumption underlying much discussion of and integrated planning methods, including risk-based adaptation and mitigation in this sector is that the public decision tools, and the generation of better information for services responsible for policy setting, planning, regula- such decision making, comprising basic hydrological data tion, monitoring, management, project implementation, collection, analysis and modelling and its use for specific operation and other key functions are adequate and suffi- applied purposes. While much of the basic information ciently equipped. In many cases it is clear they are not. PPs will rely on systems operated by national public and in- can help to remedy this deficiency, either by: ternational agencies, important niches will remain for PPs, especially in the interpretation and application of data for ˇ Performing or supplementing functions currently specific economic purposes. done inadequately by their public service clients; or, ˇ Undertaking new services under the control and su- In a CC context, WRM will have to adjust to greater uncer- pervision of the latter. tainty, concerning trends, the range of variation around them, tipping points, hazards as yet unknown, and greater The first of these roles requires a serious transfer of experi- risks (the greater probability of more hazardous events). ence, know-how and technology from the PP to the public This will call for more use of risk management and methods client in order to sustain the function in the long term. The for taking decisions under uncertainty. The transmission of 4 The Demand for Climate Change Services in Water Infrastructure stresses and shocks through the different parts of the water as a result of CC, since farmers can no longer rely on cycle and among all water users places a premium on co- the past as a guide to the future. herent and integrated planning methods. These planning ˇ RapidEye, a German satellite operator, sells data to needs in turn place greater demands on the generation and insurance companies marketing crop-insurance poli- interpretation of water data. cies to governments in countries at risk of drought and famine. The company has the capability of analysing Integrated Water Resource Management (IWRM) is a com- the productivity of fields down to five-metre square mon planning paradigm, aiming to manage surface and patches. groundwater resources for multiple uses in a coherent ˇ The World Agroforestry Centre in Nairobi is catalogu- manner. The production of IWRM plans has made rapid ing the radiation signature--giving the agricultural strides recently, thanks partly to countries' commitment to potential--of 100,000 samples of African soils. The data a UN target for the production of these plans, and partly is being passed on to the International Centre for Tropi- to donor support. The IWRM philosophy is also evident cal Agriculture in Colombia to create a database, the in the spread of river basin management principles and Digital Soil Map. practices in many specific river basins.13 In EU member ˇ The National Aeronautics and Space Administration states this is due to the requirements of the European NASA in Washington, and European Space Agency (ESA) Water Framework Directive. Many private consultancies in Paris are major providers of public satellite informa- cater to these markets with various types of planning ser- tion to a multitude of public and private sector users. vices. The high-level modelling involved in climate studies is However, discussions of the implications of CC for water likely to be driven mainly by specialised public (including infrastructure have exposed the scarcity of data on which international) agencies. The same is true of the integration planning and adaptation needs to be based. The overriding of climatic, meteorological and hydrological models to pro- issue at a global and regional scale is to maintain and en- duce results at a scale useful for international and regional hance the observational networks that can track both cli- policy-making and national economic planning. This work matic and hydrologic data. Unfortunately, in some parts of is a classic international public good19 requiring collective the World the number of on-active the-ground observation input to produce optimal results: stations has been declining for a several decades.14 Much of the observational infrastructure for recording data 1 3 E.g. Young & McColl (2008) on a global scale. is owned and operated by the major pow- 1 4 For climatic data this is illustrated in Mitchell, Timothy and Jones, ers, though with some commercial networks. Setting up and Phillip (2005): "An improved method of constructing a database operating large observational networks, including satellite of monthly climate observations and associated high-resolution grids". Printed in International Journal of Climatology. It is known launching and servicing, needs large budgets.15 Though that the number of stations with recording from stream-flow much of this will remain a public (and international) respon- gauges in particular Africa has also declined for some time. sibility, the sheer sums involved leave openings for private 1 5 Satelitte imagery can in a number of cases compensate for the lack of ground monitoring. However, it is still far from being an ad- satellite operators too.16 equate replacement. Observations are much better when satellite imagery can be combined with ground monitoring. The use of satellite observations on a national and local scale 1 6 The Economist, Oct 17, 2009 for applied purposes is making rapid progress, involving 1 7 These examples are from The Economist, Nov 7, 2009, p. 89 1 8 Alavian et al., 2009, Water and Climate Change: Understanding both private companies and international public agencies:17 the Risks and Making Climate-Smart Investment Decisions, The World Bank. ˇ Infoterra is the largest provider of satellite data for the 1 9 Although in theory agencies could deprive others of informa- tion about their programmes (e.g. for military or strategic benefit), analysis of farmland in France. The firm expects the in the long run results are intended to be of global or regional amount of farmland monitored in this way to increase benefit. 5 Private Providers of Climate Change Services European meteorologists have recently embarked on is clearly observed and reinforced in the discharge time an experiment. Flood warnings in Europe were once is- series of many rivers in the sub-region. The decrease of sued by national bodies and based on a binary system discharge recorded for many of the river basins concerned of alerts: they either predicted a flood or did not. Na- varies from 40 to 60%. A clear link has been demonstrated tional bodies now cooperate to forecast across borders. between the evolution of ocean sea surface temperature and the evolution of average annual rainfall in the Sahel Meteorologists have embraced a more complex meth- region.22 od of analysis, known as "ensemble" forecasting. It tries to measure flood risks by using dozens of computers Bringing the issue literally to the grassroots level, the Mali that all run simulations of how a river (or a sea) might Agrometeorological project illustrates the practical benefits act, based on slightly different initial inputs. The result- of climate information for helping farmers to adapt to CC ing collection of forecasts is used to create a composite (Box 1). vision of the future, instead of a simple binary result. At Reading, over four dozen computers are used to create The above discussion has identified the importance of the this "ensemble", producing a highly nuanced picture of following CCSs for WRM, chiefly in the policy & governance European flood risk.20 category: The market space for private services is likely to be in the ˇ Production of IWRM plans; refinement of the basic models and their interrogation ˇ River basin planning and management studies; and interpretation for specific applied purposes. At smaller ˇ Climatic & hydrological data collection, analysis and scales--national, regional and river basin--there is a need modelling (informatics, GIS etc); for higher degrees of resolution (granulation) plus ground- ˇ Interpretation & presentation of satellite data for ap- truthing, where there is scope for private services, in many plied purposes and specific clients; cases making their own specific uses of data obtained from ˇ Refinement and interrogation of basic forecasting the large public networks. There is scope for private services models for specific purposes and clients. in rolling out programmes pioneered by public and interna- tional bodies: Hydropower Developments in satellite imagery are being exploited Any reduction in stream flow and basin yield will diminish to monitor progress towards the MDGs and to better the production of hydropower. Conversely, increases com- understand the needs of poor, informal settlements. pared to the historical pattern may also pose operational The Cities Without Slums project of UN-HABITAT in problems which impinge on hydro production. Greater Kisumu, Kenya, led by the local Municipal Council, variability, within ranges with uncertain boundaries, poses developed and maintained a digital map of Kisumu a serious challenge to this sub-sector with implications for based on a high-resolution satellite image. UN-HABITAT both structures and operational procedures. With more has an on-going programme to provide GIS capability intense rainfall periods, storage may have to be enlarged in to around 1000 cities, with the object of supporting various possible ways. Changes in flow regimes, exceeding pro-poor urban development programmes. operating safety margins, could also require retrofitting of current structures or the demolition and reconstruction of The importance of producing good hydrological data at installations. a usable scale can be illustrated for West Africa, where since 1970 a decrease of 20 to 40% of rainfall amount for the core of the rainy season in July and August has been 2 0 Gillian Tett, Financial Times, Nov 10, 2009 observed. The onset of the rainy season has become more 2 1 UN World Water Development Report 2, p. 110 variable (a greater coefficient of variation). Rainfall variability 2 2 Further reference and discussion in WWDR3 6 The Demand for Climate Change Services in Water Infrastructure box 1. The mali agrometeorology Project Following the severe droughts of the 1970s and the continuing risks posed to rural communities by rainfall variability, the Ma- lian National Meteorological Department (DNM) launched a project in 1982, with external financial help, to provide climate information to rural people, especially farmers. This was the first project in Africa to supply climate-related advice directly to farmers, and to help them measure climate variables themselves, so that they could build climate information into their deci- sion making. In the words of one farmer: "If I had to choose between agrometeorological information and fertilizer? Agrometeorological information! For without that, the fertilizer would be useless..." A number of factors contributed to the success of the project. The drought and famine of the 1970s was prominent in the minds of farmers and their political leaders. Long term financial support was available from the Swiss Development Corpora- tion together with technical support from the World Meteorological Office. The project's farmer-centred approach delivered services relevant to farmers' needs, while good communication channels between all parties and the use of radio (in all the major local languages) helped to disseminate information. Under the project farmers themselves collect much information about rainfall to feed into the information system. The results of this long term project indicate that the regular provision of agrometeorological information helps farmers to manage the risks entailed by increased climate variability. A framework is in place for gathering, analysing, processing and dis- seminating information in a form that farmers can use. The project is evidence that farmers can use the information to make better decisions leading to higher yields and incomes. They are able to take more risks by investing with greater confidence in new technologies that can raise incomes and yields further. Source: Winpenny, 2009, based on Hellmuth, 2007 Climate change adds an extra layer of risk to hydropower New investment projects which tend to be costly and risky in any event. Brand new projects have greater latitude, allowing adapta- Spending on studies--e.g. modelling different options and tion options that are not available in the same extent to permutations of siting, storage, dam structure, etc.