Addressing China's Water Scarcity Recommendations for Selected Water Resource Management Issues Addressing China's Water Scarcity Addressing China's Water Scarcity Recommendations for Selected Water Resource Management Issues Jian Xie with Andres Liebenthal, Jeremy J. Warford, John A. Dixon, Manchuan Wang, Shiji Gao, Shuilin Wang, Yong Jiang, and Zhong Ma © 2009 The International Bank for Reconstruction and Development / The World Bank 1818 H Street NW Washington DC 20433 Telephone: 202-473-1000 Internet: www.worldbank.org E-mail: feedback@worldbank.org All rights reserved. 1 2 3 4 5 11 12 10 09 This volume is a product of the staff of the International Bank for Reconstruction and Development / The World Bank. The findings, interpretations, and conclusions expressed in this volume do not necessarily reflect the views of the Executive Directors of The World Bank or the governments they represent. The World Bank does not guarantee the accuracy of the data included in this work. 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Table of Contents FOREWORD xi ACKNOWLEDGMENTS xiii ABBREVIATIONS xv EXECUTIVE SUMMARY xix 1 Introduction 1 Background 1 Objectives and Scope 2 Conceptual Framework and Approach 3 Outline of the Report 6 2 Water Scarcity in China: Current Situation 9 Spatial and Temporal Disparities 9 Water Pollution 11 Environmental and Social Impacts and Economic Loss 14 External Driving Forces of Water Problems 21 3 Water Resources Management in China: An Overview of Determinant Variables 25 Technical Solutions Are Available and Economically Feasible 25 Government Commitments, Plans, and Implementation 27 Excessive Fragmentation of the Water Management System 29 Policy Failures in Water Management 34 Summary 40 A D D R E S S I N G C H I N A ' S W A T E R S C A R C I T Y v C O N T E N T S 4 Improving Water Governance 41 The Concept of Water Governance 42 The Legal Environment for Water Management 42 Institutional Arrangements for Water Resource Management 47 Transparency and Information Disclosure 52 Public Participation in Water Management 55 Summary 59 5 Deepening Water Rights Administration and Developing Water Markets 61 Theory of Water Rights and International Practice 61 Development of Water Rights in China 67 Water Rights Reform in China: Case Studies and Project Insights 69 Basics of Water Market and Trading 71 International Experience with Water Markets 73 Emerging Experience of Water Trading in China: Case Studies 74 Challenges and Lessons for China 77 Recommendations 80 6 Improving Efficiency and Equity in Water Pricing 83 Water Pricing in China: Policy and Practice 83 Pricing for Environment and Depletion 86 Social Impact and Affordability 88 Protecting the Poor 91 Other Implementation Issues 94 Recommendations 95 7 Protecting Ecosystems in River Basins through Market-Oriented Eco-Compensation Instruments 97 Ecological Compensation Mechanisms in China 98 Concept and Methodology of Payment for Ecosystem Services (PES) 100 The Growing International Experience with PES Systems 103 Potential Use of PES in China 105 Recommendations 109 8 Controlling Water Pollution 111 Seriousness of Water Pollution 111 Causes of Pollution and Key Challenges for Pollution Control 112 International Experience 119 Emerging Institutional and Policy Issues 121 Recommendations 123 9 Preventing Water Pollution Disasters 127 Water Pollution Incidents in China 127 Concept and Framework for Pollution Emergency Prevention and Response 128 International Experience 129 Environmental Emergency Prevention and Response in China 132 Recommendations 135 vi A D D R E S S I N G C H I N A ' S W A T E R S C A R C I T Y C O N T E N T S 10 Summary, Action Plan, and Issues for the Future 137 Summary 137 Action Plan 140 Issues for the Future 140 Concluding Remarks 143 APPENDIX: BACKGROUND PAPERS TO THIS REPORT 145 REFERENCES 147 INDEX 153 BOXES 1.1 The World Bank's Analytical and Advisory Assistance Program-- "Addressing China's Water Scarcity: From Analysis to Action" 3 1.2 Recent Water Resource Management Studies at the World Bank 4 2.1 Water Crisis in Wuxi in 2007 21 3.1 China's 11th FYP for Water Resources Development 28 3.2 Case Study: Evaluating the Implementation of the Water Pollution Prevention and Control Plans for the Huai River Basin 30 3.3 River Basin Agencies in France 33 3.4 Planning Scarce Water Resources Using Evapotranspiration (ET) Quotas 35 3.5 Distorted Economic Incentive for Pollution Discharge 39 4.1 The U.S. Experience in Promoting Law Enforcement 44 4.2 River Basin Management Legislation in the United States: the Case of the Susquehanna River Basin 47 4.3 Three Models of Water Resource Institutions in Europe 48 4.4 The EU Water Framework Directive 49 4.5 Integrated River Basin Management 50 4.6 EU Directive on the Freedom of Access to Information on the Environment 54 5.1 Water Rights in New Mexico 63 5.2 From Formal Rights to Contracts and Claims 63 5.3 Water Allocation Priorities in the Middle East: the Case of Israel 65 5.4 Registering and Monitoring Users: International Comparisons with Groundwater Management 65 5.5 Determining and Defining Environmental Flows 66 5.6 From River to Farm: Water Rights and Allocation in Inner Mongolia Water Resources Allocation Plan for the Yellow River 70 5.7 Defining and Allocating Consumptive Water Rights in the Hai Basin 71 5.8 The Colorado­Big Thompson (C-BT) Project 73 5.9 Idaho Water Supply Bank 74 5.10 Water Markets in the Murray Darling Basin, Australia 75 5.11 Channel Lining and Water Transfer: Experience from Hangjin Irrigation District, Inner Mongolia 76 5.12 Defining, Allocating, and Trading Rights in the Heihe Basin 77 A D D R E S S I N G C H I N A ' S W A T E R S C A R C I T Y vii C O N T E N T S 6.1 The Marginal User Cost of Water in the Hai River Basin 88 6.2 Making Price Increases Acceptable: the Case of Chongqing 93 7.1 Additional Examples of Payments for Ecological and Environmental Services (PES) 104 8.1 Implementation of Water Pollution Control Plans for the Huai River Basin 114 8.2 Public Participation and Compliance with Environmental Standards: the Case of Japan 120 9.1 Water Pollution Incident in the Songhua River 128 9.2 The Sandoz Chemical Spill in Switzerland and Extending down the Rhine 130 9.3 Examples of National Legislative Systems 130 9.4 The Buncefield Incident, U.K. 131 FIGURES 1.1 Water Resource Management 5 2.1 Spatial Distribution of Annual per Capita Water Resources in China 10 2.2 Industrial Wastewater Discharge, 1995­2005 12 2.3 Industrial COD Discharge, 1995­2005 13 2.4 Trends in Water Quality at Monitored River Sections in China, 1991­2005 15 2.5 Trends in Water Quality Changes at Monitored River Sections in North and South China, 1991­2005 16 2.6 Surface Water Quality, 2000 and 2004 16 2.7 Groundwater Depletion by Province 18 2.8 Polluted Water Supplies in China 19 2.9 Rural Households with No Access to Piped Water and Diarrhea Incidence 20 2.10 Mortality Rate for Cancer Associated with Water Pollution in China, 2003 20 3.1 Ministries and Authorities Involved in Water Resource Management 31 3.2 MEP and MWR Water Quality Data for Huai River, 1998­2004 32 3.3 Integrated Economic Values of Water and Water Withdrawals in the Primary, Industrial, and Service Sectors in Eight Regions 38 6.1 Municipal Water Tariffs and Wastewater Charges by City 85 6.2 Share of Water and Wastewater Services Expenses for Average and Low-Income Households 90 7.1 Main Ecological and Environmental Services by Type of Service 101 7.2 The Simple Economics of Payments for Environmental Services 102 7.3 The Flow of Compensation from Beneficiaries to Land Users in a PES System 102 8.1 Water Quality in Chinese Rivers, 1991­2006 112 8.2 Percentage of Sections with Water Quality Grade IV to Grade V+, 2001 and 2005 113 8.3 Provincial Sewage Treatment Investments in Yellow River Watershed 117 8.4 Centralized Sewage Treatment Rates and per Capita GDP in 14 Provinces in Northern China, 2003 118 8.5 Centralized Sewage Treatment Rates by City Size in 2003 118 9.1 Common Elements of an Emergency Response System 128 viii A D D R E S S I N G C H I N A ' S W A T E R S C A R C I T Y C O N T E N T S TABLES 2.1 Spatial Distribution of China's Water Resources and Other Social Variables 11 2.2 Wastewater and Pollutant Discharges, 2000­05 13 2.3 Current Trophic Level of Lakes and Reservoirs in China 15 2.4 Water Supply and Renewable Water Resources in China, 2005 17 2.5 Projected Water Demand 22 3.1 Performance in Meeting the 10th FYPEP Targets for Water Pollution Control 29 3.2 Wastewater Treatment Cost for Major Industrial and Domestic Sectors 37 3.3 Virtual Water Content of Selected Products 38 3.4 Urban Fixed-Asset Investment during the 9th and 10th Five-Year Period 39 6.1 Water Tariffs in Beijing, 1981­2007 85 7.1 Summary of EES, Service Providers, and Service Beneficiaries in the Lashihai Case Study, China 106 7.2 Suggested Increase in Lijiang Old Town Visitors' Fee to Fund PES Scheme 107 7.3 Suggested Entrance Fees to Lashihai Nature Reserve to Fund PES Scheme 108 8.1 Planned Water-Related Investment Shares between the Central Government and Local Sources in Wei River Basin 116 8.2 Water Quality of Qixinghe Natural Reserve, 2007 117 10.1 Recommended Action Plan 141 A D D R E S S I N G C H I N A ' S W A T E R S C A R C I T Y ix Foreword This report synthesizes the main findings and rec- We are particularly pleased with the partici- ommendations from over 30 technical reports, pation of various Chinese and international insti- case studies, and background papers prepared tutions in the thematic studies of this AAA. We for the World Bank's Analytical and Advisory believe their participation has helped build a con- Assistance (AAA) program entitled "Addressing sensus around strategically important water issues China's Water Scarcity: From Analysis to Action." and a common understanding of the priority ac- Each of the papers responded to a specific govern- tions needed to address them. ment request. Most were prepared as partnerships Overall, China faces a major challenge in man- among Bank staff, international consultants, and aging its scarce water resources to sustain economic Chinese research institutions. growth in the years ahead. This is a daunting task, The objective of this report is to provide an but the analysis of past experience in China and overview of China's water scarcity situation, elsewhere provides useful lessons on how to pro- assess the policy and institutional requirements ceed. China's 11th Five-Year Plan has already pre- for addressing it, and recommend key areas for pared the ground by moving strategically toward strengthening and reform. In light of the mag- increased reliance on market-based approaches, nitude and complexity of water issues in China, supported by the twin pillars of integrated water and the availability of earlier studies in this area resource management and rigorous pollution con- supported by the Bank and others, the report trol. The report's recommendations, summarized does not attempt to be comprehensive. Instead, in the plan of action, identify the key measures it focuses on selected areas where more analysis needed to effectively move forward in this direc- was needed to deepen the understanding of pol- tion. We trust it will assist the government in accel- erating its efforts to address China's water scarcity. icy and institutional issues, and to develop spe- cific actions to address them. The issues covered James Adams in the report are water governance, water rights, Vice President water pricing and affordability, watershed eco- East Asia and Pacific Region logical compensation, water pollution control, The World Bank and emergency prevention. A D D R E S S I N G C H I N A ' S W A T E R S C A R C I T Y xi Acknowledgments This report synthesizes the main findings and background study reports, and World Bank pol- recommendations of the World Bank's Ana- icy notes prepared by a team of Chinese institutes lytical and Advisory Assistance (AAA), entitled and international groups commissioned by the "Addressing China's Water Scarcity: From World Bank. Contributors to these reports also Analysis to Action." The AAA was launched by included Ariel Dinar, Geoffrey Spencer, Greg the World Bank in fiscal 2006 to assist the Browder, Hua Wang, Jostein Nygard, Liping Chinese government in developing, adopting, Jiang, Qun Li, Shenhua Wang, Thomas Zearley, and implementing policy and institutional and Ximing Zhang of the World Bank; Linjun reforms needed to more effectively address Zhou, Qi Dong, Wenchao Jiang, and Zhi Zhang China's water problems. of Chongqing City; Shiqiu Zhang, Liangchun The AAA benefits from the participation and Deng, Peng Yue, and Huishan Cui of Peking support of various Chinese and international in- University; Hao Wang, Hong Gan, and Lin stitutions and individuals as well as the U.K. De- Wang of the MWR Institute of Water Re- partment of International Development (DFID). sources; Kunimasa Nishigaya of ALMEC Japan; DFID provided both technical and financial sup- MWR Development Research Center; Alessan- port to the AAA. dra Sgobbi, Anil Markandya, Alessandra Goria, The AAA was developed under the general and Carlo Giupponi of Fondazione Eni Enrico guidance of Christian Delvoie, David Dollar, Mattei Servizi Italy (FEEM); Zhi Lu, Teresa Serra, Magda Lovei, Rahul Raturi, Bert Guangchun Lei, and Yi He of Conservation Hofman, Elaine Sun, Ede Jorge Ijjasz-Vasquez, International China Program (CI); Shuang and Susan Shen at the World Bank. It also re- Zhang of the Nature Conservancy China Pro- ceived valuable guidance from Mr. Li Jiange. gram (TNC); Haixia Zheng and Lubiao Zhang This report was prepared by Jian Xie, with of China Academy of Agriculture Sciences Andres Liebenthal, Jeremy Warford, John A. (CAAS); Liqin Mu of Lijiang City Policy Dixon, Manchuan Wang, Shiji Gao, Shuilin Research Office; Zhong Ma, Guojun Song, Wang, Yong Jiang, and Zhong Ma. Douglas Zhuoni Wang, and Hongfeng Chen of Renmin Olson, Geoffrey Spencer, Jie Feng, Junkuo University; Yufei Pu, Xueying Zhang, Min Liu, Zhang, Liping Jiang, Roger Calow, Tracy Hart, Rui Zhao, and Lei Sheng of the State Informa- and Xuejun Wang also provided valuable inputs. tion Center; John Warburton, Susanna Smets, The report is based on a series of case studies, and Leo Horn of DFID China; Roger Calow, A D D R E S S I N G C H I N A ' S W A T E R S C A R C I T Y xiii A C K N O W L E D G M E N T S Robert Speed, and Dajun Shen of the Australian- and Susanna Smets (DFID-China), who served China Water Entitlements and Trading Project; as peer reviewers, as well as Jan Bojo, David Dol- as well as Junkuo Zhang, Jie Feng, Jennifer Cole- lar, and Lee Travers during the World Bank man, Yuyang Gong, Hongjun Zhang, Yi Wang, internal review. It also benefited from discus- Weihua Zeng, Guozhi Liu, Gangyan Zhou, Lili sions with participants of the technical review Yan, Y.S. Cao, Satoshi Murakuni, Honglin Li, and consultation workshops held in Beijing in Jingjie Chu, Lian Jiang, and the UK National November 2006 and November 2007, in Chong- Chemical Emergency Center. Robert Livernash qing City in November 2007, and in Lijiang provided editorial assistance. Yan Wang and City in March and November 2007, as well as Minhnguyet Le Khorami provided administra- an international workshop in Beijing in Feb- tive assistance to the AAA. Circle Graphics han- ruary 2008. In these workshops, a draft of this dled the design and typesetting. Ke Yuan and report or its chapters or background reports were Sukanya Venkataraman also assisted in the pub- reviewed and discussed. lication process. The participation, support, and guidance This report benefited from the written com- received during the preparation of this report are ments of Vahid Alavian, Julia Bucknall, Mei Xie, highly appreciated. xiv A D D R E S S I N G C H I N A ' S W A T E R S C A R C I T Y Abbreviations AAA World Bank's Analytical and Advisory Assistance ADB Asian Development Bank AQSIQ Administration of Quality Supervision, Inspection and Quarantine, China BAT Best available technology BOD Biochemical oxygen demand CAEP Chinese Academy of Environmental Planning C-BT Colorado­Big Thompson Project CCICED China Council for International Cooperation on Environment and Development CIWRHR China Institute of Water Resources and Hydropower Research COD Chemical oxygen demand COMAH Control of major accident hazards CVM Contingent valuation method DFID Department of International Development, United Kingdom ECMs Ecological compensation mechanisms EIA Environmental impact assessment EPBs Environmental Protection Bureaus, China ESCAP Economic and Social Commission for Asia and the Pacific, UN ET Evapotranspiration EVW Economic value of water FAO Food and Agriculture Organization, UN FECF Forest Ecosystem Compensation Fund FEEM Fondazione Eni Enrico Mattei FYP Five-Year Plan, China FYPEP Five-Year Plan for Environmental Protection, China FYPNWRD Five-Year Plan of National Water Resources Development, China GDP Gross domestic product GEF Global Environment Facility GHG Greenhouse gas GoC Government of China HAZMAT Hazardous materials A D D R E S S I N G C H I N A ' S W A T E R S C A R C I T Y xv A B B R E V I A T I O N S HRN Huai River basin, China IBT Increasing block tariff IDWR Idaho Department of Water Resources, U.S. IRBM Integrated river basin management IWQI Integrated water quality index LTO License to operate m3 Cubic meter MAPP Major accident prevention policy MDC Marginal delivery cost MEC Marginal environmental (or external) cost MEP Ministry of Environmental Protection (formerly SEPA), China MHURC Ministry of Housing and Urban and Rural Construction (formerly MOC), China MLR Ministry of Land and Resources, China MOA Ministry of Agriculture, China MOC Ministry of Construction (now MHURC), China MOC Marginal opportunity cost MOF Ministry of Finance, China MOH Ministry of Health, China MSDS Material safety data sheet MUC Marginal user/depletion cost MWR Ministry of Water Resources, China NBS National Bureau of Statistics, China NCEC National Chemical Emergency Centre, UK NCWCD Northern Colorado Water Conservancy District, U.S. NDRC National Development Reform Commission, China NFPP National Forest Protection Project NGO Nongovernmental organization NH3-N Ammonia nitrogen NIWA Nanjing Institute for Water Resources and Hydrology NPC National People's Congress, China O&M Operations and maintenance OECD Organisation for Economic Co-operation and Development PES Payment for ecosystem services POPs Persistent organic pollutants PPP Public-Private Partnership PSB Public Security Bureau, China RBMC River Basin Management Commission RMB China yuan renminbi RMP Risk management plan SAWS State Administration for Work Safety, China SCCG The State Council of the Chinese Government SEA Strategic Environmental Assessment SEPA State Environmental Protection Administration (now MEP) SLCP Sloping Land Conversion Program xvi A D D R E S S I N G C H I N A ' S W A T E R S C A R C I T Y A B B R E V I A T I O N S SO2 Sulphur dioxide TP Total Phosphorus TREM Transport Emergency TVIE Township and village industrial enterprise UNDP United Nations Development Programme UNEP United Nations Environment Programme WAB Water Affairs Bureau WB World Bank WHO World Health Organization WPPCP Water Pollution Prevention and Control Plans WPPCL Water Pollution Prevention and Control Law WRI World Resources Institute WTP Willingness-to-pay WUAs Water user associations A D D R E S S I N G C H I N A ' S W A T E R S C A R C I T Y xvii Executive Summary For years, water shortages, water pollution, and flooding have constrained growth and affected public health and welfare in many parts of China. North- ern China is already a water-scarce region, and China as a whole will soon join the group of water-stressed countries. The combined impact of the widening gap between water demand and limited supplies and the deterio- rating water quality caused by widespread pollution suggests that a severe water scarcity crisis is emerging. China's leadership is aware of the worsening water situation, and is com- mitted to transforming China into a water-saving society. The 11th Five- Year Plan (2006­10) sets a number of policy goals and priorities for water resource management, such as (a) adopting a more unified or better coordi- nated management system; (b) shifting from supply-side to demand-side management; (c) integrating river basin management with regional manage- ment; and (d) establishing a preliminary system of water rights trading. To date, however, the increasing scarcity of water resources has not been effectively managed. Many national and local water resource management and water pollution control plans have not been fully implemented and many targets, including water pollution investment targets, have not been achieved. The economic costs of water pollution and scarcity are high. Water pollution poses a serious threat to public health and causes major economic and envi- ronmental losses, estimated by the Chinese government at the amount equiv- alent to about 1.7 percent of GDP or more in 2004. OBJECTIVES AND SCOPE OF THIS REPORT This report reviews China's water scarcity situation, assesses the policy and insti- tutional requirements for addressing it, and recommends key areas for strength- ening and reform. It is a synthesis of the main findings and recommendations from analytical work and case studies prepared under the World Bank Analy- tical and Advisory Assistance (AAA) program entitled "Addressing China's A D D R E S S I N G C H I N A ' S W A T E R S C A R C I T Y xix E X E C U T I V E S U M M A R Y Water Scarcity: From Analysis to Action." These mate, China is subject to highly variable rainfall studies focus on several strategically important that contributes to frequent droughts and floods, thematic areas for China where additional research often simultaneously in different regions. While was needed, as identified by the research team and precipitation generally declines from the south- advisory group based on a review of pressing issues. eastern coast to the northwestern highlands, it These areas are governance, water rights, pricing, varies greatly from year to year and from season ecological compensation, pollution control, and to season. In the Hai and Huai basins, for exam- emergency response. ple, river flows fall to 70 percent of their averages The approach has been to evaluate Chinese one year in four and to 50 percent one year in and international experience to identify policy twenty. Dry years tend to come in succession, and institutional factors that have proven effec- accentuating the water problem. tive in promoting the adoption of water conser- vation and pollution reduction technologies. The China's Water Productivity Is Low research was based on literature reviews, qualita- China's water productivity of $3.60/m3 is low in tive and quantitative policy analyses, household comparison with the average of middle-income surveys, field trips, and case studies to develop ($4.80/m3) and high-income ($35.80/m3) coun- feasible recommendations for a plan of action tries. This gap is largely due to differences in based on realities on the ground. the sectoral structure and efficiency of water consumption. CHINA'S EMERGING WATER CRISIS Water productivity in agriculture, which accounted for 65 percent of total water with- China's water resources are scarce and unevenly drawals, is the lowest of all sectors, due to exten- distributed. China's renewable water resources sive waste in irrigation systems, and suboptimal amount to about 2,841 km3/year, the sixth largest allocation among crops and between different in the world. Per capita availability, however-- parts of the same river basin. Only about 45 per- estimated at 2,156 m3/year in 2007--is only cent of water withdrawals for agriculture are one-fourth of the world average of 8,549 m3/year actually used by farmers on their crops. In indus- and among the lowest for a major country. While try, which accounts for 24 percent of total water China as a whole is facing serious water stress, its withdrawals, the water recycling level is 40 per- problems are made more severe by the fact that cent on average compared to 75­85 percent in its water resources are unevenly distributed, both developed countries. spatially and temporally. A major contributor to China's low water pro- China's water resources availability varies ductivity is its very inefficient water allocation greatly over space. The South, with average system. A recent study of the Hai basin has found rainfall of over 2,000 mm/year, is more water- that water productivity, as reflected by the eco- abundant than the North, where rainfall only nomic value of water (EVW) in different uses, averages about 200­400 mm/year. Per capita ranges from 1.0 yuan/m3 in paddy irrigation to water availability in northern China is only 12.3 yuan/m3 in vegetable fields, 21.3 yuan/m3 757 m3/year, less than one-fourth that in south- in manufacturing, and 33.7 yuan/m3 in the ser- ern China, one-eleventh of the world average, vices sector. The magnitude of these differences and less than the threshold level of 1,000 m3/year in an extremely water-short region is indicative commonly defined as "water scarcity." of a serious lack of market consciousness in the The temporal pattern of precipitation fur- water allocation process. ther intensifies the uneven spatial distribution of China's water scarcity is aggravated by ex- water resources. With a strong monsoonal cli- tensive pollution. Over the past three decades, xx A D D R E S S I N G C H I N A ' S W A T E R S C A R C I T Y E X E C U T I V E S U M M A R Y despite great efforts to control it, water pollu- Water Scarcity and Pollution Entail tion has increased, spreading from the coast to Substantial Costs inland areas and from the surface to under- The most important costs relate to the health ground water resources. Total wastewater dis- risks associated with polluted drinking water charges have steadily risen to 53.7 billion tons sources. Over 300 million people living in rural in 2006. Domestic wastewater discharges have China have no access to safe drinking water. The surpassed industrial discharges since 2000, and economic cost of disease and premature deaths have become the most important pollution associated with the excessive incidence of diar- source. It was not until 2007 that the rising rhea and cancer in rural China has been esti- trend of water pollution discharges began to mated, based on 2003 data, at 66.2 billion yuan, show a sign of reverse, as total 2007 COD dis- or 0.49 percent of GDP. charges were reported to be 3.14 percent less Water scarcity is also undermining the ca- than in 2006. However, the water pollution sit- pacity of water bodies to fulfill their ecologi- uation is still very serious. A major contributing cal functions. Due to excessive withdrawals, even factor is that only 56 percent of municipal a minimum of environmental and ecological sewage is treated in some form, versus 92 per- flows cannot be ensured for some major rivers cent of industrial discharges. in North China. To compensate for the deficit Water pollution incidents also represent a of surface water, North China has increasingly serious threat. They overwhelm the already frag- relied on groundwater withdrawals, often in ile water environment, contaminate downstream excess of sustainable levels. Such overexploitation drinking water for millions of people, and severely has resulted in the rapid depletion of ground- threaten public health and the quality of life. water reservoirs, leading to the lowering of water As a result of continuing pollution, the water tables, the drying up of lakes and wetlands, and quality of most of China's water bodies has been land subsidence in many cities. extensively degraded. In 2004, of all 745 moni- The World Bank's Cost of Pollution in China tored river sections, 28 percent fell below the study estimated that the water crisis is already Grade V standard (that is, unsafe for any use), costing China about 2.3 percent of GDP, of and only 32 percent met Grade IV­V standards which 1.3 percent is attributable to the scarcity (that is, safe for industrial and irrigation uses of water, and 1 percent to the direct impacts of only). Of 27 major monitored lakes and reser- water pollution. These estimates only represent voirs, fully 48 percent fell below Grade V stan- the tip of the iceberg. They do not include the dards, 23 percent met Grade IV­V standards, cost of impacts for which estimates are unavail- and only 29 percent met Grade II­III standards able, such as the ecological impacts associated (safe for human consumption after treatment). with eutrophication and the drying up of lakes, The extent of pollution aggravates the scarcity wetlands, and rivers, and the amenity loss from of water. At present, approximately 25 km3 of the extensive pollution in most of China's water polluted water are held back from consumption, bodies. Thus, total costs are undoubtedly higher. contributing to unmet demand and ground- water depletion. As much as 47 km3 of water that A PLAN OF ACTION FOR does not meet quality standards are nevertheless ADDRESSING WATER SCARCITY supplied to households, industry, and agricul- ture, with the attendant damage costs. A further As outlined above, the major factors underlying 24 km3 of water beyond rechargeable quantities the emerging water crisis point to the need for are extracted from the ground, which results in China to reform and strengthen its water re- groundwater depletion. source management framework. In line with the A D D R E S S I N G C H I N A ' S W A T E R S C A R C I T Y xxi E X E C U T I V E S U M M A R Y broad strategy of developing a market economy, Lack of mechanisms and procedures the focus of the reform needs to be on clarifying Existing laws and regulations are usually focused the role of and relationships between govern- on principles and lack mechanisms and proce- ment, markets, and society; improving the effi- dures for enforcement, such as supervision, mon- ciency and effectiveness of water management itoring, reporting, evaluation, and penalties for institutions; and fully embracing and using noncompliance. market-based instruments as much as possible. On this basis, the following thematic areas Incomplete legal system were selected for attention: (a) improving water The coverage of the existing legal framework is governance; (b) strengthening water rights admin- still limited. For example, the Water Pollution istration and creating water markets; (c) improv- Prevention and Control Law requires that the ing efficiency and equity in water supply pricing; state establish and improve the compensation (d) protecting river basin ecosystems through mechanism for ecological protection of the water market-oriented eco-compensation instruments; environment, but there are no national laws or (e) controlling water pollution; and (f) improving regulations to support it. Neither is there a law emergency response and preventing pollution dis- on water rights and trading. asters. The main findings and recommendations are summarized below. The combined set of rec- Ambiguities and conflicts between ommendations, summarized in a table in the final legal provisions chapter of this report, represents an action plan for Some laws contain ambiguities. For example, the addressing China's water scarcity. Water Law does not clearly define the authority of local governments and river basin manage- ment commissions (RBMCs). Such ambiguity IMPROVING WATER GOVERNANCE in the provisions causes a vacuum of authority To address the growing complexity of water and weakens the effectiveness of the legal system. resource management, China is moving from a traditional system with the government as the Existing Institutions Are Fragmented main decision-making entity toward a modern and Uncoordinated approach to water governance that relies on (a) a sound legal framework, (b) effective institutional China's water resource management system is arrangements, (c) transparent decision making characterized by extensive fragmentation, both and information disclosure, and (d) active pub- vertical and horizontal. Horizontally, at every lic participation. level of government several institutions are in- volved in water management, with frequent overlaps and conflicts of responsibilities. This An Effective Water Governance unwieldy system has increased the administra- System Has to Be Built on a tive cost of coordination among different insti- Sound Legal Basis tutions and undermined the effectiveness of China has made much recent progress in im- water management. proving its legal framework. Even so, the effec- The water management system is also verti- tiveness of the legal framework for water resource cally fragmented. It is mainly built upon the management is unsatisfactory, as evidenced by administrative boundaries of different levels of the growing seriousness of water-related problems, government rather than at the river basin level. including rampant water pollution nationwide. Its Each level of government has its own focal points main weaknesses and areas for improvement are: and priorities. This makes the management of xxii A D D R E S S I N G C H I N A ' S W A T E R S C A R C I T Y E X E C U T I V E S U M M A R Y transboundary rivers--most of China's rivers-- programs; and (d) stakeholder coordination. But very difficult. actual public participation is still very low, which China has established RBMCs for its seven is attributable to limited awareness by govern- large rivers as subordinate organizations of the ment agencies and the general public regarding Ministry of Water Resources. However, these the potential for public participation in water commissions have limited power and have no management, lax legal requirements and super- representatives from the affected local govern- vision, and legal barriers to the registration and ments in the basin. As a result, it is difficult for participation of NGOs, which should be expected the RBMCs to coordinate with the provinces/ to play a very active role. municipal administrations and other stake- holders in river basin management. Recommended Actions Amend and improve existing water-related Transparency Is Limited laws and regulations Transparency means that the public can have Given the vagueness and even contradictions of better access to information on water resources, existing laws and regulations, the NPC should policies, and institutions on water-related issues review and revise existing water-related laws, with and water-related behaviors of various stake- particular attention to the enforcement issue and holders. The Chinese government has been aware integrated water management. of the importance of transparency and made efforts to increase the openness of public admin- Improve law enforcement istration, but as of now, information on water Improving law enforcement is the number one quality and quantity, water users, and polluters priority to make the legal framework useful and remains inaccessible to the public and to govern- effective. A series of actions need to be taken: ment agencies outside of the sector. The legal definition of what information Implementation procedures: Detailed imple- should be disclosed to the public is not clear, so mentation procedures should be stipulated in that many organizations or enterprises refuse to all water-related laws and regulations to make disclose water-related information in the guise existing laws and regulations operational and of protecting state or business secrets. Finally, enforceable. the citizens' right of access to information is not Strengthened supervision and inspection: Super- emphasized in the laws, so that although several vision and inspection by the national and lo- regulations on information disclosure have been cal congresses and administrative branches promulgated, they are not yet implemented well should be strengthened. because of weak supervision by the government Public participation: The public should be em- and the public. powered to help monitor and track down vio- lators and supervise local agencies responsible for law enforcement, and public-private part- Public Participation Is Very Low nerships should be encouraged by laws and Public participation is helpful to tailor policy to regulations. local situations, to maximize the social welfare and utility of resources use, and to protect vulner- Establish a national-level organization able groups. Major forms of public participation for integrated water management in water management in China are (a) public One option is to establish a State Water Re- opinion surveys; (b) public hearings; (c) experts' sources Commission as a coordinating and steer- assessment/reviews of development plans and ing organization on water-related affairs across A D D R E S S I N G C H I N A ' S W A T E R S C A R C I T Y xxiii E X E C U T I V E S U M M A R Y the country at the highest level of government. sion making, and (3) right to challenge water- This commission will serve as a high-level water related decisions by the government. policy-making body, much like the newly estab- lished State Energy Commission headed by the STRENGTHENING WATER RIGHTS premier. Another option would be to merge major ADMINISTRATION AND CREATING water-related duties currently under different gov- WATER MARKETS ernment agencies (namely MWR, MEP, MOA, MHURC, and MLR) and establish a new super The allocation of water rights and the establish- ministry to implement unified management of ment of water markets can improve the eco- water quantity and quality, surface water and nomic efficiency of water use in China and help groundwater, water resource conservation and resolve water shortages. China has been estab- use, and water environmental protection. lishing a water rights administration since 2000, and has made remarkable progress in some pilot- Convert RBMCs into ing areas. A preliminary framework of laws, reg- intersectoral commissions ulations, and institutions on water rights has The existing RBMCs for the seven major rivers been developed at the national level. Additional should be converted into true intersectoral and actions are needed to deepen water rights admin- intergovernmental "commissions" with repre- istration and develop water markets. sentatives from relevant line agencies and local governments, instead of being subordinates of Water Allocations Exceed MWR. In the long run, RBMCs should be made Sustainable Levels independent of MWR and accountable to the State Council directly. At present, there is a general lack of conside- ration and provision for environmental water Make public information disclosure a requirements, with the result that for many sur- compulsory obligation of the government, face water bodies and underground aquifers, companies, and relevant entities water withdrawals are far in excess of sustain- Public information disclosure requirements able levels. In some instances, water has been should be incorporated into all major develop- set aside for the environment, but these vol- ment strategies, policies, regulations, and opera- umes are not allocated on a sound scientific tional procedures. The information must be basis. This poses a threat to the long-term accessible for the public and concerned groups/ health and sustainability of the water resources communities and be made available through in question. multiple channels. Build a strong legal foundation Water Rights Are Still Unclear for public participation and Unenforceable The rights of public participation should be Establishing clear, enforceable rights is an essen- emphasized in relevant laws to empower the pub- tial first step toward the creation of water mar- lic. In such laws as the Water Law and the Envi- kets. At present it is not always clear who holds ronmental Protection Law, articles should be the right and what the right entitles the holder added to explicitly grant rights of participation to. There are few rules in place that protect in water management to the public. Three rights against changes to water rights and no clear need to be clearly defined: (1) the right of access provisions dealing with what happens when a