--could existing schemes. One recent analysis (MWH, 2009) exam- be a sound investment, given the risks and outlays involved. ined several actual hydropower schemes from the point of Since stationarity is no longer a sufficient planning basis, view of their exposure to CC risk. One of these, the Lesotho and given uncertainty about future events, the use of risk- Highlands Water Project, was planned without explicit based decision models to generate scenarios based on consideration of CC. Had this been considered, there might Monte Carlo simulations could be warranted.23, 24 have been different design features in the spillways and intake structures of the dams concerned, and the heights Policy, governance & institutions of dams and reservoir storage volumes might have been different. If modifications were to be made now, two of the Hydro projects will need to develop (or reinforce existing) dams might be raised in height by the addition of parapets. agreements and protocols with other river basin stakehold- ers, to agree coordinated responses to greater variability. In another case, the Upper Bhote Koshi Project in Nepal was This will include the development of new operating pro- also planned before CC was a major design consideration. tocols for water storage and release. Some revision of the regulatory regime for hydro may be required to address the need of greater safety margins or strategic buffers, etc. This 2 3 Milly et al (2008): "Stationarity is dead: Whither Water Manage- will create a market for technical, economic and financial ment?" Science 319 (5863) p. 573­574 studies by infrastructure consultancies. 2 4 MWH (2009) p. 53 7 Private Providers of Climate Change Services The major new risks posed by CC arise from glacial lake and In summary, this section has identified the following need landslide lake outburst floods, as well as extra sediment for CCS: load and changes in river flows. Certain project compo- nents would probably have been different if the project had ˇ Technical services for planning, design and construc- been planned now, with CC in view (e.g. greater storage off- tion of new climate-smart infrastructure (incorporating site for improved river basin management, different speci- risk-based decision methods); fications for turbine components to improve resistance to ˇ studies for the adaptation of existing infrastructure to a erosion from increased sediment).25 CC scenario (forecasting, modelling, , EIAs, etc); ˇ Similar studies or the reforms needed in the manage- Many of the options for adapting existing multipurpose in- ment and operation of existing structures entailed in frastructure projects for CC involve studies and software. For the above; example, CC risk assessments and corresponding modelling options (especially where several schemes existed along the same river). Also, modifications to the hard fabric of dams Irrigation & drainage and associated infrastructure, either in design (for new proj- Policies, governance & institutions ects) or by adapting existing structures, is a routine matter for civil engineering firms and their consultants.26 The irrigation reform agenda, as recently laid out by the so- called Comprehensive Assessment,29 is driven by the future Mitigation is also relevant to this sub-sector. The methane food needs of a growing population, competition for water emissions from rotting vegetation in reservoirs, and carbon from other use sectors, ecological imperatives, and dimin- inflows from catchments, have been identified as potential ishing groundwater in many regions. CC is an additional sources of greenhouse gases (GHG). Work is in progress to driver, but far from being the only one. Implementing this determine more accurately the net emission of GHGs from reform agenda will create a market for services in all three of large scale storage, which may lead to a change in the cur- the categories identified earlier. rent rules which exclude large hydro schemes with storage from the UNFCCC Clean Development Mechanism.27 This Countries and regions dependent on agriculture may need issue has implications for the choice of location of new hy- to review their entire agricultural and land-use strategy in dro schemes, the configuration of the reservoir and the way a CC scenario. Land-use optimisation modelling is an option in which land is prepared prior to flooding. for countries with access to sophisticated data collection and analysis, and the depth of support services needed for implementation: Changes to the management and operation of existing structures The China Tarim Basin II project, supported by the Expected changes in hydrological conditions will require World Bank, has used remote sensing data from the design of new operating protocols, revised contractual Landsat and the US NOAA to map biomass produc- arrangements with the offtaker, new regulatory frameworks, tion, maximise consumptive use of water, and reduce etc., for which established technical and economic con- non-beneficial evapotranspiration. The combination sultancies are available.28 In the Lesotho Highlands project of remote sensing with socioeconomic data has al- referred to above, consultants identified a possible need for lowed the assessment of the relationship between site adjusting the current reservoir operating procedures in or- der to optimise the yield of the project under CC scenarios. Likewise, for the Upper Bhote Koshi project in Nepal, the 2 5 Ibid. ch. 7 modification of the Power Purchase Agreement to give the 2 6 Ibid, also Alavian et. al. (2009) Annex C. 2 7 Bates, et. al. 2008, p. 122 project greater operational flexibility was identified as a de- 2 8 MWH, (2009) Ch.7 sirable response to CC. 2 9 Molden, ed. 2007 8 The Demand for Climate Change Services in Water Infrastructure productivity, climate, and project performance. (World able investment, supported by sophisticated technical Bank, 2005, pp 273­4). services, others require modest outlays by farmers them- selves, for which microcredit or the farmer's own savings An important potential element of any adaptation strategy would be adequate.31 in agriculture is insurance for farmers against adverse weath- er conditions, such as drought or flooding. Many farmers, One such practice is the recycling of wastewater for agricul- especially smaller ones, might find conventional insurance tural use, which is already on a growing trend. At least 20 unaffordable, in view of the transactions costs involved in million hectares of land in 50 countries is estimated to be ir- investigating individual cases which would have to be re- rigated with raw or partially diluted sewage, around 10% of flected in premiums. This is the rationale for index insurance: all irrigated land. Around half a million hectares are irrigated with treated wastewater. The use of raw or treated waste- "Index insurance is insurance that is linked to an index, water for irrigation is particularly common in and around such as rainfall, temperature, humidity or crop yields, cities, where many farmers have little choice.32 Potential rather than actual loss. This approach solves some of recycling projects entail sensitive public health, consumer, the problems that limit the application of traditional technical and environmental issues where specialist exper- crop insurance in rural parts of developing countries. tise is invaluable. One key advantage is that the transactions costs are lower. In theory at least, this makes index insurance The community of service providers and financiers of irriga- financially viable for private-sector insurers and afford- tion investments have to take great care to fully understand able to small farmers. Another important advantage is the implications of investments and changes in practices that index insurance is subject to less adverse selection on the water cycle. Many technologies, such as drip irriga- and moral hazard than traditional insurance."30 tion, which reduce abstraction needed for a given crop and thus improve "crop per drop" will at the same time reduce The key point in the above to stress is that payouts are not the recharge of acquifers. The "real" water consumption is directly related to actual losses. Farmers may experience measured by evapotranspiration (ET) and not by abstrac- crop loss yet be unable to claim if the overall index does not tion and ET is very closely linked to agricultural production. broach critical levels. Conversely, unaffected farmers may get There have been many examples of "water saving" irrigation payouts even if they were not directly affected. Other kinds projects which in reality increased water used through a of weather derivatives take account of the individual situations combination of improved "crop per drop" and expanded of farms. For example, FIRA, an agency of the Bank of Mexico, production. New methodologies to guide decisions based links with commercial banks in funding irrigation investments, on ET rather than on water abstraction are being piloted, providing hedging for interest rates to offset the fall of farm for example in the above mentioned World Bank project in incomes due to shortfalls in the delivery of irrigation water. Tarim Basin in China. Major new investment Modifying existing practices The growing scarcity of surface water and diminishing Adapting irrigation systems to CC may require heavy invest- aquifers will be major drivers of change in irrigated agri- ment, as noted above, but others can be achieved through culture. Where rainfed farming becomes too precarious, changes in existing farming practices. Certain of these irrigated land may be brought into cultivation. Elsewhere, changes in practice rely on new types of seeds and other there will be a mixture of changes to cultivation practices agronomic products being developed for use in rainfed so as to minimise water use and improve "crop per drop". Greater recourses will be dedicated to non-traditional 3 0 Hellmuth et. al. 2009, pp 3­4 water sources such as the reuse of municipal wastewater 3 1 Section 2.3 contains examples from both ends of this spectrum effluent. Some changes in cultivation practices entail size- 3 2 Bahri, 2009 9 Private Providers of Climate Change Services farming in increasingly dry conditions. In irrigated agricul- further below for inland flood protection. This is an often ture there is scope for using small-scale irrigation equip- quoted example of a no regret policy. ment which makes more efficient use of water. Agronomic advisory and technical services, some of which are offered by equipment suppliers, help to support local farmers and Inland flood protection extension workers in making the required changes. The greater hydrological variability and unpredictability expected from a CC scenario places flood risk management (FRM) in the forefront of adaptation. There is substantial Coastal protection overlap between measures required in inland and coastal Many of the world's largest cities are on or near the coast. flood protection and flood risk management. In both do- Half the world's population is now urban, and the majority mains disaster risk management is also highly relevant. of urban residents live within 100 km of the sea.33 Predic- tions of future rises in the sea level and the more frequent incidence of tropical storms and cyclones are of obvious Policies, governance & institutions