to information, (2) right of participation in deci- right is adversely affected. xxiv A D D R E S S I N G C H I N A ' S W A T E R S C A R C I T Y E X E C U T I V E S U M M A R Y Water Rights and Allocations Recommended Actions Need to Be Based on the Use water resources allocation plans Evapotranspiration Approach as the basis for water rights Past water management in China, based on Water resources allocation plans should be water abstraction only, has encountered only developed--first at the basin level, then at the limited success because the saved water was used regional level--as the basis for allocating water to irrigate more land; that is, more water was within a basin. Plans should set a cap for total consumed and less water returned to the surface water abstraction permits in the plan area and and underground water systems. Recent advance- clearly identify the water available for abstrac- ments in remote sensing and geographic infor- tion, the amounts of water consumed, and the mation system (GIS) technologies have made it amounts that must be returned to the local water feasible to manage water resources in terms of system. the amounts of water actually consumed through evapotranspiration (ET). The portion consumed Recognize ecological limits through ET is the consumptive use that is lost of water resources and not available for users downstream. In con- Water resource allocation plans should recognize trast, the portion that returns to the surface or the requirements of the in-stream environment underground water systems is still available for for water. Water should be set aside for this pur- other users downstream. ET technology thus pose, recognizing the importance of different makes it feasible for China to adopt a more sci- parts of the flow regime for different parts of the entific approach for its water rights allocation ecosystem. and administration. Water withdrawal permits need to be clearly specified and implemented Water Rights Administration and Trading Need to Be Strengthened Permits must be specified in volumetric terms and need to be linked to the initial allocation of China still has a distance to go in establishing a water established in the water resource plan. well-functioning water rights administration The total amount of water withdrawal permits system. First, water rights and water rights trad- should be limited to the maximum allowable ing represent a relatively new concept for water amount based on sustainable water use with suf- resources management in China, and require ficient consideration of environmental uses and reforms in institutions and policies that have new water uses. been traditionally based on "command-and- control" regulation. Second, implementing trad- Strengthen water rights administration and able water rights requires improvements in the provide certainty and security for holders monitoring and information system for decision of water rights making and the enforcement of regulations. Water rights administration needs to be strength- Third, there is no precedent for implementing ened, with the conditions, procedures, rights, tradable water rights in a large developing coun- and obligations for water withdrawal, consump- try like China, with its unique physical, eco- tion, and return flows clearly specified. The nomic, and social background. It is a challenge, process for granting water rights, and in partic- but international experience and pilot projects ular for allocating water on an annual basis, support tradable water rights as a promising should be clear and consistent. This will provide approach for China to pursue. certainty and security for holders of water rights. A D D R E S S I N G C H I N A ' S W A T E R S C A R C I T Y xxv E X E C U T I V E S U M M A R Y Adequate monitoring, reporting, and enforce- Water Pricing Can Be an Effective ment are part of effective water rights adminis- Means to Reduce Demand for and tration. Public participation, such as group Improve the Economic Efficiency participation through water user associations in of Water Use rural areas, is critical to the success of water The central and local governments in China rights management. have recognized this, and allowed water tariffs Where feasible, an ET-based water to gradually rise since the early 1990s. Even resource management should be promoted so, repeated studies have shown that water The ET approach focuses on actual water con- and sewerage prices in China are still below sumption and hence encourages more efficient the requirements for financial cost recovery use of water, increased return flows, and the and take little account of environmental and adoption of more water-saving technologies. depletion costs. This has made it difficult for The ET approach can thus help improve the the water and sewerage utilities to adequately sustainability of the water resource system in maintain their infrastructure, expand their ser- both agricultural and urban areas. Governments vice to outlying and poorer areas, and operate should promote the ET-based water resource their infrastructure in a manner that meets management, especially in water-stressed areas. environmental standards. Thus, the first step toward setting prices right should be to at Adopt a step-wise approach least meet the utilities' financial performance to water trading requirements. The sale or lease of water rights can be an effec- tive approach for raising the productivity of To Promote Efficient Water Use, and returns to water within and between sec- Water Prices Also Need to Reflect tors. But before trading starts, the entitlements the Marginal Opportunity Cost of users under different levels of resource avail- of Supply ability must be clearly defined. Once all stake- holders have gained experience in managing, Prices based on marginal opportunity cost monitoring, and observing rights, trading options (MOC)--which includes production, environ- can be explored, often starting with temporary mental, and depletion costs--would signal the trading in well-defined systems where infra- full scarcity value of water to the consumer and structure for delivery and monitoring is already induce the appropriate adoption of water-saving in place. and efficiency technologies. Current tariff regu- lations in China already allow all of the com- ponents of marginal opportunity cost to be IMPROVING EFFICIENCY AND recognized and signaled to the consumer. Pro- EQUITY IN WATER SUPPLY PRICING duction costs are contained in the water devel- Traditionally, China's policies have focused on opment fee, environmental and depletion costs meeting the demand for water by increasing the in the water resource fee, and waste disposal in supply rather than managing demand. An impor- the sewerage fee. But local authorities have been tant factor contributing to the current water- slow to fully implement the necessary tariff scarcity crisis is the lack of effective water resource increases allowed by regulation, mainly as a policies that focus on demand management and result of concerns about the impact on the low- encourage efficient water use. income population. xxvi A D D R E S S I N G C H I N A ' S W A T E R S C A R C I T Y E X E C U T I V E S U M M A R Y Equitable and Efficient Tariff Reform Raise water tariffs to fully reflect Is Feasible its scarcity value Although often stemming from concern for the While the first step in price reform must be to well-being of poorer households, low water tar- fully achieve financial cost recovery, pricing of iffs have perverse consequences for income dis- water and sewerage should follow the MOC tribution. Results from household surveys show approach and reflect the incremental costs of that the social impact of low water pricing on the water and its disposal, including the costs of poor is negative; they receive little or no benefit environmental damage in production and con- from the water price subsidies, but pay a high sumption and the opportunity costs of deple- price for poor water supply services in terms of tion. A system should be devised in which MOC health impacts and the high cost of alterna- estimates can be integrated into regional and tives. On the other hand, tariff reforms can be national water management and economic plan- designed to at least partially protect the poor ning systems so as to enhance the market con- from the impact of higher rates. Provided the sciousness of the allocation process while the increased revenues are used to extend the service trading system is being developed. infrastructure and improve the quality of service, Address the social impact of tariff increases a win-win solution can result. In China and other countries, three such approaches have been used: The increasing block tariff approach, especially a (1) increasing block tariffs (IBT), as already two-tier tariff structure, is recommended for resi- enshrined in Chinese regulations; (2) income dential consumers. The first block should follow support; and (3) price waivers for the poorest the WHO-recommended 40 liters per capita per households. day (i.e., about 5 m3 per month for a household of four), with the second block gradually increas- ing to full MOC. Other pricing or income sup- Recommended Actions port methods for the poor are encouraged to be Given the low efficiency of and high demand for adopted based on local political and economic cir- water use, China should aggressively use pricing cumstances. Water tariffs for commerce and policy to manage water demand. This means that industry should cover the full MOC. water tariffs, including wastewater treatment Convert the water resource fee to a tax fees, have to continue increasing in the years to come. For pricing reform to be successful, the fol- The water resource fee, which is currently re- lowing recommendations are important. tained by local governments, provides little incen- tive for sustainable water resource development Adopt a step-wise approach basin-wide or at the national level. The fee should to tariff reform be converted into a tax, the proceeds of which will The public should be fully informed of the prob- be transferred to and appropriated by the central lems of low service quality, indirect costs, ineffi- government. Such a conversion will provide a ciency caused by underpricing or subsidization financial basis for the central government to facil- of water, and the importance of water tariff itate more efficient water resource planning based increases. Public hearings, consumer education, on national priorities for water resource develop- and transparency are necessary to overcome ment and management. The funds of local water resistance to price reform, especially when exist- resource management programs should be de- ing service quality is poor. linked from the revenue of water resource fees and A D D R E S S I N G C H I N A ' S W A T E R S C A R C I T Y xxvii E X E C U T I V E S U M M A R Y directly provided by central and local govern- study of the Lashihai Nature Reserve in Lijiang ments through their annual budgets. City, Yunnan Province. While PES schemes are not a universal panacea, nor always easy to intro- duce, they should be treated as one step forward PROTECTING RIVER BASIN to enhance and complement existing efforts of ECOSYSTEMS THROUGH MARKET- ecosystem conservation in China. ORIENTED ECO-COMPENSATION INSTRUMENTS Addressing water scarcity requires protecting the Recommended Actions sources of the water, especially the ecosystems in Continue to expand the application of ECM the upper reaches of river basins, such as forests, wetlands, and even agricultural lands. Both cen- Given the urgency of protecting ecosystems in tral and local governments are increasingly inter- the upper reaches of river basins for water sup- ested in the use of government transfers from ply, China should continue to expand its ECM public funds--under the name of ECMs--to programs, especially when the ecosystem service protect ecosystems in the upper reaches of river providers and beneficiaries are distant from one basins. But the current approach relies on pub- another and their links cannot be explicitly lic financial transfers (mainly from the central defined, or where there are obvious poverty alle- government), and lacks a direct link between viation benefits. ecosystem service providers and ecosystem ser- vice beneficiaries. This raises some doubts about Promote the piloting of PES the long-term financial sustainability and effi- To improve the efficiency and effectiveness of ciency of ECMs. ecological compensation and reduce the finan- cial burden on governments, China should vig- Payment for Ecosystem Services orously pilot more market-oriented approaches (PES) Offer a More Market-Oriented for ecological compensation, such as PES. It Approach has much appeal in China and should be pilot- ed and promoted, beginning with some small In a PES system, a market for environmental ser- watersheds. vices is created whereby money is collected or reallocated from the beneficiaries who use envi- ronmental services (water consumers) and pay- CONTROLLING WATER POLLUTION ments are made directly to those who provide these services (such as watershed land managers). The government has acknowledged the serious- PES offers a more market-oriented and self- ness of water pollution and placed it at the top financing alternative to the government-funded of pollution problems facing the country. Since ECMs currently used in China. the mid-1990s, COD reduction has been one of two major nationwide total emission control targets (the other is SO2). Even so, total COD PES Has Been Tested in Other emissions have increased since the early 1990s, Countries and Has Great largely due to an increase in emissions of un- Potential in China treated municipal wastewater. In spite of over a PES has been developed and implemented in decade of effort, it was not until 2007 that the other countries with encouraging results and can rising trend in total COD discharges appears to be applied in China, as illustrated by the case have finally been reversed. xxviii A D D R E S S I N G C H I N A ' S W A T E R S C A R C I T Y E X E C U T I V E S U M M A R Y There Is Inadequate Investment ment and compliance; (b) failure to implement in Water Pollution Control and a water pollution prevention and control plans; Large Amount of Wastewater (c) lack of incentives for wastewater treatment; Is Still Untreated (d) a wastewater discharge control system under- mined by problems with the issuance of permits, The investment shortfall contributed to the fail- and their monitoring and enforcement; (e) lack ure to meet pollution control targets--such as of integrated river basin management and weak reducing COD discharge by 10 percent by the local commitment to pollution control under end of 2005--and to environmental deteriora- the influence of local and sectoral interests; tion. With insufficient investment, wastewater (f) increasing and unchecked pollution from treatment capacity, including sewerage networks, townships and nonpoint sources; and (g) insuf- has not expanded adequately, especially in small ficient and spatially imbalanced investment in cities and townships. As a result, only 56 per- wastewater treatment. cent of the 53.7 billion tons of domestic waste- water discharged is treated in some form; the rest is still discharged without any treatment, A Number of Issues Deserve offsetting the significant reduction in industrial Greater Scrutiny pollution. Some of these issues include carefully defining the objectives of the Water Pollution Prevention and Many Water Pollution Prevention Control Law; providing more reliable and com- and Control Plans Have Failed plete information on pollution sources; emphasiz- to Achieve Their Objectives ing the linkage between water pollution and unsafe drinking water sources; integrating pollu- China has prepared water pollution prevention tion control measures, especially the use of permit and control plans at the national, local, and river systems; strengthening the deterrent function of basin levels. So far, many of these plans have current legislation and enforcement systems for failed to achieve their targets. For example, the managing water pollution; promoting routine Huai River basin was the first river basin in pollution prevention over after-incident treat- China to undertake a major planning effort for ment; and addressing the relationship between water pollution control. Evaluation of the first the polluter-pays principle and government two five-year plans (1996­2005) found that the responsibility at the regional and national level, water quality and total emission control targets especially in those areas where governments have were not achieved. For instance, the 9th FYP's some responsibility due to their past activities. (1996) water quality target for 2000 was to achieve Class III for the entire main stream. However, by 2005, the water quality at 80 per- Recommended Actions cent of monitoring sites in the basin was still at The key to controlling and solving serious water Class IV or worse. pollution in China is the strengthening of law enforcement to improve compliance by indus- tries and other polluters. The government has to Serious Water Pollution Is use all available means--legal, institutional, and Attributable to Institutional policy--and, through them, mobilize the public and Policy Shortcomings and motivate the private sector to ensure full com- The effectiveness of pollution control is con- pliance with all pollution control requirements. strained by several issues: (a) poor law enforce- Specific recommendations are provided below. A D D R E S S I N G C H I N A ' S W A T E R S C A R C I T Y xxix E X E C U T I V E S U M M A R Y Improve pollution control planning failures in pollution reduction. Economic incen- Water pollution control planning in river basins tive measures (such as the pollution levy and should be improved, with the introduction of fines) have to be rigorously enforced to provide more realistic and tangible targets. Pollution con- a strong incentive for polluters to comply with trol should not be regarded as the final target, but emissions standards and other environmental the way to achieve a clean and healthy water envi- requirements. The upper limits of maximum ronment. This requires a long-term, integrated, fines specified in current laws should be increased. but progressively targeted strategy for the protec- Furthermore, the system of trading of water dis- tion of water quality. The financing, implemen- charge permits should be gradually introduced in tation, monitoring, and evaluation mechanisms watersheds to improve the economic efficiency of should be well-embedded in the plans. wastewater treatment. Unify and strengthen the pollution Enable litigation for public goods monitoring system The litigation system should be used to give Better monitoring capability is required for the more protection to the public interest. The law whole range of measures required for effective should encourage or require local governments pollution control. The current segmented water on behalf of the public to initiate lawsuits monitoring system--involving MEP, MWR, against polluters and demand full compensa- and MHURC--has to be reformed. In the short tion for damage to public goods--for example, term, the systems should be better coordinated, to ecosystems--where damage to individuals is with a unified set of monitoring criteria and pro- hard to identify. For significant cases, MEP itself cedures for releasing water quality information might be the plaintiff. in one channel. In the medium term, the differ- Control rural pollution ent monitoring systems can be consolidated and managed by a third entity independent of any Attention should be given to addressing rising single ministry. water pollution in small towns and rural areas. The regulation of industrial and municipal sources Strengthen the wastewater in small towns and rural areas should be carried discharge permit system out by local EPBs and supervised by MEP. With To be effective, the wastewater discharge permit regard to wastewater, sewage treatment in small system should be built on a more solid legal towns should be promoted through the intro- basis, with a special administrative regulation duction of cost recovery policies, selection of issued by the State Council. The issuing of per- efficient technologies, and the reuse of treated mits has to be technically sound and based on water for irrigation. environmental quality, with daily maximum levels of discharge specified in order to achieve Increase financing for market gap areas ambient targets. It should target key pollutants There are several areas where market-based first and aim to control the total pollution load approaches cannot be expected to effectively within the allowed pollution carrying capacity of address, for which the central government needs the environment. to earmark special budgets with which to finance water pollution prevention and control. These Increase reliance on areas include: (1) transprovincial pollution con- market-based instruments trol and management, (2) important ecological Pollution control efforts should take full advan- regions and water sources, (3) dealing with acci- tage of market mechanisms to overcome market dents affecting international water bodies, and xxx A D D R E S S I N G C H I N A ' S W A T E R S C A R C I T Y E X E C U T I V E S U M M A R Y (4) other issues with a national dimension that Recommended Actions cannot be properly managed at the local level. Shift from mitigation to prevention and planning IMPROVING EMERGENCY Environmental protection and work safety agen- RESPONSE AND PREVENTING cies should be the competent authorities to ap- POLLUTION DISASTERS prove the adequacy of environment and safety risk assessment, applying a thorough risk man- Despite some successful recent cases of envi- agement approach that focuses on both preven- ronmental emergency response, the high fre- tion and mitigation of the impacts of chemical quency of serious pollution incidents and their incidents. All high-hazard plants--regardless of associated costs in China support the need for age--should be subject to risk assessment and be continued reform and strengthening of exist- required to prepare an emergency response plan. ing institutions for environmental pollution emergency prevention and response. Current Enhance preparedness practice in emergency management still sug- First responders should be well trained for han- gests that the main focus of local govern- dling chemical incidents and equipped with the ments has been on mitigation after an incident. mandate and resources to contain pollution But prevention of incidents by strict enforce- releases. The National Chemical Registration ment of appropriate policies and regulations is Center and its regional offices should establish a typically a more cost-effective approach and unit, independent from enforcement divisions, should be emphasized. A situation analysis to provide 24-hour technical support to the shows that the problem is attributable to vari- emergency services on the properties and appro- ous factors, ranging from weak legal and insti- priate responses to specific chemical releases tutional arrangements, lack of incentives, and from a safety and environmental perspective. poor chemical management systems to inade- quate on-site coordinating, monitoring, and Establish an environmental disaster fund reporting. through the implementation of the Based on lessons from the international expe- polluter-pays principle rience, the basic elements of an effective preven- An environmental disaster fund with sufficient tion and response system, as already developed revenue to support such activities as information and implemented in many developed coun- management, training, and clean-up for envi- tries, include (a) a shift from mitigation to a ronmental incidents should be established. Funds focus on risk assessment, prevention, and plan- could be raised through an increase in the pollu- ning; (b) enhancing the preparedness of first tion levy and/or the introduction of environ- responders; (c) rigorous implementation of the mental taxes on toxic chemicals. In addition, polluter-pays principle to shift financial respon- increased fines for pollution accidents to cover sibility for the costs of potential disasters to the cost of clean-up and compensation should be polluters, (d) the establishment of chemical considered another source for the fund. information management systems to track the flow of toxic chemicals and provide the necessary Establish a chemical management information for a quick and effective response if information system an accident occurs, and (e) effective public infor- The central government should establish and mation systems to provide timely information in maintain comprehensive inventories of all chemi- the event of an emergency. cals and pollution sources containing information A D D R E S S I N G C H I N A ' S W A T E R S C A R C I T Y xxxi E X E C U T I V E S U M M A R Y consistent with international standards. The func- China. Although the general direction should tion and effectiveness of the two existing systems be to raise water-use efficiency by reducing developed by SAWS and MEP separately should demand for water by the agricultural sector, be reviewed. Inventories should be consistent, progress is complicated by and associated with comprehensive, and easily used in public emer- various issues involving the rights and well- gency prevention and response. A comprehensive being of the rural population, national food labeling system for chemicals should be estab- security, agricultural sector protection, and lished and applied to all parts of the production, poverty alleviation. The central issue is how to storage, and transportation process. reduce rural poverty and secure the nation's food supply while at the same time improving Strengthen monitoring the efficiency of water use. This issue will require and public information further study. In the event of an incident, local environment and safety authorities should establish appropri- Climate Change Adaptation ate additional monitoring to assess the impact on the health and safety of the local communi- Global warming caused by human activities can ties and the environment. Investigation findings be one of the biggest threats to the natural envi- should be reported to the central authorities, ronment and human well-being. The scarcity and a mechanism established to share lessons and vulnerability of China's water system can be learned and introduce new legally binding prac- negatively affected by climate change, and reme- tices and procedures if necessary. The public dial and adaptation measures need to be taken to has the right to be informed of the final investi- ameliorate these effects. How to fully take into gation results. account climate change impacts and mainstream adaptation measures in the institutional and pol- icy reform of water resource management in ISSUES FOR THE FUTURE China is an issue for further investigation. While this report has addressed a number of crit- ically important issues relating to water resource Ecological and Economic Studies management in China, much work remains to of River Basins be done. The various studies identified a num- ber of areas where further work is required. Effective application of water management Some of these issues for the future--relating to measures--such as water pricing, water alloca- agricultural water, climate change, and strategic tion and water rights administration, ecological assessment and economic analysis for river basin compensation, and water quality management plans and programs--are highlighted below. in a river basin--all depend on good analysis and understanding of the ecosystems and the economic value of competing water uses, such Water Efficiency, Food Security, as agriculture, energy, municipal water supply, and Rural Development and flood control in the river basin. In many The case studies have revealed great variations cases, the important analytical work remains in the economic value of water by sector and to be done. Developing a sophisticated analy- by region, low economic efficiency of agri- tical system--using advanced economic, geo- cultural water use, and poor cost-effectiveness graphic, and ecological tools--is required for of underground water withdrawal in North sound policy making. xxxii A D D R E S S I N G C H I N A ' S W A T E R S C A R C I T Y E X E C U T I V E S U M M A R Y Development Strategies, Policies, CONCLUDING REMARKS and Plans and Their Long-Term There is no doubt that China is facing a major Impacts on Water Scarcity challenge in managing its scarce water resources China's Environmental Impact Assessment to sustain economic growth in the years ahead. Law, effective in 2003, required strategic envi- This is a daunting task for the Chinese leader- ronmental assessments (SEAs) for regional and ship, but past experience in China and in other sectoral development plans. These include land countries provides some lessons as to the way use, water resource management, and water ahead. Of course, China is unique in many ways, pollution control plans for river basins. How- and will have to adapt techniques and policies ever, such SEAs have rarely been carried out developed elsewhere to suit its own circum- due to the lack of knowledge, expertise, and stances. But there are grounds for optimism; the capacity of planning agencies and local envi- Chinese, who have demonstrated immense inno- ronmental bureaus and research institutes. As a vative capacity in their successful program of eco- result, the long-term impacts of these plans on nomic reform, can and should take another bold water scarcity conditions and the natural envi- move in reforming the institutional and policy ronment are in question. This situation has to framework to make it become a world leader in be changed. water resource management. A D D R E S S I N G C H I N A ' S W A T E R S C A R C I T Y xxxiii 1 Introduction BACKGROUND For years, water shortages, water pollution, and flooding have constrained growth and affected public health and welfare in many parts of China. Given continuing trends in economic and population growth, as well as the current pattern of industrialization and urbanization, the pressures on the country's water resources are bound to increase. The impact of growing water demand--combined with limited supplies and the deteriorating water qual- ity caused by widespread pollution--suggests that a severe water scarcity cri- sis is emerging if no decisive actions are taken soon. China's per capita natural freshwater resources amounted to 2,156 m3 in 2007, and are expected to decline to 1,875 m3 as its population rises to a pro- jected peak of 1.5 billion by around 2033.1 In North China, the amount is already much lower, at about 700 m3 per person, and the amount of exploitable water is much smaller. The scarcity is greatest in the Hai River basin, with 120 million inhabitants, including Beijing and Tianjin, which has only about 300 m3 per person. Based on standard definitions, North China is already a water-scarce region, and China as a whole will soon join the group of water- stressed countries.2 Specifically, about 400 of China's 660 cities are report- edly short of water; of those, 108 cities, including megacities like Beijing and Tianjin, are facing serious water shortages.3 In addition to scarcity, China's water resources are poorly managed. They are generally characterized by inefficient and outdated practices, unsustain- able groundwater depletion, excessive water pollution, and extensive degra- dation and destruction of aquatic ecosystems. In 2006, China's total annual discharge of municipal and industrial wastewater reached 53.7 billion tons, of which only 56 percent had some form of treatment.4 Although the treat- ment rate has steadily increased in recent years, there is still a huge amount of wastewater discharged directly to the environment without any treatment. Nonpoint pollution, mainly from fertilizer and pesticide runoff and livestock A D D R E S S I N G C H I N A ' S W A T E R S C A R C I T Y 1 I N T R O D U C T I O N waste, represents an increasing and essentially the water exploitation permit system, (f) explor- uncontrolled factor. As a result, water quality ing the possibility of establishing water markets, remains a serious concern, especially in northern (g) piloting a compensation system for transfer China due to the shortage of water flows to of water rights, and (h) gradually adopting mar- dilute pollution loads. ket mechanisms for optimal allocation of water The costs of water scarcity and pollution are resources.5 The Government of China (GoC) high. Water pollution poses a serious threat to has been actively seeking technical assistance public health and causes major economic and from the international community to strengthen environmental losses. A recent study (World its policy and institutional framework for water Bank 2007a) estimated the cost of water scarcity resource management. associated with water pollution at 147 billion yuan, or about 1 percent of GDP, and the cost OBJECTIVES AND SCOPE of health-related impacts in rural areas at 1.9 per- cent of rural GDP in 2003. MEP estimated the The objective of this report is to provide an cost of environmental degradation caused by overview of China's water scarcity situation, water pollution in 2004 at about 1.7 percent of assess the policy and institutional requirements GDP. Surface water overexploitation has resulted for addressing it, and recommend key areas for in the drying up of lakes and wetlands, as well as strengthening and reform. The report synthe- insufficient environmental flows, including out- sizes the main findings and recommendations flows to the seas. Groundwater overexploitation from analytical work and case studies prepared is leading to the annual lowering of water tables under a World Bank-funded Analytical and Advi- and the eventual exhaustion of groundwater sory Assistance (AAA) program entitled "Address- reservoirs, as well as extensive subsidence in many ing China's Water Scarcity: From Analysis to major cities. Action." Components of the AAA program are China's leadership is aware of the worsening summarized in Box 1.1. The target audience for water shortage, and is committed to transform- this synthesis report includes officials of relevant ing China into a water-saving society. This is agencies, state leaders, interested professionals, expressed in recent development plans, decrees, and the general public. and circulars. For instance, the 11th Five-Year The scope of water scarcity issues in China Plan (FYP) (2006­10) for National Social and encompasses both qualitative and quantitative Economic Development sets the goal that water aspects. The qualitative aspects--protecting the consumption for agricultural irrigation is to sources of water supply--include environmen- remain constant, and puts stress on water-saving tal and ecological services required to ensure technology innovation in water-intensive sectors adequate water for the protection of wetlands, to reduce water consumption per unit of industry- lakes, and environmental flows; water pollu- added value by 30 percent. The State Council's tion management; and groundwater protection. Guidelines on Deepening Reform of the Eco- The quantitative aspects--improving the effi- nomic System (2005) specified that the govern- ciency of water use--include demand manage- ment would address China's water scarcity by ment measures (such as water pricing, permits, (a) reforming resource pricing systems, (b) ex- water rights, and trading); compensation for eco- panding the collection of user fees for water logical conservation and services; social afford- resources, (c) strengthening the implementation ability; and improvements in water conservation and supervision of water tariffs and sewerage and productivity. charges, (d) studying the establishment of a Within this broad scope, the study focuses national system of water rights, (e) improving on several thematic areas that are strategically 2 A D D R E S S I N G C H I N A ' S W A T E R S C A R C I T Y I N T R O D U C T I O N B O X 1 . 1 The World Bank's Analytical and Advisory Assistance Program--"Addressing China's Water Scarcity: From Analysis to Action" To seek international assistance in strengthening water resources management, several Chinese min- istries requested the Bank's analytical and advisory assistance, particularly in water policy and insti- tutional reforms and the sharing of international experience. In response to the request, the World Bank launched an Analytical and Advisory Assistance (AAA) project--the China Water AAA--in fiscal 2006. The broad objective of the China Water AAA is to assist the Chinese government to develop, adopt, and implement policy and institutional reforms needed to more effectively address China's water prob- lems. Building on a large number of existing and ongoing studies on water issues in China and on inter- national experience, the China Water AAA concentrates on helping the responsible agencies develop and implement policy and institutional reforms needed to improve the sustainable management of the country's water resources. The major tasks of the AAA were undertaken in three phases--diag- nostic evaluation, thematic studies, and synthesis of recommendations. In light of the magnitude of water issues and the limited resources and time available, the AAA program did not intend to be a comprehensive study, but focused on selected areas where more analysis was needed to improve the understanding of policy and institutional issues, and to recom- mend specific actions to address them. In relation to the earlier studies supported by the Bank and others, the main value added by this AAA program has been in (a) filling gaps in our understanding of strategically important water issues, and (b) engaging key government agencies, especially high- level policy makers and other stakeholders, to raise awareness of these issues and build a consensus on priority actions. The AAA benefits from the participation and support of various Chinese and international institu- tions, including research institutes, universities, and civil society groups, and the U.K. Department of International Development (DFID), which provided both technical and financial support. important and feasible for China. These areas-- incident, willingness-to-pay (WTP) and water identified by the research team based on a review tariff reform in Chongqing, water tariff reform of pressing issues and government priorities-- and income impacts in Beijing, water rights include water institutions and governance, water in the Hai River basin, and the ecological com- rights, the economic valuation of water, water pensation mechanism in Lijiang City of Yun- supply pricing and social affordability, water- nan Province. To diagnose the problems of plan shed ecological compensation, and water pollu- implementation, we evaluated water pollution tion control and emergency prevention. Other control planning in the Huai River basin. A important areas, such as water use in agriculture, set of background papers on international and water utilities' regulation and performance, experience was also produced. A list of case were omitted because they have been covered in studies and reports is provided at the end of previous work. Some relevant studies conducted the report. by the World Bank are described in Box 1.2. Case studies and reviews of international expe- CONCEPTUAL FRAMEWORK rience have been carried out around each theme AND APPROACH in order to develop policy recommendations based on realities on the ground. The case studies cover The conceptual framework in Figure 1.1 iden- the economic valuation of water in the Hai River tifies the main water issues, water resource basin, the Songhua River toxic chemical spill management components, and the interaction A D D R E S S I N G C H I N A ' S W A T E R S C A R C I T Y 3 I N T R O D U C T I O N B O X 1 . 