concern, particularly for small islands and deltaic communi- The preparation of FRM plans is a stock-in-trade of environ- ties. The World Bank estimates that coastal zone protection mental and civil engineering consultants. The various ele- represents the largest cost item for CC adaptation.34 ments and options in FRM are summarised in Box 2. These options overlap the three categories outlined in section 1.1, and include aspects of planning, regulation, institutional re- Policy, governance & institutions sponsibility, stakeholder involvement, and civil actions, as well Forecasting extreme events can no longer be based on as investments in infrastructure and management practices. historical records alone, but needs to incorporate scenarios generated from climatic and hydrological modelling: Improved weather and flood forecasting is crucial to flood risk management, especially in mitigating the impact of floods. Neglecting weather forecasting and hydrometeo- New infrastructure rological services can have heavy costs; conversely, invest- In the World Bank's study Economics of Adaption to Climate ment in such services is highly cost-beneficial (Box 3): Change (EACC), coastal erosion and flooding from sea and rivers in coastal areas are two impacts considered, and three adaptation responses are included--beach nourishment, New investment dyke building and upgrading ports--all involving major Structural flood risk management measures include the outlays. Historically, many cities and low-lying agricultural creation of dams, dykes, walls, and embankments, flood- areas adjacent to the sea have had to organise structural proofing major and vital infrastructure, increasing the flood- defences against sea surges and storm damage, which is resilience of buildings, etc. Non-structural measures may also a foretaste of the more widespread adaptation to CC that involve sizeable costs, either directly or as opportunity costs may be necessary. from foregoing or curtailing an important economic activ- ity (e.g. the creation or restoration of wetlands and other flood storage areas; increasing the area of floodplain around Changes in management & existing practices a river; the restoration of natural river systems, all of which Comprehensive flood risk management requires actions of could be at the expense of agriculture). all types and at all levels. Many of these are non-structural and involve changes in behaviour, practices and public re- sponses, which can be highly cost-effective. The flood risk 3 3 UN WWAP, Briefing Note, The implications of climate change on water, 2009, p. 6 management, and flood preparedness measures appropri- 3 4 World Bank, Economics of adaptation to climate change , 2010, ate for coastal zones partly overlap with those discussed p. 10. 10 The Demand for Climate Change Services in Water Infrastructure habitation in flood-prone areas; insurance; and public infor- box 2. strategies and options for flood risk mation and awareness.35 An effective component is disaster management preparedness--flood warnings, contingency plans for res- cue, evacuation and continuation of vital services, com- Strategy Options pensation and restitution, etc. These should be the prime Reducing flooding ˇ Dams and reservoirs responsibilities of public agencies and civil society bodies. ˇ Dykes, levees, embankments Disaster preparedness and emergency management can be ˇ High flow diversions ˇ Catchment management highly effective (Box 4): ˇ Channel improvements Reducing ˇ Flood plain regulation Urban water supply and sanitation susceptibility to ˇ Development policies damage ˇ Design & location of facilities Policies, governance & institutions ˇ Housing and building codes ˇ Flood-proofing For areas where water is likely to become scarcer (e.g. the ˇ Flood forecasting & warning lower latitudes, Mediterranean style, semi-arid countries), Mitigating the ˇ Information & education and population growth and competition for water is high, impacts of flooding ˇ Disaster preparedness action will be required both on demand-side and supply- ˇ Post-flood recovery oriented measures. In the realm of demand management, ˇ Flood insurance metering, reduction of leakage and wastage from distribu- Preserving the ˇ Flood plain zoning & tion systems, the promotion of water-efficient household natural resources of regulation appliances and sanitation methods will all be needed. In flood plains many cases, tariff reform will be necessary to reflect the true Source: EIB (2007) p. 4 cost of water delivery to the user. Changes in current flood risk management practices The menu of possible measures indicated in Box 3 includes spatial and land-use planning to control development and 3 5 EIB, (2007) box 3. benefits of hydromet services ... the range of the accumulated problems is so great that, without massive modernization, networks in some ECA [Eastern European and Central Asian] countries are on their way to becoming completely dysfunctional. No longer able to count on their own weather services, countries would be forced to depend on low-resolution forecasts prepared by others that often would miss significant local and rapidonset hazards, including floods, frosts, and severe storms. The perils of a weakening forecast capacity have become evident in Russia's system, where the share of hazardous weather phenomena that were not picked up and forecast increased from 6 percent at the beginning of 1990s to 23 percent only ten years later. Recent research underscores the value of investment in hydromet services. A study in China concluded that expenditures on the meteorological service had a cost/benefit ratio of between 1 to 35 and 1 to 40 (Guocai and Wang 2003). An estimate in Mozambique suggested a cost benefit of 1 to 70 for investment in the meteorological service, which needed to be rebuilt after that country's civil war. Mozambique saw directly the consequences of being uninformed and unprepared: when floods swept the country in 2000, it cost Mozambique nearly half its GDP. Source: Fay, et. al. (2010) 11 Private Providers of Climate Change Services box 4. urban flood risk management in köln In December 1993 the centre of Köln in Germany was flooded, resulting in damages estimated at 75 million. This was the first major flood since 1926 and there was little experience with flood management. In 1995 a flood similar in magnitude to the 1993 flood occurred but the damage was only 32 million, 40% of that for the 1993 flood. The reduced flood damage was attributed to: ˇ improved emergency management; ˇ extensive emergency measures put in place during the event (the effort was estimated at 125,000 man hours); ˇ deployment of 1,400 m of demountable flood barriers; and, ˇ use of 400,000 sand bags for local protection. Following the 1995 floods the City Council has implemented further measures to reduce flood risk which concentrate on wa- ter retention upstream, reduction of potential damage within the city and flood awareness and preparedness of inhabitants. Source: EIB (2009) p.25 New investment & major rehabilitation the same proportion--50%. In general, the search for more marginal sources of water as it becomes scarcer increases Supply-side measures will include: the energy requirement for sourcing and treatment.37 ˇ the use of more marginal sources of water (including Many transmission and distribution systems of water for desalination); urban use are highly inefficient in their use of energy. One ˇ the development of more effective and energy-effi- telling statistic is the high percentage of water put into cient treatment of both fresh and used water; distribution systems which is lost to physical leaks: this is ˇ greater recycling and reuse of wastewater; both a waste of water and a waste of the energy involved ˇ more storage within distribution systems to buffer in pumping it around. It has been estimated that, in devel- against irregular flows. oping countries physical losses of water run at an average of 21%, amounting to a total volume of 16.1 billion m3/a.38 Desalination continues to be the main driver of the global Energy is a sizeable cost of water delivery, even at the sub- water market, especially in arid regions with limited alterna- economic prices of electricity that often apply. There is a tive supplies. The market for desal equipment and plant potentially large market for energy-efficiency audits and is very active and competitive, and unit costs continue to action programmes for all urban water supply and sanita- fall. However, the heavy energy footprint of this process is tion (WSS) systems. a cause of concern. The disposal of concentrated brine as effluent from this process is also an environmental prob- Secondly, wastewater is a major, and rapidly increasing, lem, and certain units have also proved vulnerable to algal source of methane. In developing countries, decentralised blooms. There is an active market in services for all parts of and "natural" treatment processes can generate large meth- the desal project cycle, including Design-build contracts, ane emissions. On the other hand, toilet systems with low BOT concession or its variants and management contracts.36 water use and ecological sanitation methods where nutri- ents are safely recycled have lower GHG emissions.39 The Energy efficiency is a crucial mitigation issue for the water potential for methane in WWTPs is both a GHG risk, and an sector. Firstly, water is a large, and generally inefficient, con- sumer of energy. At present 20% of California's power sup- ply goes in the treatment and transportation of water. In 3 6 Global Water Intelligence contains a monthly update on the status China one of the lesser-known side effects of the targeted of current projects 3 7 Global Water Intelligence, October 2009, p. 5 increase in the proportion of wastewater treated from 40% 3 8 Kingdom, et. al. 2006, p. 3 to 60% would be an increase in energy consumption by 3 9 Bates, et. al. 2008, pp. 123­124 12 The Demand for Climate Change Services in Water Infrastructure opportunity, since the biogas produced can be reused to The greater variability of natural freshwater supplies and create heat and energy for operation of the plant itself. Thus, more frequent extreme rainfall under CC scenarios will WWTPs can potentially have a zero net carbon footprint call for more storage within and around freshwater and and, where such schemes exist, can claim carbon credits for wastewater distribution systems. This is needed to prevent the fossil energy saved. Locally, biogas from human waste is surcharging as well as shortages of volume, both extremes already extensively captured and used for neighbourhood being damaging to the functioning of freshwater and heating in South Asia and elsewhere. This discussion indi- sewer systems. The re-engineering of existing systems is cates the scale of the potential market for technical advisory a potentially large market for technical services from both services in this area, from consultancy through to design, specialised consultants and experienced water operating management and operation. companies. Recycling of municipal wastewater for agriculture, urban landscaping, industrial cooling, groundwater recharge, re- Changes in operating practices in existing storing environmental flows and wetlands, and for further infrastructure urban consumption is rapidly growing. Out of 3,300 water Depending on the degree of change and investment re- reclamation facilities identified recently, most were in de- quired, the reforms discussed above may require major veloped countries. The MENA region had around 100 sites, new capital spending, or may be implemented through less Latin America 50 and sub-Saharan Africa 20.40 costly adjustments to the modus operandi of existing plant. Some system improvements readily lend themselves to Tunisia has a high coverage of sanitation, with 96% in sub-contracting arrangements with private service provid- urban areas, 65% in rural areas and 87% overall. Indus- ers, such as the reductions in levels of Non-Revenue Water, tries also have to comply with national standards for discussed further in Part Two. the discharge of wastewater into sewers, and are given subsidies for pre-treatment processes. 