2 Recent Water Resource Management Studies at the World Bank Water resource management in China has been the subject of considerable attention by interna- tional development institutions. This study, which elaborates on selected topics, complements sev- eral reports and publications issued by the World Bank in recent years. Several of these reports have addressed strategic and policy issues related to environmental management and water resources management. For example, Clear Water, Blue Skies: China's Environment in the New Century (World Bank 1997) estimated the costs of water pollution and the benefits of an adequate water supply in terms of productivity and health and set out general policies for sustainable use of water resources, with much emphasis on the polluter-pays principle. More recently a report entitled Cost of Pollution in China: Economic Estimates of Physical Dam- ages (World Bank 2007a) estimated environmental damage costs for air and water pollution at 5.8 percent of GDP. Much of the analytical and policy work done in the World Bank has focused on the allocation of water among competing water uses, particularly the institutional and economic means of address- ing this issue. The Agenda for Water Sector Strategy for North China (World Bank 2002b), a com- prehensive analytical study of water resource management, covered water scarcity, flooding water for agriculture, water pollution, groundwater, and water management institutions in the Huang- Huai-Hai River basins of the North China Plain, the dominant agricultural area of the country. The report outlined an action plan and provided an indicative assessment of investment needs. China, Air, Land, and Water--Environmental Priorities for a New Millennium (World Bank 2001a) also dealt extensively with water resource management and water pollution. This study formed the basis for the World Bank's Water Resources Assistance Strategy for China (World Bank 2001b). Key findings stemming from this work included the importance of institutional reform, including the development and enforcement of detailed policies/regulations and management. Much emphasis was given to improved multipurpose basin management, as well as water rights issues and economic incentives, such as pricing of irrigation and municipal water and enforcement of the polluter-pays principle. Such findings were reinforced in China Water Quality Management: Policy and Institu- tional Considerations (World Bank 2006a). Alongside its China-specific policy analysis, the World Bank has continued to develop policy rec- ommendations on a worldwide basis, with considerable attention paid to the agriculture sector-- the major water user in most countries. Comprehensive treatment of this topic is to be found in the report Re-engaging in Agricultural Water Management: Challenges, Opportunities and Trade-offs (World Bank 2005b). As in the case of agriculture, pricing and other strategic issues for urban water and sanitation have traditionally been addressed in the context of individual projects, as well as in a growing num- ber of research and policy papers. Addressing China's Growing Water Shortages and Associated Social and Environment Consequences (Shalizi 2006) addresses the interface between property rights and water pricing. The importance of cost recovery and other policy, regulatory, and institutional issues for urban water utilities was also addressed in Stepping Up: Improving the Performance of China's Urban Water Utilities (World Bank 2007b). The focus of this report is fairly narrow, since it does not fully consider the implications of increasing water scarcity or environmental costs for water pricing, and in particular on how efficient pricing can be reconciled with the need to ensure ade- quate service for poor households. between them, using a pressure-state-response largely determined by precipitation and runoff framework. patterns. For example, the supply of water is In this study, external economic and de- determined by existing rainfall patterns. Thus mographic conditions--such as population, climate change and its impacts, while admit- economic growth, industrialization, and tedly human-induced, are treated as exogenous urbanization--are largely exogenous, and so is for the purposes of this study. In addition, the distribution of water resources, which is given the current state and economics of sea- 4 A D D R E S S I N G C H I N A ' S W A T E R S C A R C I T Y F I G U R E 1 . 1 Water Resource Management Policy and institutional determinants Organization Legal Economic Institutional Technical Governments, framework Policy framework solutions civil society, Water laws, instruments Strategy, Water-saving, NGOs, WUAs, acts, Water tariffs, planning, water water etc. regulations, resources fee, rights treatment, etc. rules/codes, rebates, living allocation, standards, etc. support, governance, tradable PPP, permits, etc. information disclosure, etc. ADDRESSING Exogenous factors Impacts Economic and demographic Behavior Water scarcity situation driving forces Pollution levels CHINA'S Economic growth, Water demand Waterborne diseases and quality of industrialization, urbanization, activities life population growth Water use efficiency Water reuse and recycling Water supply WATER Ecosystems maintenance activities Natural endowment of water Ecological values Surface/Underground Recreation values SCARCITY Spatial/Temporal Water conservation Groundwater recharge and pollution control INTRODUCTION Source: Authors. Note: PPP = public-private partnership. 5 I N T R O D U C T I O N water desalination and artificial rainmaking framework covers a wide range of institutional technologies, they can only be expected to play measures, from planning to governance. a minor role in enhancing China's freshwater Given this conceptual framework, the study resources. The demand for water is driven by seeks to evaluate Chinese and international expe- economic and demographic forces that, for the rience with water resource management and purposes of this study, are treated as exogenous. water pollution control in order to identify pol- Balancing the supply and demand for water icy and institutional models that have proven will essentially depend on behavioral choices that effective in promoting the adoption of water con- determine the efficiency of water use and the servation and pollution reduction technologies. extent of pollution. In other words, technology, The research used a mix of methods, including investment, and operational decisions made by literature reviews, qualitative and quantitative farmers, enterprises, and other water users and policy analyses, household surveys, field trips, polluters are based on a calculus that takes all and case studies. Surveys on water use and will- costs and benefits into account, to the extent that ingness to pay at the household level were they (the economic actors) are aware of them and conducted by research teams in case studies in are given the correct incentives to do so. Chongqing City, the Huai River basin, the Hai Water resource management has policy, insti- River basin, and Lijiang City, Yunnan. Detailed tutional, and technical dimensions. Although policy analyses were conducted for each thematic technologies such as those for water-saving and area, including evaluation of the implementation pollution control are critical to water manage- of water plans in representative regions. ment, they are not highlighted in the analysis. The study has taken a cross-sectoral, multi- Rather, this study focuses on the policy and insti- stakeholder approach through collaboration and tutional framework for water resource manage- partnership with various government agencies, ment, which has a major influence on decisions research institutes, and donor agencies. Some of made by water users and polluters. For example, the case studies and thematic research directly the design of specific water and effluent pricing involved World Bank teams responsible for lend- mechanisms can greatly influence the costs and ing projects in Chongqing, Yunnan, and Shan- benefits of alternative water saving, treatment, dong provinces, and supported the preparation recycling, and reuse technology choices and stim- and implementation of those projects. Outside ulate their adoption (or not), with attendant the Bank, studies were done in partnership with impacts on future evolution of water-use effi- relevant central and local government agencies, ciency and pollution control. top research Chinese institutes and universities, This study further identifies organizations, the and NGOs. The study also built on synergies legal framework, policy instruments, and the with programs of other Chinese and inter- institutional framework as four major elements national groups and benefited from a strong of water resource management. These are treated partnership with the DFID China Program and as determinant variables in the analysis, since the the participation of international consulting ser- government can influence their design and opera- vice groups in Italy, Japan, and other countries. tion. Organizations include governmental bodies, civil society, grass-roots associations, and NGOs. OUTLINE OF THE REPORT The legal framework includes water laws, acts, regulations, rules, and standards. Policy instru- The report contains ten chapters. Following this ments include economic incentives--such as introductory chapter, Chapter 2 reviews the water prices, taxes, subsidies, and tradable permits--as scarcity situation in China, from water shortages well as regulatory instruments. The institutional to water pollution and external driving forces. 6 A D D R E S S I N G C H I N A ' S W A T E R S C A R C I T Y I N T R O D U C T I O N Chapter 3 examines water resource management Book published by the World Bank. The per capita in China, focusing on institutional and policy number for 2033 is calculated by dividing China's total freshwater resources, which, is 2812.502 km3, according issues and possible areas of improvement. Chap- to the Little Green Data Book, by the projected popula- ters 4 to 9 then discuss selected areas of water tion peak of 1.5 billion by 2033, which is available from resource management and make policy recom- the State Population Development Strategy Report, mendations. Chapter 4 discusses governance issues, published by the National Population and Family Plan- with policy recommendations relating to legal ning Commission of China in 2007 and available at http://www.chinapop.gov.cn/gxdd/t20070111_172058 frameworks, organizations, information disclo- 513.html. sure, and public participation. Chapter 5 dis- 2. UNDP, UNEP, the World Bank, and the World Re- cusses water rights administration and trading. sources Institute define water stress as annual water avail- Chapter 6 addresses water supply tariff reform, ability of 2,000 m3/person or less, and water scarcity as 1,000 m3/person or less. See Shalizi 2006. emphasizing the need to recover environmental 3. See Chinese Academy of Hydraulic and Hydropower and depletion costs and to protect the poor. Research 2004. Chapter 7 promotes market-based ecological 4. The wastewater discharge rate is reported in SEPA 2007. compensation mechanisms in river basins by The treatment rate is an official figure in the report introducing a new market-based approach of of the Implementation of the 2006 National Plan of Economic and Social Development submitted by payments for ecosystem services. Chapters 8 and the National Development and Reform Commission 9 address water pollution control and the pre- (NDRC) to the National People's Congress (NPC) at vention of water pollution incidents, respectively. the 5th Plenary of the 10th NPC on March 5, 2007. The Chapter 10 contains concluding remarks. treatment rate may reflect the installed wastewater treat- ment capacity rather than the actual treatment, which is likely lower due to the lack of sewage networks and Endnotes funds for operation and maintenance in many cities. 5. Please see the State Council document at http://news. 1. The per capita number for China in 2007 is calculated xinhuanet.com/newscenter/2005-04/17/content_2841 based on data available from the 2007 Little Green Data 603.htm. A D D R E S S I N G C H I N A ' S W A T E R S C A R C I T Y 7 2 Water Scarcity in China Current Situation This chapter provides an overview of water scarcity in China and its long- term implications for sustainable development. It first discusses China's nat- ural endowment of water, and points to its uneven distribution in spatial and temporal terms as an important contributing factor in the nation's severe water scarcity, particularly in northern China. The next sections discuss the extent of water pollution, which exacerbates water scarcity, and the environ- mental, economic, and social impacts of water scarcity, which undermines the long-term sustainability of development. The chapter then examines such external factors as economic growth, industrialization, urbanization, and pop- ulation growth, which drive the increasing demand for water. While these factors are clearly subject to policy influence, they will be treated as exoge- nous for the purposes of this study. SPATIAL AND TEMPORAL DISPARITIES China's total annual renewable water resources amount to about 2,812 km3, the sixth largest in the world. Its annual per capita freshwater resources, however--about 2,156 m3 in 2007--are among the lowest for a major coun- try.1 In 2005, China's total consumption withdrawals were 563 km3. Surface water accounted for 81.2 percent of withdrawals, groundwater for 18.4 per- cent, and 0.4 percent came from other sources.2 While China as a whole is a water-stressed country, the severity of the problem is greatly worsened by the uneven distribution of the resource, both spatially and temporally. Water availability in different parts of China varies greatly due to char- acteristics of its climate and topography (Figure 2.1). Overall, southern China is much more water abundant than the northern part. This spatial disparity does not match the distribution of China's population, arable land, and productivity. For example, in 2000 southern China (the Yangtze River basin and areas to its south) accounted for 80.4 percent of the nation's naturally available water resources, 53.5 percent of its population, A D D R E S S I N G C H I N A ' S W A T E R S C A R C I T Y 9 W A T E R S C A R C I T Y I N C H I N A : C U R R E N T S I T U A T I O N F I G U R E 2 . 1 Spatial Distribution of Annual per Capita Water Resources in China 0 300 kilometers 0 100 200 300 miles BEIJING Water resources per capita (m3) < 500 500­1000 1000­1700 >1700 PROVINCE BOUNDARIES INTERNATIONAL BOUNDARIES Source: The World Bank (2007a). 35.2 percent of its arable land, and 54.8 percent are available to support 10 percent of the total of its GDP. Northern China accounted for only population and 11 percent of the total arable 19.6 percent of naturally available water resources, land. 46.5 percent of the population, 64.8 percent of The temporal pattern of precipitation further the arable land, and 45.2 percent of China's GDP intensifies the uneven spatial distribution of (Liu 2002). water resources. With a strong monsoonal cli- In a few important basins, water scarcity is mate, China is subject to highly variable rainfall even more serious than for North China as a that contributes to frequent droughts and floods, whole (Table 2.1). In the Huang (Yellow)- often simultaneously in different regions. In the Huai-Hai river basins (the so-called 3-H basins), Yangtze River basin, there has been a severe flood 34.7 percent of China's population has access roughly every 10 years for the past 2,000 years. to only 7.6 percent of China's naturally avail- While precipitation generally declines from the able water resources. The annual per capita level southeastern coastline to the northwestern high- of naturally available water resources in the lands, annual precipitation varies greatly from 3-H area ranges from 358 m3 in the Hai-Luan year to year and from season to season. In the basin to 750 m3 in the Huang basin, far below Hai and Huai basins, for example, river flows fall the "scarcity" level of 1,000 m3 as defined by to 70 percent of their averages one year in four international organizations.3 In the Hai River and to 50 percent one in twenty, and dry years basin, where Beijing and Tianjin are located, tend to come in succession, accentuating the only 1.5 percent of China's water resources water problem (Berkoff 2005). 10 A D D R E S S I N G C H I N A ' S W A T E R S C A R C I T Y W A T E R S C A R C I T Y I N C H I N A : C U R R E N T S I T U A T I O N T A B L E 2 . 1 Spatial Distribution of China's Water Resources and Other Social Variables (1) (3) (6) Mean Annual Total Annual (5) Annual per Surface (2) Water (4) Arable Land Capita Water Runoff Groundwater Resourcesa Population (million Resources Basin (km3, %) (km3, %) (km3, %) (millions, %) hectares, %) (m3) North 334.3 (12.3) 168.9 (20.3) 405.4 (14.4) 520.5 (44.4) 57.4 (59.5) 778.9 Song-Liao 165.3 (6.1) 62.5 (7.5) 192.8 (6.9) 113.2 (9.6) 19.5 (20.2) 1703.2 Hai-Luan 28.8 (1.1) 26.5 (3.2) 42.1 (1.5) 117.6 (10.0) 10.8 (11.2) 358.0 Huai 74.1 (2.7) 39.3 (4.7) 96.1 (3.4) 190.5 (16.2) 14.7 (15.2) 504.5 Huang 66.1 (2.4) 40.6 (4.9) 74.4 (2.6) 99.2 (8.4) 12.4 (12.9) 750.0 South 2260.8 (83.4) 591.7 (69.3) 2276.6 (80.9) 627.4 (53.5) 33.5 (34.8) 3628.6 Yangtze 951.3 (35.1) 246.4 (29.7) 961.3 (34.2) 402.5 (34.3) 22.9 (23.8) 2388.3 Pearl 468.5 (17.3) 111.6 (13.5) 470.8 (16.7) 141.5 (12.1) 6.5 (6.7) 3327.2 Southeastern 255.7 (9.4) 61.3 (7.4) 259.2 (9.2) 65.1 (5.6) 2.4 (2.5) 3981.6 Southwestern 585.3 (21.6) 154.4 (18.6) 585.3 (20.8) 18.3 (1.6) 1.7 (1.8) 31983.6 Inland 116.4 (4.3) 86.2 (10.4) 130.4 (4.6) 24.7 (2.1) 5.4 (5.6) 5279.4 TOTAL 2711.5 (100) 828.8 (100) 2812.4 (100) 1172.6 (100) 96.4 (100) 2398.4 Sources: Columns (1­3) adapted from Ministry of Water Resources and Electric Power of China. 1997. "Use of Water Resources in China" (cited in UN Economic and Social Commission for Asia and the Pacific (ESCAP). 1997. "Study on Assessment of Water Resources of Mem- ber Countries and Demand by User Sectors: China--Water Resources and Their Use." Bangkok: UN. Columns 4 and 5 are from Nanjing Institute for Water Resources and Hydrology (NIWA) and China Institute of Water Resources and Hydropower Research (CIWRHR). 1998. "Water Demand and Supply in China." Beijing: China Water and Power Press. a. The sum of water resources from surface water and groundwater may exceed the total water resources by the amount of overlap between them, since surface water interacts with groundwater, with the river base flow formed by groundwater and part of ground- water recharge coming from percolation of surface water. Climate change is also aggravating water by 2050, as compared to 2000. While the total scarcity. Over the past 100 years, inter-regional annual precipitation will increase to some extent, differences in precipitation have increased, with higher evaporation together with spatially uneven rainfall gradually declining in North China at distribution of the precipitation will certainly rates of 20­40 mm/decade, and rising in South worsen the already serious water scarcity situation, China at rates of 20­60 mm/decade. Over the especially in North China. For the 3-H basins, past 20 years, main stream water flows have the current water shortage--about 30­40 km3 declined by 41 percent in the Hai River basin, per year (NDRC et al. 2007)--is projected to rise 15 percent in the Huang River basin, 15 percent to 56.5 km3 by 2050 unless effective measures in the Huai River basin, and 9 percent in the are taken to reduce demand and to augment sup- Liao River basin (NDRC et al. 2007). Accord- ply (World Bank 2002b). ing to the National Report on Assessment of Climate Change--which was jointly issued in WATER POLLUTION December 2006 by six governmental institu- tions, including the Ministry of Science and The scarcity of water in China is aggravated by Technology and the Chinese Academy of Sci- extensive pollution from industrial, domestic, ences--it is estimated that average nationwide and agricultural sources. Over the past three temperatures will increase by 1.3 to 2.1°C by decades, despite great efforts to control it, water 2020, 1.5 to 2.8°C by 2030, and 2.3 to 3.3°C pollution has increased, spreading from inland A D D R E S S I N G C H I N A ' S W A T E R S C A R C I T Y 11 W A T E R S C A R C I T Y I N C H I N A : C U R R E N T S I T U A T I O N water bodies to inshore coastal areas, and from wastewater from TVIEs is still largely discharged surface waters to groundwater resources. Total without treatment.5 Industrial COD discharges, wastewater discharges have steadily risen to which decreased in 2001­04 due to an increasing 53.7 billion tons in 2006, with COD discharges share of industrial wastewater that is treated (from and NH3-N discharges amounting to 14.28 mil- 85.2 percent in 2001 to 90.7 percent in 2004), lion and 1.41 million tons, respectively (SEPA also increased slightly in 2005 (Figure 2.3) (China 2007b). It was not until 2007 that the rising trend Statistical Yearbook 2006). However, with the of water pollution discharges began to show a sign rapid growth of domestic and nonpoint pollu- of reverse, as total 2007 COD discharges were tion discharges, the share of industrial waste- reported to be 3.14 percent less than in 2006. water in total water pollution has decreased. As However, the water pollution situation is still of 2005, only 11 percent of organic pollutants very serious due to the high volume of untreated (biochemical oxygen demand [BOD]), 4 percent wastewater discharged to the environment. of total nitrogen (TN), and 2 percent of total Following a decreasing trend during the period phosphorus (TP) pollution in China were attrib- from 1995 to 2000, industrial wastewater emis- utable to industrial wastewater discharges (World sions increased annually during 2000­05 (Fig- Bank 2006a). ure 2.2). This increase is attributed to an increase Domestic wastewater discharges have sur- in wastewater discharges from township and vil- passed industrial discharges since 1999, and have lage industrial enterprises (TVIE) that offset a become the most important pollution source decrease in wastewater discharges from county and (Table 2.2). A major contributing factor is that above-county-owned enterprises.4 Although the only 56 percent of municipal sewage is treated in proportion of total wastewater discharges that some form. With lagging growth in wastewater meet pollution emission standards is increasing, treatment facilities, including sewerage, about F I G U R E 2 . 2 Industrial Wastewater Discharge, 1995­2005 30 )s n oilli 25 b,s n 20 ot( e gr 15 discha reta 10 wetsa 5 W 0 1994 1996 1998 2000 2002 2004 2006 Total County and above Township and village industrial enterprise Source: China Statistical Yearbook (various years). 12 A D D R E S S I N G C H I N A ' S W A T E R S C A R C I T Y W A T E R S C A R C I T Y I N C H I N A : C U R R E N T S I T U A T I O N F I G U R E 2 . 3 Industrial COD Discharge, 1995­2005 12 10 millions) 8 (tons, 6 4 discharge 2 COD 0 1994 1996 1998 2000 2002 2004 2006 Total County and above Township and village industrial enterprise Source: China Statistical Yearbook (various years). 20 billion m3 of untreated wastewater per year is the 1978­2004 period, fertilizer applications directly discharged into water bodies. In 2005, in China increased fivefold, and pig, sheep, and domestic sources accounted for 52 percent of "other livestock" (including cattle, horses, don- BOD, 69 percent of TN, and 2 percent of keys, and camels) production increased by 54 per- TP discharges. cent, 86 percent, and 62 percent, respectively. Nonpoint pollution (NPP), primarily related These trends contributed greatly increased nutri- to agricultural activities such as fertilizer and pes- ent flows into water bodies, and accelerated the ticide run-off from farmland and infiltration of eutrophication of many of China's lakes, such as livestock waste, has long been out of control and is Dianchi, Lake Chao, and Lake Tai (World Bank becoming an increasingly important source. Over 2006a). By 2005, nonpoint pollution accounted T A B L E 2 . 2 Wastewater and Pollutant Discharges, 2000­05 Chemical Oxygen Demand Ammonia Nitrogen Wastewater (tons, billions) (tons, thousands) (tons, thousands) Year Total Industrial Domestic Total Industrial Domestic Total Industrial Domestic 2000 41.52 19.42 22.09 14450 7045 7405 2001 43.29 20.26 23.03 14048 6075 7973 1252 413 839 2002 43.95 20.72 23.23 13669 5840 7829 1288 421 867 2003 46.00 21.24 24.76 13336 5119 8217 1297 404 893 2004 48.24 22.11 26.13 13392 5097 8295 1330 422 908 2005 52.45 24.31 28.14 14141 5547 8594 1495 522 973 Source: NDRC et al. 2007. A D D R E S S I N G C H I N A ' S W A T E R S C A R C I T Y 13 W A T E R S C A R C I T Y I N C H I N A : C U R R E N T S I T U A T I O N for an estimated 37 percent of BOD, 27 percent Since the early 1990s, overall water quality in of TN, and 45 percent of TP discharges in China.6 China does not seem to have changed much, with Water pollution incidents represent a seri- increases in the shares of both good quality and ous threat for water resources. According to the poor quality river sections, and a decrease in the China Statistical Yearbook, there were 752 water share of medium quality sections (Figure 2.4). pollution­related incidents in 2004 and 693 in However, regional trends were quite different, 2005. These numbers are probably on the low side with significant improvements in the South, because polluters and some local officials tend not except for some rivers (Figure 2.5, right), con- to report environmental accidents. In recent years, trasting with some deterioration in the North some major water pollution incidents occurred, (Figure 2.5, left). At the river basin level, the per- including the well-known Songhua River pollu- centage of poor quality sections increased in all tion incident in November 2005, which inter- five major northern rivers between 2000 and rupted drinking water supply to millions of 2004, while all rivers--except the Yangtze in households. Other major recent examples include southern China--experienced increases in the the release of toxic smelting waste into the Bei proportion of water classified as good quality for River (in the Pearl River basin) in December 2005; the same period (Figure 2.6). the release of cadmium-containing wastewater In spite of these differences, water quality into the Xiang River (in the Yangtze River basin); degradation is also a threat to water supply in and a diesel-oil spill into the Huang (Yellow) River southern China, where many cities face a supply in January 2006. These incidents have badly dam- crisis due to heavy pollution. Shanghai is a good aged the already fragile water environment, con- example. Located downstream of the Yangtze taminated downstream drinking water supplies for River and the Lake Tai basin, Shanghai is seri- tens of thousands of people, and severely threat- ously impacted by both upstream and local water ened public health and the quality of life. pollution. According to data from the local envi- As a result of continuing pollution, the ronmental protection bureau, only 1 percent of water quality of most of China's water bodies its surface water meets the standard for drinking has been extensively degraded. In 2006, of all water (grades I­III), while the percentage of poor 745 monitored river sections, 40 percent met quality water (worse than grade V) is as high as the grades I­III surface water quality standard 68.6 percent. Zhejiang Province faces the same (that is, water that is safe for human consump- problem; that is, an abundance of water that is tion after treatment), 32 percent met grades unusable rather than unavailable. IV­V standards (that is, safe for industrial and Groundwater is also polluted by wastewater irrigation use), and 28 percent failed to meet discharges from industrial, municipal, and agri- grade V+ (that is, unsafe for any use). Of cultural sources. In about 50 percent of all 27 major monitored lakes and reservoirs, only regions, shallow groundwater is polluted. In 29 percent met the grades I­III standard, 23 per- about 50 percent of the cities, groundwater is cent met grades IV­V standards, and 48 percent suffering from quite serious pollution.7 failed to meet grade V+ (SEPA 2007b). Water quality in China's lakes and reservoirs is charac- ENVIRONMENTAL AND SOCIAL terized by accelerated eutrophication as a result IMPACTS AND ECONOMIC LOSS of excessive nutrient loads from both point and nonpoint sources. Overall, 57.5 percent of the Water scarcity and extensive pollution entail 40 main freshwater lakes--including Lake Tai, substantial environmental and social impacts Lake Chao, and Dianchi--have become eutro- and economic losses, which threaten sustainable phic and hypertrophic (Table 2.3). development. 14 A D D R E S S I N G C H I N A ' S W A T E R S C A R C I T Y W A T E R S C A R C I T Y I N C H I N A : C U R R E N T S I T U A T I O N T A B L E 2 . 3 Current Trophic Level of Lakes and Reservoirs in China Water Quality Parameter Total Phosphorous Total Nitrogen Lakes Year (mg/liter) (mg/liter) Trophic State Five Big Lakes Poyang 2000 0.102 0.862 Mesotrophic-eutrophic Dongting 2001 0.336 0.89 Eutrophic Tai 2001 0.126 3.24 Eutrophic Hongze 2004 0.103 1.906 Eutrophic Chao 1999 0.193 2.96 Eutrophic Urban Lakes Cibi (Dali) 2003 0.016 0.39 Mesotrophic Xi (Hangzhou) 2003 0.17 3.06 Eutrophic Dong (Wuhan) 2001 0.125 2.5 Eutrophic Xuanwu (Nanjing) 2003 0.478 3.5 Eutrophic Gantang (Jiujiang) 2003 0.24 1.73 Eutrophic Nan (Changchun) 2003 0.529 5.45 Eutrophic Lu (Guangzhou) 2003 0.22 3.04 Eutrophic Xi (Huizhou) 2003 0.124 0.83 Eutrophic Haixihai (Dali) 2003 0.033 0.28 Mesotrophic Reservoir Miyun 1990 0.018 0.115 Mesotrophic Dahuofang 1988­91 0.06 1.09 Mesotrophic-eutrophic Yuqiao 1999 0.14 2.5 Eutrophic Guanting 2000 0.047 2.92 Eutrophic Shanzai 2001 0.05 0.27 Mesotrophic-eutrophic Source: Jin et al. 2005. F I G U R E 2 . 4 Trends in Water Quality at Monitored River Sections in China, 1991­2005 All China 100 90 80 70 60 50 Percent 40 30 20 10 0 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 Grades I ­ II Grades III ­ IV Grades V ­ V+ Source: World Bank (2006a). Note: Grades I­III refer to water that is safe for human consumption after treatment; grades IV­V refer to water that is safe for industrial and irrigation use; and grade V+ refers to water that is unsafe for any use. A D D R E S S I N G C H I N A ' S W A T E R S C A R C I T Y 15 W A T E R S C A R C I T Y I N C H I N A : C U R R E N T S I T U A T I O N F I G U R E 2 . 5 Trends in Water Quality Changes at Monitored River Sections in North and South China, 1991­2005 North China South China 100 100 90 90 80 80 70 70 60 60 50 50 Percent 40 40 30 30 20 20 10 10 0 0 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 Grades I ­ II Grades III ­ IV Grades V ­ V+ Grades I ­ II Grades III ­ IV Grades V ­ V+ Source: World Bank (2006a). Note: Grades I­III refer to water that is safe for human consumption after treatment; grades IV­V refer to water that is safe for industrial and irrigation use; and grade V+ refers to water that is unsafe for any use. F I G U R E 2 . 6 Surface Water Quality, 2000 and 2004 0 300 kilometers 0 100 200 300 miles SONGHUAJIANG LIAO RIVER NORTHWEST HAI RIVER HUANG RIVER HUAI RIVER SOUTHWEST Surface water quality, 2000 and 2004 YANGZI RIVER 2000, Grades I­III SOUTHEAST 2000, > Grade III 2004, Grades I­III 2004, > Grade III ZHUJIANG RIVER BASIN BOUNDARIES PROVINCE BOUNDARIES INTERNATIONAL BOUNDARIES Source: World Bank 2006a. 16 A D D R E S S I N G C H I N A ' S W A T E R S C A R C I T Y W A T E R S C A R C I T Y I N C H I N A : C U R R E N T S I T U A T I O N Water scarcity is undermining the capacity Huang River, which has been enforced since of water bodies to fulfill their ecological func- August 1, 2006. tions. Due to excessive withdrawals, even a Excessive pollution also results in ground- minimum of environmental and ecological flows water depletion. As much as 24 km3 of water cannot be ensured for some rivers in northern beyond rechargeable quantities is extracted from China. For example, water withdrawal rates in the ground, leading to a lowering of water tables the Huang River can reach up to 90 percent in and eventual exhaustion of groundwater reser- dry years, with the river running dry before voirs, as well as extensive subsidence in many reaching the sea (WRI 2001). In some years cities. In northern China in 2005, 63.3 percent in the 1990s, water flows at the deltas of the of water supply was from surface water, and Hai and Huang (Yellow) rivers averaged about 36.3 percent (over one-third) from ground- 15 km3 less than the amount required to trans- water, equivalent to withdrawal rates of 47.1 per- port silt and to maintain estuarine and coastal cent and 53.5 percent, respectively (Table 2.4). environments (World Bank 2002b). The dura- In the Hai River basin, groundwater accounted tion of low flows in these rivers increased from for 66.7 percent of water supply and was being 40 days in the early 1990s to 200 days in 1997. withdrawn from the aquifer at a rate of 95.5 per- In recent years, the situation has improved cent. To compensate for the deficit of surface because of relevant policy actions such as the water in meeting demand, northern China has Regulation on Water Volume Control for the increasingly relied on groundwater. T A B L E 2 . 4 Water Supply and Renewable Water Resources in China, 2005 Average Annual Renewable Water Supply (km3, %) Water Resources (km3) Intensity of Water Use (%) Ground- Ground- Ground- Basin Surface water Total Surface water Totala Surface water Total North 157.6 (63.3) 90.4 (36.3) 249.1 (100) 334.3 168.9 405.4 47.1 53.5 61.4 Song-Liao 30.4 (53.4) 26.4 (46.4) 56.9 (100) 165.3 62.5 192.8 18.4 42.2 29.5 Hai-Luan 12.3 (32.3) 25.3 (66.7) 37.9 (100) 28.8 26.5 42.1 42.7 95.5 90.0 Huang (Yellow) 24.5 (64.2) 13.3 (34.9) 38.2 (100) 66.1 40.6 74.4 37.1 32.8 51.3 Huai 38.5 (70.8) 15.8 (29.0) 54.4 (100) 74.1 39.3 96.1 52.0 40.2 56.6 South 299.6 (95.3) 13.5 (4.3) 314.3 (100) 2260.8 591.7 2276.6 13.3 2.3 13.8 Yangtze 175.6 (95.3) 8.0 (4.3) 184.2 (100) 951.3 246.4 961.3 18.5 3.2 19.2 Pearl 83.0 (95.0) 4.1 (4.7) 87.4 (100) 468.5 111.6 470.8 17.7 3.7 18.6 Southeast 31.2 (96.0) 1.2 (3.6) 32.5 (100) 255.7 61.3 259.2 12.2 2.0 12.5 Southwest 9.9 (96.9) 0.3 (2.9) 10.2 (100) 585.3 154.4 585.3 1.7 0.2 1.7 Northwest 52.0 (84.3) 9.6 (15.5) 61.7 (100) 116.4 86.2 130.4 44.7 11.1 47.3 TOTAL 457.2 (81.2) 103.9 (18.4) 563.3 (100) 2711.5 828.8 2812.4 16.9 12.5 20.0 Sources: Water supply data is from CAS (2007) for year 2005. Data on average annual renewable water resources is from a comprehen- sive assessment of national water resources by the Nanjing Institute of Hydrology and Water Resources in 1995­96. a. Surface water and groundwater are interrelated, and therefore, the total amount of water resources may be smaller than the sum of surface water and groundwater. A D D R E S S I N G C H I N A ' S W A T E R S C A R C I T Y 17 W A T E R S C A R C I T Y I N C H I N A : C U R R E N T S I T U A T I O N F I G U R E 2 . 7 Groundwater Depletion by Province (million m3) 0 300 kilometers 0 100 200 300 miles BEIJING Groundwater depletion (m3, millions) 0­300 300­600 600­1500 1500­3000 >3000 PROVINCE BOUNDARIES INTERNATIONAL BOUNDARIES Source: Adapted from World Bank (2007a), which was originally from Ministry of Water Resources. Such excessive overexploitation of ground- ing groundwater resources are substituted by water resources (Figure 2.7) has resulted in the brackish water that often lies between the shal- lowering of water tables and the rapid depletion of low and deep groundwater tables (Zhu 2006). In groundwater reservoirs. For example, the annual some locations, intrusion of brackish water has sustainable supply of groundwater in the Hai been monitored at a rate of 0.5 to 2 meters per River basin is estimated at about 17.3 km3, while year for the past 20 years (Foster et al. 2004). Sea withdrawals were 26.1 km3, which indicates an water intrusion has occurred in 72 locations along annual overextraction as high as 8.8 km3. As a coastal provinces, covering an area of 142 km2 result, deep groundwater tables have dropped by (World Bank 2002b). up to 90 meters, and shallow groundwater tables When groundwater is depleted, the aquifer is by up to 50 meters (World Bank 2002b). In Bei- compacted, causing the land above it to subside. jing, groundwater tables have dropped by 100 to Subsidence of up to several meters has been 300 meters (World Bank 2002b). observed in cities like Beijing, Tianjin, Taiyuan, The depletion of groundwater resources is con- Shijiazhuang, and Shanghai, causing damage tributing to the drying up of lakes and wetlands to buildings and bridges, and even the collapse and an increase in groundwater salinity, which of construction projects (Shalizi 2006). Direct occurs when seawater intrudes or when declin- impacts of subsidence include reduced capacity 18 A D D R E S S I N G C H I N A ' S W A T E R S C A R C I T Y W A T E R S C A R C I T Y I N C H I N A : C U R R E N T S I T U A T I O N F I G U R E 2 . 8 Polluted Water Supplies in China 0 300 kilometers 0 100 200 300 miles Water supply not meeting standard (m3, millions) 0­500 500­1500 1500­3000 3000­4000 >4000 PROVINCE BOUNDARIES INTERNATIONAL BOUNDARIES Source: Adapted from WB (2007a) with data from the Ministry of Water Resources. for flood protection and waterlogging in urban domestic water supply (World Bank 2007a). areas due to less effective drainage (World Bank Some studies found significant correlations 2002b). The compaction of groundwater aquifers between the level of coliform bacteria in drinking also destroys their storage capacity, and with it water and the incidence rates of diarrhea, and their ability to serve as a strategic reserve for dry between the integrated water quality index years. In some areas, the destruction of aquifers (IWQI) and incidence rates of typhoid/para- is already worsening the impact of droughts and typhoid and diarrhea for both men and women desertification. (Pan and Jiang 2004). The lack of access to piped Water scarcity and water pollution have impor- water has been associated with a 26 percent tant social impacts. The most important relates to increase in diarrhea in children under five years of the health risks resulting from polluted drinking age (Figure 2.9). As Figure 2.10 shows, the mor- water sources. According to a national survey, tality rates for liver and stomach cancer in China about 25 percent of over 1,000 source areas of are well above the world average, while the mor- drinking water nationwide do not meet the tality rates for liver, stomach, and bladder cancer national standard (Sheng 2005). In rural areas, were highest in rural areas. about 300 million people rely on unsafe drinking The social impacts of water pollution become water, of which 190 million drink water with most prominent during pollution emergencies. unhealthy levels of hazardous materials, 63 million This is exemplified by the Songhua River inci- with high concentrations of fluorine, and 38 mil- dent and the more recent water crisis in Wuxi lion with salty water (Sheng 2005). Figure 2.8 City (Box 2.1). shows polluted surface and groundwater supplies Water scarcity and pollution have caused for domestic use. During 2000­03, 47 m3 of water tremendous economic losses in China. The eco- that did not meet the Grade III standard (of nomic cost of the disease and deaths associated being safe for human consumption after treat- with the excessive incidence of diarrhea and ment) were used for water supply, which was cancer in rural China has been estimated, based close to 10 percent of the average national on 2003 data, at about 66.2 billion yuan, or A D D R E S S I N G C H I N A ' S W A T E R S C A R C I T Y 19 W A T E R S C A R C I T Y I N C H I N A : C U R R E N T S I T U A T I O N F I G U R E 2 . 9 Rural Households with No Access to Piped Water and Diarrhea Incidence Incidence of diarrhea Rural HH NTW by county per capita, by province 0­3458 0­72,061 3459­7800 72,062­208,769 7801­13574 208,770­393,469 13575­21886 393,470­633,312 21887­41341 633,313­893,222 Note: Counties with no shading are categorized as"Urban"or"Urban Center". Source: World Bank (2007a). F I G U R E 2 . 