78% of waste- Water quality & ecosystem services water collected is treated, mainly to secondary biologi- cal standards. Climate change is likely to lead to poorer water quality in some regions more than others due to forces such as lower 30­43% of treated wastewater is used for agricultural dilution of effluent by freshwater, saline intrusion of coastal and landscape irrigation. Reclaimed water is used on aquifers, plus periodic events such as flooding and storms, 8,100 ha. To irrigate industrial and fodder crops, cere- causing damage to WWTPs, mixing of run-off with sewage als, vineyards, citrus and other fruit trees. Regulations and stormwater flooding. The projected rise in surface water allow the use of secondary-treated effluent on all crops temperature could lead to a greater frequency and extent of except vegetables, whether eaten raw or cooked. Golf eutrophication41 and hypoxia.42 This pollution causes dam- courses are also irrigated with treated effluent. age to a variety of ecosystem service dependent on good water quality. Tunisia launched its national water reuse programme in the 1980s. Treatment and reuse needs are combined Natural freshwater ecosystems will be affected by such and considered at the planning stage. Some pilot changes in water quality, and also by changes in the quan- projects have been launched or are under study for tity and timing of water flows associated with climate industrial use and groundwater recharge, irrigation of change and greater variability. Higher temperatures in rivers forests and highways and wetlands development. The annual volume of reclaimed water is expected to reach 290 Mm3 in 2020, when it will be equivalent to 18% of 4 0 Aquarec, 2006. 4 1 the excessive concentration of nutrients in water, leading to groundwater resources and could be used to counter dense growth of plant life, such as algal blooms seawater intrusion in coastal aquifers. (Bahri, 2009) 4 2 deficiency of oxygen 13 Private Providers of Climate Change Services and lakes will also have an impact. Other, indirect, impacts The concept of Payment for Environmental Services (PES) of climate change include: arose in the USA and other OECD countries in the 1980s, principally to reward farmers for adopting practices that are ˇ Disruption of flowering patterns; kinder to the local environment. In the 2000s the concept ˇ Shifts in vegetative season; spread to some Latin American countries, mainly in the ˇ Species invasion; context of forest conservation. Both kinds of programmes ˇ Changes in ecosystem productivity; have potential benefits for water quality. The motivation ˇ Shifts in nutrient cycles; for PES is that private producers (farmers) may be able to ˇ Loss of critical habitat. provide a public service (protection of ecosystem services) more efficiently than governments, and in doing so they are Much of the water quality agenda needs to be implemented entitled to a reward to compensate them for any extra costs at source, through action in wastewater treatment and reuse, or loss of production they incur. Globally, there are now treatment of industrial effluent, measures to reduce non- hundreds of PES schemes, each designed around detailed point pollution from agriculture, etc. These measures belong investigation of complex local situations, and offering great to the relevant sub-sectors discussed earlier. This section potential for studies by environmental consultants.44 highlights two additional areas, amongst others, where the market for NFCCS is likely to be boosted by CC--water qual- ity testing, and the development of systems of Payments for 1.3 a working typology of CCs Environmental Services. Both are aspects of capacity building in the category of policies, governance and institutions. The 3 generic categories of adaptation/mitigation mea- sures used in section 1.1 can be combined with the seven types of water infrastructure & services discussed in 1.2 to Policy, governance & institutions produce a matrix of CCS. This is reproduced in Table 1 with The market for water quality testing is broadly segmented examples of services typical of each case. into in-house facilities, small commercial laboratories serv- ing regional clients, and large companies serving national and international clients. Among the major laboratory groups are Inspicio (UK-based, with 8000 staff in 130 coun- tries), ALS (Australia-based, 4000 staff in 30 countries), TestA- merica (US-based, 27000 staff ) and SGS (Swiss-based, with 4 3 "Market profile: water testing", Global Water Intelligence, June 50,000 staff for all its services). It is estimated that the global 2009 water testing market as a whole is worth $3.6 billion p.a.43 4 4 FAO (2007) 14 table 1. a typology of CCs Water new investment, capacity Changes to management infrastructure reforms to water policies, expansion & major and operations of existing category governance & institutions rehabilitation systems & installations Water resource Preparation of IWRM plans; cre- Technical services for planning, Satellite data analysis & modelling; management ation of river basin management design & operation of multi-pur- systems; crop insurance services pose storage. Increased reliance of robust planning methodologies Hydropower Agreements on safety margins, Planning,design, turnkey projects; Forecasting and modelling river risk management & response engineering services for modifica- regimes; creation of new operat- protocols between upstream and tions to dams; risk-based decision ing protocols downstream parties analysis and modelling for major projects Irrigation & Modelling & feasibility studies for Technical services for new water- Improved efficiency in field use of drainage optimal land use under future and energy-efficient irrigation water; adapting cropping pattern scenarios. Increased integration of systems, reliance on new tech- and application methods to use of service delivery with basin wide nologies such as ET monitoring; recycled water WRM considerations feasibility studies Coastal protection Planning standards and building Ensemble projections and model- Tidal flood risk management plan- regulations; design of non-struc- ling to support major new works ning tural measures; preparation of disaster preparedness plans and procedures Inland flood Climate & hydrological modelling Digital mapping to identify vul- Forecasting, data collection, analy- defence to estimate flood risks under non- nerable areas and installations for sis and modelling to guide public stationarity scenarios planning flood defences responses to flooding events; di- saster preparedness planning Urban WSS Planning, designing & implement- Increased reliance of robust plan- Improving energy efficiency of ing demand management pro- ning methodologies. Feasibility systems and plants; Non-Revenue grammes. Increased integration of studies & technical services for Water reduction programmes urban service delivery consider- new plant & systems; design, build ations with WRM considerations & management contracts Water quality Water quality testing; groundwa- Technical services for major Technical studies & advisory & ecosystem ter monitoring; programmes of wastewater col- services for changes to in-plant protection lection, treatment and disposal; industrial processes design and implementation of environmental & ecosystem im- schemes of Payments for Environ- mental Services pact studies of major new infra- structure 15 2. The PoTenTIal for PrIvaTe ProvIders of ClImaTe Change servICes 2.1 status of "private" providers. cial manner, and compete for operating contracts outside their local domestic base.45 "Private Providers" (PPs) will be interpreted broadly and pragmatically to include any organisation that markets expertise and products on a commercial basis. 2.2 strengths and limitations of private providers & client constraints This definition includes the academic and research com- munity and non-for-profit bodies, where they act in a com- The diversity of providers and the presence of many hybrid mercial manner to disseminate their expertise, and develop forms does not imply that legal, institutional, constitutional and market innovations resulting from their core work. or other peculiarities are irrelevant in their selection or in Service providers come in a range of institutional forms: the way they perform. Such factors may limit the scope for academically-based research institutes, international public their engagement for certain kinds of work, but equally may agencies, national public and publicly-sponsored agencies define their comparative advantage for other tasks.. and research institutes, private not-for-profit, or non-profit distributing companies, private limited liability companies, The same feature may be perceived differently in different private consulting partnerships, and social enterprises. contexts. In certain countries, and for certain services, the fact that a provider may have roots in a government institu- Many "public" research bodies are active in CCS, and operate tion could be seen either as an advantage or a disadvan- in the same market as, and in a similar manner to, purely pri- tage. In some countries major companies, though fully pri- vate companies. Many public research bodies have changed vate, have close informal links with their governments and their status over time to operate at arms'-length from their the client may see no clear private-public distinction. Con- government sponsors, have accepted targets to break even versely, the client may distrust the ability of a state-owned financially, and have the freedom to accept sponsorship organisation to give impartial advice or keep information from private financiers and fee-earning commissions from all confidential, and may prefer to use a reputable multina- types of clientele. Some have passed into full private owner- tional company for these reasons. These considerations are ship. There is also substantial private sponsorship of research crucial where data is sensitive, e.g. from satellite observa- carried out at predominantly "public" research bodies. tions, or hydrological data on shared rivers. Thus "private" is not a uni-dimensional category--there are The distinctive contribution of private service providers for many hybrids on the spectrum from purely private to whol- the tasks identified above, compared to typical public sec- ly public bodies, and the selection of entities based on their tor agencies, lies in the following areas, among others: formal legal status would be neither practical nor fruitful. ˇ Efficiency A growing number of water service operators, as well as ˇ Flexibility equipment suppliers, now exist in South-East and East Asia ˇ Speed of response and delivery and the Middle East, and are marketing their services both ˇ Ability to hire within and outside their home regions. These companies ˇ Commercial acumen take a variety of institutional forms and have multiple ˇ Creativity, enterprise & energy origins: a number of them are wholly- or majority-owned ˇ Independence public corporations, some of which have opened up their capital base to private investors, behave in a fully commer- 4 5 Winpenny (2006). 17 Private Providers of Climate Change Services ˇ Ownership of data bases and proprietory technology means all) public agencies. They respond to commercial ˇ Connections to other producers incentives, and where it is not feasible to introduce these ˇ International contacts their performance may disappoint. Private companies may in the course of their work develop proprietary software Much R&D is now carried out privately and much expertise or systems which they do not pass on to the public cli- provided by the private sector is simply not available to ent (though this could be addressed in their contracts). public agencies, and in such cases there is no real choice. Conversely, the private provider may impose its own pro- prietory software or systems on the client, in preference to Two recent studies by World Bank staff provide evidence of something else more suitable, or which is in the public do- the scope for using private sector providers for water sup- main. In these cases it is important to provide in the service ply and sanitation services for a specific CC--related task. A contracts for the transfer of technology. comprehensive study of public-private partnership (PPP) in the urban water utilities of developing countries examined, More generally, the expertise which is built up during the among other performance measures, the impact of PPP on course of an assignment may not be retained by the host the reduction of water losses.46 It found that many of these organisation when the private provider departs, preventing projects did indeed reduce Non-Revenue Water (NRW), the development of collective memory, or an internal criti- though not all were successful in this. cal mass of experience. A separate study47 looked in more detail at the role of pri- The issue can be approached from the converse perspec- vate companies in reducing NRW. The following benefits of tive, the constraints and obstacles faced by public sector using private agents were identified: institutions in delivering the necessary CCS, which makes them turn to the private service option. The comparative ˇ access to new technology and the know-how to use it advantages of private suppliers listed above are the inverse efficiently; of the disadvantages faced by public agencies. However, ˇ better incentives for project performance; some constraints of the public sector would also apply to ˇ creative solutions for the design and implementation their engagement of private suppliers, such as limited bud- of the programmes; gets, shortage of skills to manage sub-contracts, political ˇ qualified staff; obstacles to delegating tasks to outsider consultants (espe- ˇ flexibility over field work (such as working at night); cially foreign). and, ˇ the ability to bring financial resources for investment, Managing and commissioning private agencies itself re- where contractual conditions are conducive to this. quires planning and management skills which are, ex hy- pothesi, lacking in many countries, especially in the water However, the study cautions against treating private com- sector. In its study of Non-Revenue Water, the World Bank panies as the panacea for NRW--much depends for in- authors48 pointed out three major constraints on the greater stance on the form of contract employed. Simple technical use of private companies in NRW reduction: assistance contracts seem to have been less effective than forms entailing greater risk and reward, depending on per- formance such as a management contract, lease or conces- 4 6 Marin, et. al. 2009. The results are presented in terms of Non sion. This leads the authors to recommend the greater use Revenue Water, which includes both physical and commercial of performance-based service contracting in this area. losses, and in many situations it is difficult to disentangle the two. Kingdom et. al. 2006 make a broad estimation that in developing There are offsetting disadvantages of using private ser- countries NRW consists of 60% physical losses and 40% commer- cial losses. vice providers. Private agents do not necessarily share the 4 7 Kingdom, et. al. 2006 public service ethos prevalent in the best (though by no 4 8 Kingdom, et. al. 2006 18 The Potential for Private Providers of CCS 1. the public utility's lack of capacity to implement a gas production. CC is raising the level of interest in ground- comprehensive programme and coordinate the work water aquifers as a source and reservoir of water, which is an of several contractors, area of particular expertise in the oil industry. 2. the weakness of the local private sector to take on such work, and Because oil and gas have a relatively high economic value 3. lack of awareness of the options and of guidance on compared to water, it is no coincidence that the technol- implementation. ogy and expertise involved is much more advanced and infinitely better funded. By the same token, this expertise Although this topic is often approached with a public is available off-the-shelf to solve the future problems con- versus private mindset, in many contexts it is more fruitful fronting water. to think in terms of combinations or partnerships between different kinds of institutions to carry out specific tasks For example, Schlumberger, best known as producers (e.g. the Thames Barrier work cited in section 2.4). In this of oil-drilling platforms and other oilfield infrastructure, way, the comparative strengths of both public and private offers a range of technical services relevant to water, providers can be brought to bear. International networks including GIS and data management, aquifer charac- involving different kinds of institutions can also be useful terisation, aquifer storage and recovery, groundwater sources of expertise which transcend the usual categories, monitoring, geologic modelling,50 e.g. the Delta Alliance, hosted by the Dutch company Deltares: Petroleum consultants have developed proprietory sys- tems for identifying and monitoring underground reserves The overarching objective of the Delta Alliance is to of oil which could readily be adapted to groundwater support the development and dissemination of new purposes:51 and existing knowledge on how river delta regions may respond to the challenges that deltas face, in par- As an example, Neftex Petroleum Consultants Ltd ticular those that come with a changing climate. The (Neftex) is a leading provider of web-based sequence Delta Alliance approach includes international research stratigraphic data and interpretations to the hydro- collaboration, multi-stakeholder dialogue and informa- carbon industry. The company provides an online tion dissemination in a network of dedicated individu- digital Global Earth Model to clients (developed us- als and organisations. ing sequence stratigraphy) including all supporting data. Neftex completed the base modules in all major A growing number of organisations, like research in- Regions in 2009, Each Region has eight Modules pro- stitutes, governments, NGOs and the private sector, all viding increasing detail in subsurface understanding over the world are involved in the Delta Alliance. (Base, Outcrop, Biostratigraphy, Source Rock, Reservoir and Seal, Play Fairways, 3D Exploration and GeoData- base). The company aims to maintain and update the 2.3 Transfer of technology & expertise model for all new public domain data. from other sectors Oil companies are often involved in producing water as a The technology and processes developed for the exploration by-product of their core operations, or to supply communi- and development of oil and gas is particularly appropriate to ties adjacent to their projects: the tasks required in the water sector. Some tasks are basical- ly similar, e.g. prospection, drilling, pumping and piping of a fluid resource. The Libyan Man Made River project, involving 4 9 Deltares website. 5 0 www.schlumberger.com. the extraction of deep-lying fossil water and pumping it hun- 5 1 Source: "Financial Times" Supplement on Water & Waste Manage- dreds of miles to the coast, has many similarities to oil and ment, Jan 26, 2010, p. 2 and www.neftex.com. 19 Private Providers of Climate Change Services Shell's gas-to-liquids Pearl plant in Qatar is designed and forecasting, instrument calibration, monitoring network to produce 140,000 barrels of liquid products per day. construction, operation and calibration, and regulatory It will also produce a large volume of water as a by- policy advice and development.56 product of the chemical reaction when synthesis gas is passed over catalysts. An industrial water processing Finally, an increasing amount of the data needed to moni- plant with a daily capacity of 300,000 barrels (of a simi- tor CC and plan the adaptation of water infrastructure is lar scale to that of a city of one million people) will treat obtained from satellite observation. Space technology has the water to make it usable for cooling, steam, and much to contribute.57 other uses within the plant. This will enable the plant as a whole to be self-sufficient in water, avoiding any demands on the water supplies of this desert state.52 2.4 PPCCs in practice. It has been observed that in poor countries technical ser- There is growing evidence, illustrated in this section, of work vices developed for the oil or mining sectors (remote sens- by PPCCS relevant to water infrastructure. ing, geology, drilling, etc.) are far better equipped and more generously funded than the comparable services available In the realm of strategy studies for water resources manage- for hydrological purposes. This raises the possibility that ment, a private consultancy has developed the water cost water sector might "piggy back" on the use of such services curve to assist countries facing future water scarcity. This tool that have been developed for other sectors.53 systematically assembles all the feasible options for either sav- ing or providing water and arrays them, weighted by the wa- Technologies and processes developed in the power sec- ter volumes involved, according to their unit cost. Combined tor are also transferable to water. This applies particularly in a single graph, the options describe a rising supply curve, to methods of demand management and customer a familiar concept in elementary economics. The concept of relations--e.g. "smart" metering, billing, as well as the mod- the water supply curve is applied to India, China, South Africa elling of systems, risk management, etc. Some systems offer and the Sao Paulo region of Brazil to help prioritise measures the possibility of common billing for water and power: to mitigate their respective looming water scarcities.58 In Malta, as part of a Euro 70 million smart grid scheme being In irrigation and drainage, a private company specialising in implemented by a consortium led by IBM, metering will be managing irrigation systems, especially of sugar cane, has integrated into the network, enabling water use as well as implemented a number of projects involving maximising energy to be monitored analysis and simulation for optimal the water-use efficiency of sugar estates. Nakambala in water management, systems integration etc. Other products Zambia is predominantly furrow irrigation with laser lev- are the production and supply of groundwater monitoring elled fields to optimise water use efficiency. Finchaa in Ethi- instruments, training, consultancy and software.54 opia uses dragline sprinkers designed to maximise gravity rather than pumped pressure. Simunye in Swaziland uses a In regulation, there is considerable interest in the water sec- combination of systems--furrow, sprinkler, centre pivot and tor in transferring experience (so far mainly in the USA) of drip. Maple in Peru has a surface drip system to maximise benchmarking power companies' rewards to their success in reducing demand, rather than increasing sales. 5 2 www.shell.com. 5 3 I credit to Steven Wade for this insight In a different realm, the nuclear industry has developed ex- 5 4 www.schlumberger.com. pertise in air and water pollution which is now available as 5 5 Part of the former UK Atomic Energy Authority policy, advisory and implementation services. AEA Group55 5 6 www.aeat.co.uk. 5 7 The World Bank has a partnership with NASA and NOAA for a offers emissions inventory development, environmental project in Morocco data systems, local and mesoscale modelling, assessment 5 8 McKinsey (2009) ch 3. 