1 0 Mortality Rate for Cancer Associated with Water Pollution (1/100,000) in China, 2003 (world Average in 2000) 35 30 Major cities sons Medium/small cities 25 per Rural World average 20 100,000 per 15 10 Incidence 5 0 Esophageal cancer Stomach cancer Liver cancer Bladder cancer Source: World Bank 2007a. 20 A D D R E S S I N G C H I N A ' S W A T E R S C A R C I T Y W A T E R S C A R C I T Y I N C H I N A : C U R R E N T S I T U A T I O N In addition to direct impacts, pollution com- B O X 2 . 1 Water Crisis in Wuxi in 2007 pounds the scarcity of water. This imposes sig- Wuxi, a typical city in eastern China, has long nificant costs on all productive sectors, especially relied on Lake Tai as its source for water supply. agriculture. China depends on 55 million hectares Since the 1980s, rapid industrialization and urbanization have accelerated the eutrophica- of irrigated lands for about 80 percent of total tion process of Lake Tai, which historically has grain output. Of these, about 20 million hectares been a major recipient of abundant agricul- are suffering from water deficiency, and an addi- tural fertilizer, pesticides, and livestock wastes. In May 2007, there was a sudden large-scale tional 7 million hectares cannot be irrigated at all, algae bloom, resulting in an intolerable odor largely because of a shortage of 25 km3 of polluted in the local public water supply. Approximately water that cannot be used. The economic cost of 70 percent of local water supply became unus- able, severely affecting the water use of 2 mil- water held back from supply has been estimated lion people. at 85.4 billion yuan, or about 0.64 percent of GDP, based on a scarcity value of water from 2.1 to 5.2 yuan/m3 (He and Chen 2005). The eco- nomic cost of groundwater depletion has been about 0.49 percent of GDP. These costs are estimated at 92.3 billion yuan, equivalent to underestimated, since they do not include many 0.69 percent of GDP, based on the scarcity value health impacts associated with water pollution, of water (World Bank 2007a). such as those associated with chemicals known Overall, water scarcity is constraining the to cause cancer but without sufficient data to long-term sustainability of development. The determine a dose-response relationship (World above estimates suggest that the external cost Bank 2007a). of water already amounts to about 2.3 per- Another important cost results when waste- cent of China's GDP, of which 1.3 percent is water (that is, water below Grade V standards attributable to the scarcity of water, and 1 per- for irrigation) is used to irrigate crops. About cent to the direct impacts of water pollution. 4.05 million hectares, or 7.4 percent of the These estimates only represent the tip of the nation's irrigated lands, are irrigated with pol- iceberg. They do not include costs where data luted water; two-thirds of this land are in north- are unavailable, such as the avoidance and ern China. This leads to reduced harvests, poor treatment costs incurred by individual house- quality crops, and degraded quality soils. The eco- holds and enterprises; the ecological impacts nomic loss attributed to these impacts has been associated with eutrophication and the drying estimated at about 61.3 billion yuan, equivalent up of lakes, wetlands, and rivers; and the to about 0.46 percent of GDP in 2003. amenity loss of extensive pollution in most of Water pollution also has an important impact China's water bodies. Thus, the actual cost can on fisheries. Fishery losses due to acute pollution be much higher. accidents amounted to over 4.3 billion yuan in 2003. While not insignificant (this figure is EXTERNAL DRIVING FORCES equivalent to 0.03 percent of GDP), these fig- OF WATER PROBLEMS ures greatly underestimate the total fishery loss due to pollution, since chronic pollution costs While natural conditions are important, China's are not included in the estimate and are likely to water resource issues can be largely attributed be much higher (World Bank 2007a). There are to human-related activities. The increasingly also major impacts on aquatic, coastal, and serious water problems are embedded in the marine ecosystems, which are not included in process of development and transformation in the estimate. China over the past three decades. Such factors A D D R E S S I N G C H I N A ' S W A T E R S C A R C I T Y 21 W A T E R S C A R C I T Y I N C H I N A : C U R R E N T S I T U A T I O N as economic growth, industrialization, urban- infrastructure, the growth in population directly ization, and continuous population expansion contributed to an increase in water demand and constitute the driving forces of China's water serious water pollution. problems. At the regional level, there is a widening gap Since the late 1970s, when China began its between the eastern coast and western/inland economic reform and opening-up, it has been (upper reaches of most rivers) areas of China, among the fastest growing economies in the posing a challenge for water resources and water world, with an average annual growth rate of quality management in river basins. In China, more than 9 percent (China Statistical Yearbook the wealthiest provinces and cities are all located 2006). Its economy, however, remains largely along the eastern coast, which are the lower based on extensive use of natural resources. Partly reaches of most rivers, while the upper reaches because of China's low water productivity--at tend to be in the poor provinces in the West. $3.6/m3, lower than the average of middle- The economic gap between the western and east- income ($4.8/m3) and high-income ($35.8/m3) ern regions has widened during the past 10 years. countries (World Bank 2007d)--such rapid eco- For instance, in 2006 the per capita GDP of east- nomic growth has led to a rapid increase in water ern China reached RMB 25,400 yuan, nearly demand. Rapid growth has also led to serious 2.5 times that in western China. The regional gap pollution via the ineffective control of wastewater and inequality means that those less developed discharges, especially those from urban and agri- provinces located in upper reaches have few finan- cultural sources. cial resources and incentives to invest in water China's urban population accounted for resources management and water pollution con- 44.9 percent of the total by the end of 2007, trol, which worsens the water situation in the compared to 17.9 percent in 1978. Urbaniza- lower reaches. tion generally contributes to higher efficiency While debate over the sustainability of China's of water use, but these increased efficiencies rapid growth continues, the momentum of this are only achieved if the urban public services growth--and its attendant consequences--is not infrastructure, including water supply and likely to slow down. The process of urbanization wastewater treatment, is expanded in tandem will also continue, with the share of urban popu- with demand. However, only 56 percent of lation likely to reach 55 to 60 percent by 2020. urban domestic wastewater was treated in 2006 The population itself will also keep growing and (NDRC 2007c), and 200 cities had no treat- peak at 1.5 billion around 2033. Driven by these ment at all (SEPA 2007c). Given such a lag in forces, under a business-as-usual scenario (i.e., the supply of urban wastewater sewerage and with a continuation of the existing water pricing treatment infrastructure, China's increased urban- regime), total water demand in China is projected ization has increased the flow of untreated to increase from 563.3 km3 in 2005 to 653.5 km3 wastewater discharges, with the attendant pol- (a 16 percent increase) in 2030. The increase lution impacts. is largely driven by industrial and municipal Another factor is the continuous growth of demands, which will increase 42 km3 and 40 km3 population. In spite of strict family planning on the level of 2000, respectively, while agricul- policy measures implemented to control popu- tural demand will decrease 10 km3. Compared to lation growth since the mid-1970s, China's pop- the levels in 2000, this scenario suggests that by ulation increased from 962.59 million in 1978 2030 water demand will increase by 6.7 percent in to more than 1.31 billion in 2006 (China Sta- the Hai River basin, 10 percent in the Huai River tistical Yearbook 2007). Given the low water- basin, and 50 percent in Songhua Jiang basin use efficiency and lagging wastewater treatment (Table 2.5).8 22 A D D R E S S I N G C H I N A ' S W A T E R S C A R C I T Y T A B L E 2 . 5 Projected Water Demand Per Capita Shares by Sectors (%) Demand Total Demand (km3) (m3) 2000 2030 2000 2030 increase 2000 2030 Municipal Industry Agriculture Municipal Industry Agriculture River Basins Songhuajiang 35.2 51.7 16.5 559 689 9 22 69 9 20 71 Liao 19.6 22.7 3.1 356 355 13 18 69 20 25 55 Hai 40.2 42.9 2.7 312 262 13 17 70 21 21 58 Huang 43.7 48.1 4.4 397 364 7 14 79 13 19 68 Huai 65.1 71.6 6.5 332 320 10 16 74 18 20 62 Yangtze 193.9 223.9 30.0 454 451 10 29 61 15 33 52 ADDRESSING Southeast Rivers 33.9 33.8 -0.1 471 367 12 26 62 20 34 46 Pearl 79.2 81.0 1.8 492 405 13 20 67 20 29 51 WATER Southwest Rivers 10.6 13.6 3.0 530 544 8 3 89 14 6 80 Northwest SCARCITY CHINA'S Rivers 59.8 64.2 4.4 2062 1646 2 3 95 4 3 93 Regions 6 Northern Regions 263.6 301.2 37.6 453 432 8 14 78 13 17 70 4 Southern WATER Regions 317.6 352.3 34.7 467 433 12 25 63 17 31 52 IN Nationwide 581.2 653.5 72.3 461 432 10 20 70 16 24 60 CHINA: SCARCITY CURRENT SITUATION 23 W A T E R S C A R C I T Y I N C H I N A : C U R R E N T S I T U A T I O N Endnotes discharges from TVIEs, however, are likely to be excluded from the trend even though no detailed data 1. See data from AQUASTAT, a global information system have been reported in the statistics yearbooks since on water and agriculture developed by FAO. 2001. 2. Chinese Statistics Yearbook 2006. Beijing: China Statis- 6. Zhou, Shengxian. 2006. "Speeding up Facilitating His- tics Press. torical Transition and Creating a New Situation of Envi- 3. Including the UNEP, UNDP, World Bank, and the ronment Protection." A speech at the 2006 Meeting of World Resources Institute. Director-Generals of Local EPBs across China, April 18, 4. China Environmental Yearbooks show TVIE wastewater 2006. discharge only for the years 1997­2000, which tended to 7. See http://news.xinhuanet.com/newscenter/2004-03/22/ be increasing. content_1378785.htm. 5. China Environmental Yearbooks indicate an increas- 8. China Sustainable Development Strategy Study Group ing rate of wastewater discharged by county and above of the Chinese Academy of Sciences. 2007. China Sus- county-owned enterprises that meets the discharge tainable Development Strategy Report 2007--Water: Gov- standard over the years 1995­2000. The wastewater ernance and Innovation. Beijing: Science Press. 24 A D D R E S S I N G C H I N A ' S W A T E R S C A R C I T Y 3 Water Resources Management in China An Overview of Determinant Variables This chapter reviews the system and practice of water resource management in China. The first section points out technically viable and economically fea- sible water-saving and cleanup options available to address water scarcity, and highlights the potential influence of institutional and policy determinants in improving water resource management. The second section examines the Government of China's commitments, major plans, and actions to address water scarcity. It then discusses the existing institutional issues and policy fail- ures in water management as causes of water scarcity in China, indicating areas for improvement. These are the elements of the water management sys- tem whose design and operation the government can control to influence water-related activities and behaviors. They are treated as determinant vari- ables for the purposes of this study. TECHNICAL SOLUTIONS ARE AVAILABLE AND ECONOMICALLY FEASIBLE While the emerging water crisis is serious, there are many technically and eco- nomically feasible options to address it by improving the productivity of water use and reducing pollution. China's water productivity is low in comparison with other countries. That suggests a significant potential for China to reduce its water demand without slowing down its pace of development. The water productivity gap between China and other countries is largely due to differ- ences in the structure and efficiency of water consumption, and should improve with the gradual evolution of the economy's sectoral structure. For example, the agriculture sector, which accounted for 65 percent of freshwater withdrawals, saw its share of GDP decline from 25 percent in 1989 to 13 per- cent in 2005. Over the same period, industry increased its share of GDP from 43 percent to 48 percent, and services from 32 percent to 40 percent, while consuming only 23.4 percent and 1.7 percent respectively of water with- drawals (MWR 2005). A D D R E S S I N G C H I N A ' S W A T E R S C A R C I T Y 25 W A T E R R E S O U R C E S M A N A G E M E N T I N C H I N A : A N O V E R V I E W O F D E T E R M I N A N T V A R I A B L E S Water productivity in agriculture is the lowest major underlying cause has been the utilities' lim- of all sectors. This is largely due to extensive waste ited ability to support the maintenance and reha- in irrigation systems, as well as suboptimal alloca- bilitation of these pipelines (World Bank 2007b). tion among crops and between different parts of The leaks account for about 18 percent of total the same river basin. The extent to which water urban water supplies on average, or about 1.5 per- is wasted is difficult to estimate with accuracy. cent of China's total water withdrawals. One estimate is that due to the poor management Finally, the cleanup of pollution will substan- of irrigation canals, only 50 percent of water tially contribute to addressing the scarcity of from primary canals is actually delivered to fields water. As mentioned in Chapter 2, approximately (Xu 2001). The water that reaches the fields is not 25 km3 of polluted water is held back from con- used efficiently by local irrigation managers and sumption, contributing to unmet demand and farmers; it is estimated that 20 to 30 percent is groundwater depletion. As much as 47 km3 of wasted. Only about 40 percent of water with- water that does meet quality standards is never- drawals for agriculture are actually used by farm- theless supplied to households, industry, and ers on their crops (Wang et al. 2005). agriculture, with the attendant costs. A further Water productivity in industry is also low by 24 km3 of water beyond rechargeable quantities is international standards. China's paper producers, extracted from the ground and causes ground- for example, consume about 400 to 500 tons of water depletion. Altogether, the cleanup of water per ton of paper, compared to consumption pollution could make nearly 100 km3/year of of less than 200 tons of water in OECD countries. additional surface water available for consump- The largest steel mills use about 60 percent more tion or environmental uses, equivalent to 18 per- water to produce a ton of steel than the combined cent of China's total freshwater withdrawals average of the United States, Japan, and Ger- (World Bank 2007a). many, while water consumption by smaller firms The expanded use of water savings and is as much as five times higher than in those devel- cleanup options is economically feasible, espe- oped countries. This may be due to differences in cially in water-scarce North China. A recent study the structure of production, as well as low levels estimated the scarcity value of water to range from of water recycling. About 40 percent of indus- 2.1 to 5.2 yuan/m3 (He and Chen 2005). The trial water is recycled, compared to 75 to 85 per- value differs between river basins, with the high- cent in developed countries. If China's industry est values obtained in the Yellow, Huai, and Hai could improve its water utilization efficiency basins, where water is scarcest. An ongoing study to that level, it could reduce its raw water con- of the Hai basin has found that the economic sumption withdrawals by two-thirds (SEPA Pol- value of water ranges from 1.0 yuan/m3 in paddy icy Research Center 2006). irrigation to 12.3 yuan/m3 in vegetable fields China's urban water utility distribution net- and 21.3 yuan/m3 in manufacturing. work losses are among the highest in the world, For China as a whole, the scarcity value of averaging around 50 to 75 m3/day per km of net- water is determined by the incremental cost of work. This is twice the leakage rate in Brazil and additional supplies. For coastal areas such as the Russia, and more than ten times the rate in the Hai basin, including Tianjin and Beijing, a ceil- United Kingdom. Among the lowest performing ing on the scarcity value of water is provided by utilities, average leakage rates are around 150 m3/ the cost of producing desalinated water, which day/km. Many pipelines are old and need reha- has fallen dramatically in the past two decades. bilitation, and many newer pipelines built prior to Recently built large-scale plants in many coun- 1990 were constructed with poor quality materi- tries produce freshwater for $0.45 to $0.50/m3 als and substandard construction methods. A (equivalent to 3.4 to 3.8 yuan/m3) using reverse 26 A D D R E S S I N G C H I N A ' S W A T E R S C A R C I T Y W A T E R R E S O U R C E S M A N A G E M E N T I N C H I N A : A N O V E R V I E W O F D E T E R M I N A N T V A R I A B L E S osmosis technology (U.S. National Research basins and lakes, including the Yangtze River Council 2004). China has a history of desali- (1998), Huai River (1998), Huang River (1998), nation projects dating back to 1958. More than Hai-Luan River (1998), Song-Liao River (1998), 20 seawater desalination plants are planned or in Pearl River (1998), and Lake Tai (1998). operation, with a cumulative capacity of 30,000 The 10th FYP (2001­05) highlighted again m3/day and a production cost of 4­7 yuan/m3.1 the importance of improving water resources Another indicator of the scarcity value of water is management in achieving sustainable social and the unit cost of the South-North Water Transfer economic development (SCCG 2001). It identi- Project, which is about 7­8 yuan/m3.2 fied the actions needed, including establishing a Overall, a wide range of water-saving and pol- rational water resource management system, set- lution abatement technologies is available and ting up rational pricing mechanism, adopting economically feasible for China, and some have water conservation technologies and measures, already been adopted to a limited extent. But the facilitating the development of water efficient rate of adoption has been insufficient to balance industries, strengthening water pollution preven- the supply and demand of water and effectively tion and control, and raising the public awareness address the water quality issues that have con- of water conservation. tributed to the emergence of the water crisis. The The 11th FYP (2006­10) sets a number of creation of an enabling environment, including policy goals and priorities for water resources institutional and policy reforms that will acceler- management in line with the guiding principle ate the adoption of these technical solutions, of "scientific development" and the general goal should lie at the heart of any strategy to address of achieving a "harmonious society." The 11th China's water scarcity. FYP stresses the need for improving water re- sources management by adopting a more unified or better coordinated management pattern, shift- GOVERNMENT COMMITMENTS, ing from supply-side to demand-side manage- PLANS, AND IMPLEMENTATION ment, integrating river basin management with China's leadership is well aware of the severity of regional management, and establishing a pre- its water problems, and has committed to the liminary system of water rights trading. creation of a water-saving society. The