20 The Potential for Private Providers of CCS box 5. low cost irrigation services in India Global Easy Water Products (GEWP) is a for profit social enterprise in India that focuses on developing and delivering low-cost irrigation solutions to small farmers who are often overlooked by technology advancements. GEWP specializes in affordable micro-irrigation and water storage. Its portfolio contains over 50 different products primarily in drip tape, micro sprinklers, fertilizer tanks and flexible water storage tanks. The first and most successful product is the flexible Krishak Bandhu (KB) drip tape. Different thicknesses of drip tape are produced to correspond with the requirements for short-term (vegetables), me- dium-term (sugarcane & banana), and long-term crops (mango, sweet lime, pomegranate). The small drip irrigation kits like bucket & drum kits and family nutrition kits are specially designed for women and reduce workload and improve nutrition through kitchen gardening of vegetables. GEWP focuses on affordability and modularity in order to make the products more accessible to their small farmer clients. Its criterion is that products must pay for themselves in one crop season. In addition, farmers must be able to purchase a system small enough to experiment with, and then have the ability to expand their area under drip irrigation as their income grows. Source: Global Easy Water Products website the availability of water. At Simunye there has also been Thames Estuary up to the year 2100. The Met Office Hadley conversion and modernisation of an older irrigated area, Centre worked in a corsortium including the UK Environ- from sprinkler to sub-surface drip. (www.booker-tate.co.uk.) ment Agency, the Proudman Oceanographic Laboratory and the Centre for Ecology and Hydrology. Climate scientists at At the opposite end of the size spectrum, a commercially- the Met Office combined ensemble projections, which give oriented Indian social enterprise is working with small farm- a likely range of future extreme water levels, with "H++", ers to supply irrigation equipment at an appropriate and described as a "new high-end water level scenario". The scien- affordable scale (Box 5). tists developed ten-year climate forecasts to strengthen con- tingency planning to use alongside the 50- or 100-year time Privately-driven networks and partnerships can also play a frame projections currently used worldwide. Such decadal key role in promoting water efficiency. An example is the models seek to pick up natural variability, such as El Nino and Better Cotton Initiative (BCI), sponsored by the major retailing chains IKEA and Marks & Spencer in alliance with the World Wide Fund for Nature (WWF). The BCI works though nation- al farmer associations and peer group pressure and advice box 6. Index-linked flood insurance for farmers to promote water efficiency, amongst other aims, amongst in vietnam small-scale cotton farmers. (Cotton is a water-intensive crop "An index-based flood insurance product has been of- grown in regions that are often water-scarce). fered to the Vietnam Bank of Agricultural and Rural De- velopment (VBARD). The product is designed to pay for On a different tack, private insurers are getting involved in consequential losses that are suffered by VBARD when the development of index-based flood insurance for farm- flooding creates problems for farmers in repaying loans. ers in the Mekong Delta of Vietnam (Box 6): The contract is being offered by a Vietnamese insurance company, has support form a global reinsurer, and has been approved by the Vietnam regulatory authority. More advanced methods of forecasting are crucial to better The prototype index insurance contract is underwritten coastal protection, as seen in work on the Thames Barrier in against recorded water levels at the Tan Chau station. the UK done by a consortium of organisation. In 2008 the UK The product is fully priced and loaded by the domestic Met Office provided advice for the development of a tidal Bao Minh Insurance Corporation, with reinsurance form flood risk management plan for the Thames Estuary. The the international company Paris Re. No subsidies were report examined potential future climate-driven changes involved in the price for underwriting." in extreme water levels in the southern North Sea near the Source: Hellmuth et. al. 2009, pp 60­6 21 Private Providers of Climate Change Services fluctuations in the Gulf Stream, as well as man-made climate change. These results are of more direct practical relevance box 7. beach nourishment as coastal protection to planners (e.g. for operation of the Thames Barrier) than in barbados models with a longer time frame.59 [In Barbados] on a single 1.1 kilometer strip of beach on the southwestern coast, from Rockley to Coconut Grove, Drainage of low-lying coastal areas will become more im- shoreline rehabilitation requires the construction of five portant in a CC scenario. The experience of existing estates headlands, one major revetment and five spurs. The re- that are particularly at risk from rising sea levels is relevant. vetment requires 30,000 tons of granite boulders import- The sugar cane industry of Guyana has existed for 300 years ed from Canada, while beach nourishment will absorb 18,000 cubic meters of sand dredged from a Barbados and has to cope with two rainy seasons per year, heavy clay harbor. The procedure is guided by a scientific model de- soils and a low-lying topography, much of it below sea level. veloped by an international technology firm in Canada. A comprehensive system of canals and drains has been The project was supported by financial and technical developed to serve the purposes of irrigation, drainage and assistance from the IADB involving advice, training and navigation, while a protective wall has been built along the capacity building, as well as funding for investment. The full length of the Atlantic coastline and along the principal IDB supported the establishment of Integrated Coastal Management from its inception in 1983 by providing river estuaries. Drainage water is discharged into the sea financial assistance for technical studies and research, either through sluices at low tide or through low lift pumps. later supplemented by funding for training technicians This infrastructure protects the 8 factories and 43,000 ha of and for demonstration projects. The Bank financed the sugar cane operated by the Guyana Sugar Corporation (GSC), drafting of new environmental legislation and aided in which provides around 18% of the country's GDP. Over many the establishment of the Coastal Zone Management years the GSC has received technical, operational and project Unit and in the drafting of the Coastal Zone Manage- ment Plan. An IDB loan of $17 million approved in 2002 management services from a private company to meet the financed the rehabilitation and protection of selected, abovementioned climatic and environmental challenges. priority beaches, and provided resources for training and strengthening of the Coastal Zone Management Unit. In localities where tourism is commercially important, beach Source: IDBAmerica, Magazine of the Inter-American Develop- nourishment is becoming a favoured form of coastal protec- ment Bank, Jan 25, 2010 tion, along with other methods of restoring natural features. In Barbados this was part of a wider programme involving long term capacity building, supported by an IFI (Box 7). in central Asia. This work has been supported by a large commercially-oriented institution providing hydrological Flood forecasting is getting more and more attention as consultancy and technical services (www.deltares.org.) a non-structural measure for flood protection and disaster reduction. A particular challenge exists in data-poor regions, In certain countries forecasting has been strengthened where hydro-meteorological measurements are missing through public-private partnerships, in which private firms due to lack of observation systems and procedures. Many process and disseminate weather data.60 break-away republics of the former Soviet Union share the lack of data as a common problem since centralized hydro- Major private insurance companies have unrivalled data meteorological data collection has been abandoned in the bases about natural hazards like flooding, and offer insurance wake of national independence in the early 90'. Starting products to mitigate their financial impact. One such com- from a pilot project in Georgia, South Caucasus, i the use of pany has created a tool for the "geographical underwriting" (1) local weather prediction models, (2) simple ground ob- of natural-hazard risk, based on the company's geocoded serving system, as well as (3) remotely sensed information, portfolio and loss data, which can be used to perform highly has demonstrated that operational flood forecasting is fea- sible. The study case of Georgia could become an example 5 9 UK Met Office website on how to tackle flood forecasting and disaster reduction 6 0 Fay, et. al. 2010 22 The Potential for Private Providers of CCS precise spatial and geographic portfolio analysis. The Natural companies for the wastewater treatment projects of Mecca, Hazards Assessment Network (NATHAN) has geographically Taif, Medina, Damman and Al Khobar.64 referenced data and display capabilities which enable the user to produce qualitative estimates of the exposure to nat- One leading international water operator offers the following ural hazards of any of 800,000 locations and urban regions. A management, capacity building and training services (Box 8): "light" version is publicly accessible, and an enhanced version available to clients and subscribers. (www.munichre.com.) There is also evidence of a burgeoning market in specialised services, such as leak detection and repair. In China innovative In urban water supply and sanitation technological develop- technologies are emerging to detect and repair leaks that are ments promise to increase the efficacy and cost of waste- offering easier use at lower cost. Services are increasingly be- water treatment, compared to conventional processes, and ing offered to utilities against a share of the savings achieved, facilitate its reuse. A large number of companies offer tech- rather than against fixed payments. However, the market nology, much of it innovative , for the treatment of water remains very fragmented and the businesses providing these and wastewater, and many of them offer advisory, technical services are mostly small providers, serving only their immedi- and operational services associated with the systems they ate local area." (McKinsey et. al. 2009, pp 107­108). supply. However, in most cases there is still a need for more knowledge and testing and often site specific adaptations.: box 8. management services from a private Many companies prominent in the desal market are also ac- water operator tive in that for wastewater treatment and reuse.61 Reused treated wastewater is likely to encroach on increasingly scarce Management of change Leakage control freshwater as a source of agricultural, industrial, and eventual Organizational and man- Operational optimisation urban household, water supply. In agriculture, reuse projects agement effectiveness of plants and systems often claim to be "win-win" solutions, assuring reliable and Customer Services Operations procedures nutrient-rich wastewater for farmers whilst releasing the lat- Billing, collection and in- manuals ters' rights to fresh water for the use of cities. However, future formation systems Water quality and process reuse projects, with higher levels of wastewater treatment, Commercial and financial monitoring are increasingly likely to target urban and industrial use.62 systems Process development and Saudi Arabia's National Water Company (NWC) is discovering Corporate planning and review a strong demand for treated sewage effluent , mainly among municipalities, district cooling companies and industrial water investment Environmental protection users, and is forming companies (likely to be mixed public- Development and monitor- Sewerage and sludge dis- private ventures) charged with handling all aspects of the ing of concession contracts posal studies distribution and sale of the effluent to end users.63 Operational due diligence Master planning for project financing Institutional strengthening Private operators have long been active in urban water sup- Assessment of potential Asset management ply and sanitation services, working through various kinds outsourcing opportunities of contracts, such as management and operation, asset Source: http://severntrentservices.com. leasing, concession, and in certain cases, full asset owner- ship and operation. A recent World Bank review of PPP in 6 1 The head of GE Water believes that reuse is becoming a better urban water utilities concluded that the main contribution market than desal (GWI, Sept 2009, p. 8­9). See also Municipal of private involvement has been in improving the quality Water Reuse Markets 2010, published by Global Water Intelligence of service and the efficiency of operation, rather than in and PUB Consultants, 2009. 6 2 Global Water Intelligence, October 2009, p. 6 providing sizeable new funding. The Saudi Arabian NWC is 6 3 GWI Jan 2010, p. 20 developing management contracts for tendering to private 6 4 GWI, Jan 2010, p. 20 23 3. develoPIng The markeT for PPCCs In waTer InfrasTruCTure "The private sector is critical to the transformation of 3.1 overview of the market for CCs water use in a country...the private sector has at least three important roles to play`: as provider of capital, Many types of CCSs are likely to be needed (Box 9): as water user and as provider of solutions." (McKinsey, 2009, p. 122). Information on the size of the actual market for CCS for the various parts of water infrastructure is not readily available. This report is concerned with the third of these roles--PPs Such estimates as there are for the different sub-sectors as providers of solutions. The topic has both a narrower and combine equipment and services and are dominated by a wider aspect. The narrower aspect is how PPCCS can be the former.64 promoted in the operations of the World Bank and similar development agencies. IFIs can promote a market for PPCCS The size of the potential market can be appreciated from directly through procurement from their lending and tech- new comprehensive estimates of the costs of adaptation nical assistance programmes. In the wider sense, IFIs can being developed by the World Bank.65 Overall, the Bank also be the catalysts of greater PPCCS through the design finds that: of country programmes, their policy dialogues, and their capacity building efforts, with the aim of making PPCCS a "the cost between 2010 and 2050 of adapting to an sustainable part of a country's CC adaptation and mitigation. approximately 2 degrees C warmer world by 2050 is in the range of $75 billion to $100 billion a year."66 This chapter is relevant to both the narrower and wider pur- poses above. It has four sections: These estimates relate to all types of cost for a broad range of economic and social infrastructure and services and can- ˇ An overview of the market for CCS; not be directly linked to the seven water sub-sectors used in ˇ Limitations on demand; this report. The estimates relate to the cost of constructing, ˇ Supply- side obstacles; operating and maintaining new infrastructure needed. CCS ˇ Developing the market for PPCCS. have not been explicitly included in these estimates, though certain services will be wrapped into construction costs. With these qualifications, it is significant that "coastal zones" box 9. Categories of CCs and "water supply68 and flood protection" are two of the three largest cost categories for adaptation, the first ac- ˇ Strategy studies counting for $30 billion, the second for $14­19 billion in the ˇ R&D, innovation, design above total ($75­100 billion/year). The Bank's study finds ˇ Data collection and analysis (including the special case that two-thirds of the adaptation costs in coastal zones will of satellite observations) ˇ Infomatics, GIS, modelling, software development arise in two regions--Latin America & the Caribbean, and ˇ Planning & methodology (e.g. risk assessment) ˇ Feasibility studies, EIAs, compliance monitoring 6 5 For instance, the annual size of the market for municipal and ˇ Measuring & monitoring water status industrial water and wastewater equipment and services was esti- ˇ Training and capacity building mated to be US$ 365 billion by Goldman Sachs in 2005. ˇ Advisory and technical services 6 6 Though these omit costs of mitigation required in the water ˇ Construction and project implementation sectors. ˇ Management and operation 6 7 World Bank, Economics of adaptation to climate change, 2010, p. 1. 6 8 Understood to mean bulk water availability. 25 Private Providers of Climate Change Services East Asia and the Pacific. In contrast, for the category "water countries maintain a distinction between "development" supply and flood protection" sub-Saharan Africa will incur and "climate change adaptation" policies, and give priority by far the largest costs of any region. to the former. Strategy studies based on the water cost curve for specific Although there is growing evidence of the congruence of countries and regions within them can produce more ac- "developmental" and "climate resilient" policies in the longer curate estimates of both the size and the nature of the mar- term, there is need for further exploration of these issues at ket for CCS in tackling impending water deficits. One such national level. What is required is a convincing demonstra- exercise69 concluded that cost-effective adaptation in India tion to national governments of the potential economic would be based overwhelmingly on improving the water costs of CC- unless countervailing actions are taken: productivity of agriculture. In China, by contrast, the strategy should be based on managing the rapidly growing demand "If current development trends continue to 2030, the from industrial and urban users. In the Sao Paulo region of locations studied70 will lose between 1 and 12 percent Brazil the key would be promoting efficiency in industrial, of GDP as a result of existing climate patterns, with low municipal and domestic users. In South Africa the least-cost income populations such as small scale farmers in In- solution would be a combination of supply-side actions and dia and Mali losing an even greater proportion of their incentives for industrial water efficiency measures. income." (ECAWG, 2009, p. 11) In all such situations there is a choice to be made between It is also important to include in development programmes conventional supply-oriented solutions, and a wide array sufficient no regret policies and projects that will deliver of demand management measures. The latter are often economic benefits whatever the future holds. Much of the cheaper, but more difficult because they entail changing investment in water infrastructure discussed in this report water users' behaviour and reforming institutions. Which- would have tangible economic and social benefits for the ever path is chosen will have implications for the type of host countries under any CC scenario. Consultants can help CCS required. to minimise any real or imagined trade-off between develop- ment and climate resilience aims through assistance in the process and content of strategy formulation, information 3.2 limitations on demand gathering, modelling, forecasting, scenario building, etc.71 The constraints on the demand for CCS apply to both public and private service providers, but more particularly National security concerns the latter, who operate in a market environment. The con- Some adaptation projects and policies trespass on sensitive straints emphasised here are: national security issues (e.g. mapping, satellite monitoring, GIS, international water sharing and management, flood 1. National priorities control, modification of major dams, etc). Many govern- 2. National security concerns ments may prefer such projects to be firmly under their 3. Project pipeline own control. This would not necessarily rule out private 4. Capacity limitations sector (including external) involvement, but would have 5. Finance implications for contractual modes. In such cases, national National priorities 6 9 McKinsey (2009) While most developing countries are fully aware of the po- 7 0 N&NE China, Maharashtra (India), Mopit (Mali), Georgetown (Guyana), Hull (UK), S. Florida (USA), Samoa & Tanzania. tential impact of CC on their territories, not all have made 7 1 The reports by McKinsey (2009) and ECAWG (2009) are good the necessary adjustments in their domestic policies. Many examples 26 Developing the Market for PPCCS in Water Infrastructure governments may prefer to keep tight control through the ing and analysing data crucial for analysis and investment formation of joint ventures to carry out the work, use of a planning. steering group, participation of public officials or agencies in the work, or frequent and detailed reporting. There are various ways in which PPs can help to create and sustain crucial administrative and technical capacity, e.g. advisory services, training, secondments, peer-group sup- Project pipeline port, twinning, head-hunting, etc. The estimates of adaptation needs, typically at regional or national macro and sector level, have not yet been trans- lated into a project pipeline suitable for financing and im- Finance plementation in the short/medium term. The World Bank72 Adaptation and mitigation projects implemented by pub- observes: lic agencies can draw on a range of development funds, including new adaptation funds created for this specific "...National Adaptation Programs of Action...identify purpose. However, much of the adaptation/mitigation ef- and cost only urgent and immediate adaptation needs, fort will fall to private companies, farmers and households, and countries do not typically incorporate adaptation as well as sub-sovereign agencies who cannot tap into such measures into long-term development plans." funds. For them, commercial financial sources are critical. The translation of strategies into bankable projects will be Public agencies have access to specialised CC funds, of which specific to each sub-sector. An example of a decision tool there are currently over 20.75 Leaving aside those funds spe- for addressing water scarcity is the water cost curve,73 which cialising in forestry or energy, around a dozen funds are avail- develops a sequence of measures/projects to conserve or able for adaptation or mitigation for water, amongst other produce water ranked by their unit cost. This is useful for pri- sectors. Particularly relevant is the funding provided by the oritising different kinds of intervention, prior to carrying out Pilot Program for Climate Resilience (PPCR), sponsored by the full feasibility studies of the projects themselves. Private con- World Bank and other major IFIs, described as: sultancies are invaluable for assisting the creation of a project pipeline, including sector prioritising, technical, economic "The pilot programs and projects implemented under and financial feasibility studies, and impact assessments. the PPCR are country-led, build on National Adapta- tion\programs of Action (NAPAs) and other relevant The shortage of funding for project preparation in water in- country studies and strategies. They are strategically frastructure, identified in the Camdessus Report74 and else- aligned with other donor-funded activities to provide where, has still not been overcome. IFIs should ensure that financing for projects that will produce experience and this early stage of the project cycle is adequately funded. knowledge useful to designing scale-up adaptation One option is to create vehicles (or "platforms", e.g. the EU- measures." (www.cif/ppcr.org). Africa Infrastructure Trust Fund) combining grant and loan funding sources, to help project sponsors to draw on "soft" Specifically, funding is available through PPCR for techni- funds for project preparation. cal assistance to enable developing countries to "integrate climate resilience into national and sectoral development plans". Capacity constraints Administrations and professional cadres in many develop- 7 2 Economics of adaptation to climate change, 2010, p. 1 ing countries are not geared up to implement the adapta- 7 3 Developed by the 2030 Water Resources Group, an international tion and mitigation agenda. In many cases they are actually partnership including the IFC, McKinsey & Co, and seven multina- tional private companies. See McKinsey (2009). losing capacity as experienced people retire or leave public 7 4 Winpenny (2003) service. Another aspect of loss of capacity is that for collect- 7 5 www.climatefundsupdate.org/listing. 27 Private Providers of Climate Change Services A recent report on these CC funds has warned of the risk of source of business could be to offer framework contracts to fragmentation and adding to the administrative burdens on companies or consortia. recipients who seek access to them (Porter et. al. 2008). Such funds can be useful sources of money for pilot projects (e.g. The perception of CCS is also coloured by the fee levels for the PPCR), but at a country level, there is a strong case for this kind of business, relative to those which it has been "mainstreaming" adaptation as much as possible, rather than possible (up to recently) to earn in core markets. In some consigning it to a marginal part of the public investment OECD countries consultants76 have been able to earn much programme, requiring its own procedures and criteria. higher rewards in their domestic (or regional) markets than from international work. The latter has been seen as basically A different kind of finance is required for adaptation/mitiga- unprofitable, but worth doing from adding profile and "halo". tion carried out by commercial entities (including farmers) On-going currency realignments, and strong market growth or other water users. Microfinance is particularly suitable for in certain regions, may alter this view. For the present, ser- improving irrigation efficiency among smallplot farmers. vice contracts invoiced in local currencies, without the back- Certain forms of contract can also be funded by quasi-equity, ing of international agencies, may not elicit sufficient inter- in which rewards depend on the successful achievement of est from PPCCS in some developing country markets. project aims, e.g. performance-related contracts for water leakage reduction. These perceptions are likely to change with the growth of the market, supported by major funding from IFIs and other agencies, and as CC becomes "mainstreamed". As noted in 3.3 supply-side obstacles section 3.1, CC adaptation and mitigation for infrastructure is a multi-billion dollar business. It is also increasingly likely The defining characteristic of PPs is that they are market- that CCS will be sourced from new regions of expertise, driven. If the CCS market is sufficiently attractive, with long with more competitive fee levels: term potential, supply-side obstacles will be overcome. Meanwhile, certain market barriers should be mentioned: "Singapore is becoming a global "Hydro Hub" through a dual approach of governmental support and mobilisa- 1. Uncertainty about the worth and sustainability of CC tion of private sector investments, and is establishing services a research and development base for environment 2. Risks involved in this kind of business and water solutions. Singapore aims to increase value- 3. Fears about the security of intellectual property added contribution from the water sector by over 300 percent in less than 12 years, generating roughly 11,000 professional and skilled jobs by 2015."77 A new, uncertain & marginal market Many, perhaps the majority, of major PPCCS would count China, India and Brazil, to name only three emerging coun- developing countries as a minor part of their total geo- tries, are registering striking expansion of their scientific graphical market. The exceptions would be countries infrastructure, which marks them out as major potential producing oil and certain higher value commodities, and sources of CCS in their own and other regions.78 the larger emerging markets, which have proven resilient to the current international recession, and which promise 7 6 This perspective is from the UK. Service suppliers from other coun- strong growth in the longer term. However, this leaves tries may have different views on this issue. many poorer countries needing CC adaptation which 7 7 McKinsey (2009) p. 124 remain unattractive and uncertain markets, except for 7 8 "In contrast to China, India and Russia, whose research strengths projects funded by the international donor community. tend to be in the physical sciences, chemistry and engineering, Brazil stands out in health, life sciences , agriculture and envi- CCS is a recent phenomenon for many companies. One ronmental research." Financial Times, "Big shift in Bric's scientific approach to making CCS a less marginal and uncertain landscape". Jan 26, 2010. P. 5 28 Developing the Market for PPCCS in Water Infrastructure The balance of risk and reward for efforts to mitigate CC. Some adaptation projects entail sophisticated high-tech products and expertise, and it is Routine political, credit and foreign exchange risks should important for sustainability and capacity building that some not arise for CCS supplied to international agencies and transfer of technology and experience takes place. To keep denominated in a currency of choice, though are matters of a perspective on this issue, it should be recalled that a num- concern for other business. ber of developing and emerging countries are themselves building up scientific and technical capacity in subjects Different forms of contract are appropriate for different relevant to CC, and share an interest in the profitable use of CCSs. A one-off payment, possibly in instalments, may be their intellectual property. suitable for a discrete task such as a study or design, but for a continuing service such as management, operations or advice over some years a performance-based reward may be more suitable. Rewards for the performance of a specific 3.4 Conclusion: developing the market task can be phased over future periods to allow for the This section selects the main messages from this chapter longer-term impact of the service to be fully assessed. about the demand- and supply-side obstacles to PPCCS and outlines some proposals for promoting the market for Certain types of contract are inherently risky, particularly these services. concessions (in which rewards for services, as well as returns on capital, accrue over a lengthy period depending on the 1. Development of the methodology of CC strategy should performance of the project) and contracts for operation, continue to be strongly supported by IFIs and others, technical and management services with a performance- building on impressive advances achieved so far. Its related element. Problems arise in such cases where the aim should be to demonstrate the long term conver- contractors do not have sufficient control over the perfor- gence of "developmental" and "climate change" criteria mance indicator on which their remuneration is based. The as the basis for deriving sufficient no regret projects and solution must lie in the design of contracts that contain an mainstreaming CC resilience. There is now a need for appropriate and realistic share of risk between contractor strategy studies at country and sector level, laying the and client, while maintaining suitable performance incen- foundation for a credible project pipeline (see below). tives for the contractor. 2. Nationally, CC adaptation and mitigation strategies Security risk in NAPAs and NAMAs should be translated into proj- Various parts of the world are becoming less secure for op- ect pipelines in sufficient detail to appeal to potential erations involving staff of all kinds, particularly those from funders. The current shortage of funding for project outside the region concerned (civil unrest, kidnappings, etc). preparation in water infrastructure should be over- This raises the risk premium, and ultimately the cost, of such come by the use of the new dedicated funds for CC involvement. This risk could be reduced, though not elimi- piloting, innovation and scaling up, and by the use nated, by maximising inputs from local firms and affiliates, of blending loan and grant through the various "plat- and consulting local governments at all stages of the work. forms" now available. There is a good case for setting up, e.g. as a component of IFI country programmes, national funds for PPCCS in the BRICs and other coun- Intellectual property fears tries with emerging capacity in CCS. Companies are increasingly concerned about protecting their proprietory products, systems, and goodwill against 3. Improve market information for CCS to assist both pirating and expropriation, especially in the major emerging purchasers and suppliers. A separate register of PPCCS markets. Some developing countries are demanding free could be created (e.g. by the World Bank, coordinating access to relevant intellectual property as a quid pro quo systems of other major IFIs) recognising the diverse ori- 29 Private Providers of Climate Change Services gins of PPs in this topic, and also identifying PPs from ciple, contracts should provide for capacity building developing ocountries. A data base on experience with and the transfer of knowledge and experience, while CCS and the outcomes of CCS projects could be cre- safeguarding the supplier's intellectual property. ated, with "blog" style inputting from all stakeholders. Providing content for this database could be made a 5. The strategic and security concerns inherent in CCS are condition of the award of contract. likely to entail more complex partnerships and contrac- tual relationships. This applies both to suppliers of CCS, 4. Contractual forms appropriate to PPCCS will need to be where public-private partnerships, international agen- reviewed. Between international agencies such as IFIs cies and civil society bodies are increasingly part of the and the PP, greater use of framework contracts could mix, and to the relationships with client authorities, encourage the build up and retention of expertise in where local public bodies will necessarily wish to be the latter. Between PPs and the developing country involved. Such partnerships and relationships between clients contracts need to stipulate an appropriate dissimilar entities will place greater importance on hav- and realistic division of risk, as well as reflecting the ing a clear line of responsibility for performance and contractor's performance, where this is feasible. In prin- delivery. 30 annex 1. defInITIons Risk Management: Any action or portfolio of actions that Uncertainty: A characteristic of a system or decision where aim to reduce the probability and magnitude of unwanted the probabilities that certain states or outcomes have oc- consequences, or manage the consequences of realised risks. curred or may occur is not precisely known. Demand Management: The management of a market Vulnerability: Refers to the magnitude of harm that would or economy by manipulating demand so that it reaches a result from a particular hazardous event. (Climate vulnera- stable relationship with supply. bility defines the extent to which a system is susceptible to, or unable to cope with, adverse effects of climate change, Resilience: The ability of a system to recover from the effect including climate variability and extremes) of an extreme load that may have caused harm. Robustness: The ability of a system to continue to perform satisfactorily under load. Scenario: A coherent, internally consistent and plausible 1 Source: Demand Management definition from encarta.msn.com. All other definitions from Willows and Connell. (2003). Climate description of a possible future state of the world, usually adaptation: Risk, uncertainty and decision-making. UKCIP Technical based on specific assumptions. Report, YUKCIP, Oxford. 31 annex 2. seleCTIve bIblIograPhy Alavian, V. et. al. Water and climate change: understanding Marin, Philippe, et. al. 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