impor- According to the 11th FYP, the total water tance of water resources management has been consumption for agricultural irrigation is to recognized and is considered a policy priority in remain constant, with the effective water-use action plans of the Chinese government. For coefficient expected to reach 0.5. For industrial example, the 9th Five-Year Plan (FYP) (1996­ sectors, especially water-intensive industries such 2000) for National Social and Economic Devel- as power plants, mining, and steel, the focus will opment set sustainability as the guiding principle be on development and innovation of water- for socioeconomic development, and put stress saving technologies. The mandate target is to on strengthening water resource development reduce water consumption per unit of industry- (SCCG 1996). In the aftermath of the 9th FYP, added value by 30 percent. For the urban sector, the government developed a medium- and long- the focus will be on improving water-saving mea- term national plan to balance water supply and sures, including mandatory use of water-saving demand (NIWRH and CIWRHR 1998). Based appliances; enhancing water recycling and reuse; on a number of studies dedicated to water and strengthening construction of water-saving resources management, the MWR (1998) pub- infrastructure in public buildings and residential lished China Agenda 21. This was followed by a houses. Priorities set in the 11th FYP include series of action plans for the management of river water pollution control in major river basins A D D R E S S I N G C H I N A ' S W A T E R S C A R C I T Y 27 W A T E R R E S O U R C E S M A N A G E M E N T I N C H I N A : A N O V E R V I E W O F D E T E R M I N A N T V A R I A B L E S and regions such as the "three major rivers" and focuses on five areas of water resource manage- "three major lakes"; protecting the sources of ment: (1) water allocation; (2) water rights and drinking water supply; and regulating pollution water withdrawal permits; (3) river basin manage- discharge into major rivers and lakes. The plan ment; (4) water use efficiency and conservation; also promotes construction of municipal sewage and (5) protecting water resources from pollution. treatment facilities and generalization of waste- As a response to increasingly severe water pol- water charges, with a target of raising the waste- lution, China amended its Water Pollution Pre- water treatment rate to 70 percent by 2010. vention and Control Law, which was passed in Based on the principles and goals set by the 1984 and amended in 1996. Adopted by the 11th FYP, the Chinese government developed the Standing Committee of the NPC on February 11th Five-Year Plan of National Water Resources 28, 2008, the newly amended version provides Development (FYPNWRD), setting specific ob- more detailed measures for preventing and con- jectives with action plans and measures to support trolling water pollution from various sources, them (Box 3.1). makes clearer specifications on the responsibili- In 2002, the Chinese government amended the ties of different stakeholders, and strengthens the Water Law passed in 1988 to establish a legal foun- legal liabilities for water pollution. dation for integrated water resource management These plans and laws embrace efficiency, and demand management. The amended 2002 equity, and sustainability as universally accepted Water Law enshrines the principles that everybody principles for water resources management. The should have access to safe water, and that water Chinese government also strengthens such prin- conservation and protection are a priority. It ciples as (a) balancing between water resource uti- B O X 3 . 1 China's 11th FYP for Water Resources Development Based on the 11th FYP, China developed the 11th FYP of National Water Resources Development to provide specific guidance on water resources development and management. The 11th FYP of National Water Resources Development emphasizes that water is an important national strategic resource that is becoming increasingly scarce. The sustainable use of water resources to support sustainable social and economic development will be an important mission of the government for the 11th FYP period. The plan summarizes achievements in water resource development and reform during the 10th FYP period and lays out guiding principles and a vision for the reform of water resources develop- ment and management. It promotes actions in the following fields: (a) improving water resource development; (b) strengthening construction and management of water projects; (c) increasing investment; (d) deepening reforms; (e) improving management of water resources within the legal framework; (f) enhancing the capacity of disaster prevention and response; and (g) protecting and saving water resources. The plan sets specific objectives with action plans for water resource development and manage- ment and reform. In regard to water resource development, it focuses on the construction of water works and technological innovation for securing water supply and drinking water safety, enhancing flood control and disaster mitigation, and improving water saving and conservation. In regard to water resource management, it proposes such actions as reform of the management system, estab- lishing a water rights trading and administration system, introducing quantity control and quota management, shifting to integrated river basin management, setting up mechanisms for water financing, strengthening water conservation in rural areas, and improving water pricing. It also lists major measures to support its implementation, including setting up financial mechanisms, defining authorities and responsibilities of government institutions, improving accountability, conducting research and staff training, and enhancing public participation in water resource management. 28 A D D R E S S I N G C H I N A ' S W A T E R S C A R C I T Y W A T E R R E S O U R C E S M A N A G E M E N T I N C H I N A : A N O V E R V I E W O F D E T E R M I N A N T V A R I A B L E S lization and conservation; (b) planning as a whole by the end of the 10th Five-Year Plan for Envi- for and balancing between various uses and ronmental Protection (FYPEP), the objectives of demands of various users; (c) integrating increas- water pollution control were not achieved, in ing sources of water supply and saving water, spite of substantial investment (Table 3.1). A with water saving as the priority; (d) putting pol- recent case study of the Huai River basin, the lution control first; and (e) integrating basin- most heavily polluted in China, identifies a few based water management with administrative reasons why the extensive water pollution pre- boundary-based water management. vention and control programs of the 9th and These plans reflect the strong commitment of 10th FYP periods have not achieved their objec- the Chinese government to address the nation's tives of reducing major pollutants such as COD water problems, prevent the emergence of a water (Box 3.2; see also Box 8.1 in Chapter 8). crisis, and provide guidelines for policy making at both the central and local levels. However, EXCESSIVE FRAGMENTATION OF these plans are not always fully implemented, and THE WATER MANAGEMENT SYSTEM not all the planned objectives can be achieved. For example, since the mid-1990s, the Chinese Despite the recent trend of combining various government has pledged to carry out large-scale water-related agencies into a more unified water water pollution prevention and control in the key bureau in some city governments and converting polluted basins of three rivers and three lakes government-owned water utilities into corpora- over two successive five-year periods. However, tions, China's water resource management system T A B L E 3 . 1 Performance in Meeting the 10th FYPEP Targets for Water Pollution Control Chemical Oxygen Demand Ammonia Nitrogen (tons, million) (tons, thousands) Sector/Region 2000 Base 2005 Target 2004 Actual 2000 Base 2005 Target 2004 Actual Total 14.45 13.00 13.39 18.3 16.5 13.3 Industry 7.05 6.47 5.10 7.8 7.1 04.2 Domestic 7.40 6.53 8.30 10.6 9.4 9.1 Rivers Huai 1.06 0.64 0.99 1.5 1.1 1.2 Hai 1.58 1.06 1.24 2.6 2.0 1.3 Liao 0.58 0.33 0.47 0.7 0.5 0.5 Lakes Tai 0.49 0.38 0.44 130.0a 99.1a 42.0a Chao 0.06 0.06 0.07 12.3a 11.4a 8.0a Dianchi 0.04 0.03 0.03 10.9a 8.8a 2.0a South-north Water Transfer 0.97 0.55 0.49 1.4 0.7 0.5 Three Gorges Reservoir 1.35 1.03 1.01 1.1 0.8 0.8 Bohai Sea 1.14 1.03 2.09 1.6 1.3 0.1 Beijing 0.19 0.13 0.13 0.4 0.3 0.2 Source: OECD (2007). a. Total nitrogen is in ten thousand tons. A D D R E S S I N G C H I N A ' S W A T E R S C A R C I T Y 29 W A T E R R E S O U R C E S M A N A G E M E N T I N C H I N A : A N O V E R V I E W O F D E T E R M I N A N T V A R I A B L E S B O X 3 . 2 Case Study: Evaluating the Implementation of the Water Pollution Prevention and Control Plans for the Huai River Basin The Huai River basin (HRB) is located between the Yangtze River basin and Yellow River basin, cov- ering an area of 270,000 km2 in Henan, Anhui, Jiangsu, and Shandong provinces. It is composed of two water systems, the Huai River to the south of the old Yellow River, with a catchments area of 190,000 km2, and the Yishusi River to the north, with a catchments area of 80,000 km2. The HRB's population was estimated at 168 million in 2003, accounting for 13 percent of the nation's total. Its GDP has increased from 421.48 billion yuan in 1994 to 1.05 trillion yuan in 2003. The urban popula- tion share increased from 13.02 percent in 1990 to 20.22 percent in 2003. Since the end of the 1970s, the basin has witnessed booming growth in township and village enterprises, including paper production, alcohol distilleries, and food processing plants, which are highly water intensive and polluting. Since the introduction of large-scale pollution control in the Huai River in 1993, township industrial enterprises and others have grown by 1.5 times, and indus- trial output 14.5 times, over the 1978 levels. Enterprises, especially low-tech agro processing plants, grew rapidly. These small enterprises not only further aggravated the shortage of water resources in the basin, but also increased pressure on the environment, leading to frequent pollution incidents. To address water pollution in the HRB, a series of Water Pollution Prevention and Control Plans (WPPCP) were made at the basin and provincial, city, and county levels by central authorities, local environmental protection bureaus (EPBs), and planning agencies. Despite the great efforts to prevent and control water pollution, the planned goals for total pol- lutant discharge control and water quality have not been achieved, and the planned investment and treatment projects have not been fully implemented. There is still a long way to go to achieve the objective of controlling water pollution and improving water quality in the basin. The failure can be attributed to insufficient consideration of the complexity and difficulty of water quality improve- ments in formulating the plans; incomplete and even distorted information for pollution control planning; lack of monitoring systems to evaluate implementation of plans; policy failures in support of implementation of plans; and fragmented institutional systems for water resources management. Source: Ma 2006a. is characterizedby extensive verticalandhorizontal manage the water." Within this system, there are fragmentation. Horizontally, at every level of gov- overlaps and conflicts in responsibilities, as the ernment several institutions are involved in water boundaries between institutional jurisdictions management. At the central level, the NPC and are not always clear. This unwieldy system has the State Council play an overarching role through increased the administrative cost for coordination enactment of laws/regulations and supervising among different institutions and affected the effec- their implementation and coordination. In addi- tiveness of water management. tion, a dozen ministries/authorities are involved in For example, water quality and quantity man- various ways in water management: the Ministry agement are separated from each other and put of Water Resources (MWR), Ministry of Envi- under MEP and MWR; that is, MWR is respon- ronmental Protection, State Oceanic Administra- sible for water allocation planning and water rights tion, Ministry of Housing and Urban and Rural administration, whereas MEP is responsible for Construction (MHURC), Ministry of Finance, water pollution prevention and control. As a result, Ministry of Agriculture (MOA), Ministry of the planning process for basin-wide water quantity Land and Resource, Ministry of Transportation and quality management has mainly proceeded (MOT), the State Forestry Administration, and on two separate tracks, under the supervision of National Development and Reform Commission MWR and MEP, with the actual implementation (NDRC) (Figure 3.1).3 A common metaphor to in the hands of the local governments. This two- describe the current system is that "nine dragons track system is replicated at the local (province, 30 A D D R E S S I N G C H I N A ' S W A T E R S C A R C I T Y W A T E R R E S O U R C E S M A N A G E M E N T I N C H I N A : A N O V E R V I E W O F D E T E R M I N A N T V A R I A B L E S F I G U R E 3 . 1 Ministries and Authorities Involved in Water Resource Management Integrated water resource management, water Lead resource protection planning, water function agency zoning, monitoring water quantity and quality Ministry of Water in rivers and lakes; issues water resource Resources extraction permits, proposes water pricing policy Ministry of Water pollution laws, regulations/standards, Environmental supervise/enforce, water environmental function Protection zoning, initiates WPM plans in key rivers and lakes, monitors water quality Ministry of Housing and Urban and Rural Urban water supply, urban wastewater Construction treatment Ministry of Rural and agricultural water use and Agriculture agricultural nonpoint pollution Ministry of Land Other Water as a resource, land use planning and Resources relevant Management agencies State Forest Forests for conserving water sources Administration Resource Ministry of Ship transportation water pollution control Transportation Water State Oceanic Manages sea area use, protects marine Administration environment National Pollution levy policy, wastewater treatment Development and pricing policy, water pricing policy, industrial Reform policies that affect wastewater discharge and Commission. its treatment Pollution levy proceeds management, manages Ministry of Finance wastewater treatment charges and water re- source fee policy, State Office of Comprehen- sive Agricultural Development The State Council Implementation regulation, administrative regulation and order, lead, and coordination National People's Congress Legislation, law enforcement, and supervision Source: Authors. A D D R E S S I N G C H I N A ' S W A T E R S C A R C I T Y 31 W A T E R R E S O U R C E S M A N A G E M E N T I N C H I N A : A N O V E R V I E W O F D E T E R M I N A N T V A R I A B L E S prefecture, county) level. Water resource bureaus example, both MWR and MEP monitor the water at the provincial level and water affairs bureaus quality of major rivers, but each has its own (WAB) at the municipal level, which are overseen monitoring stations and do not share its respec- by MWR and MHURC at the central level, are tive database on water quality information. As responsible for the administration of water rights, Figure 3.2 shows, MEP's and MWR's water the planning and operation of water utilities, and quality data for the Huai River over the period the protection of water bodies on the basis of water of 1998­2004 are different. function zones. Environmental protection bureaus Vertically, the water management system is (EPBs) overseen by MEP are responsible for issu- also fragmented. The existing regime of water ing pollution permits, controlling pollution, and resource management is mainly based on admin- the protection of water bodies on the basis of envi- istrative boundaries of different levels of govern- ronmental water zones. ment rather than at the river basin level. Each level Even the responsibility for water pollution pre- of government has its own focal points and pri- vention and control is broken down and put under orities. This makes the management of trans- different institutions. While MEP is responsible boundary rivers difficult. Sector and basin-wide for prevention and control of pollution from objectives, such as abating pollution, balancing industrial and municipal sources, MOA is respon- upstream and downstream needs, and protecting sible for nonpoint agricultural pollution control aquatic ecosystems, tend to have relatively low and MOT for ship transportation water pollution priority among local authorities, who have an control. Consequently, for any given water body incentive to focus local resources on meeting local that receives pollution from various sources, the needs. For example, the benefits from pollution management of water quality would involve these abatement and water savings in one province will institutions as well as MWR, because water qual- be felt farther downstream. However, the major- ity is associated with water quantity: more water ity of funding for pollution control and water- can create greater capacity to dilute more pollu- saving investments must come from local budgets tants. That increases the difficulty and adminis- (user fees or loans) with only a small share con- trative costs in water quality management. tributed by the central government. In addition, these institutions do not cooper- China has established river basin management ate and coordinate with each other very well. For commissions (RBMCs) for its seven large river/ F I G U R E 3 . 2 MEP and MWR Water Quality Data for Huai River, 1998­2004 100 80 60 40 20 0 SEPA MWR SEPA MWR SEPA MWR SEPA MWR SEPA MWR SEPA MWR SEPA MWR 1998 1999 2000 2001 2002 2003 2004 Grade I­II Grade III­IV Grade V­V+ Sources: China Statistical Yearbook (various years), MWR Statistical Yearbook (various years). Note: Grades I­III refer to water that is safe for human consumption after treatment; grades IV­V refer to water that is safe for industrial and irrigation use; and grade V+ refers to water that is unsafe for any use. 32 A D D R E S S I N G C H I N A ' S W A T E R S C A R C I T Y W A T E R R E S O U R C E S M A N A G E M E N T I N C H I N A : A N O V E R V I E W O F D E T E R M I N A N T V A R I A B L E S lake basins (six river basin management com- tional control in most instances rests with the missions and the Lake Tai Basin Management provincial, prefecture, and county governments Agency) as subordinate organizations of the within the river basin. However, these RBMCs MWR. These organizations have limited power. have no representatives from the affected pro- They are responsible for preparing basin-wide vinces and municipalities. As a result, it is dif- water allocation plans and providing technical ficult for them, as subordinate institutions of direction and guidance to local governments MWR, to coordinate with related provinces/ within the basin. Regarding water quality man- municipalities and other stakeholders. agement, RBMCs only have the authority to Given the nature of water resource manage- monitor water quality, but no authority over pol- ment, a more integrated system would be more lution control at the source. For instance, the Hai effective. Some developed countries like France River Basin Management Commission is respon- and the United Kingdom are good examples in sible for inter-provincial water allocation and this regard (Box 3.3). The Chinese government is flood control, while the responsibility for func- aware of the weaknesses of the existing fragmented B O X 3 . 3 River Basin Agencies in France In the early 1960s, several major French rivers had been declared "dead." Levels of pollution from industry and agriculture were dangerously high. Native fish had disappeared, plant life was dying, and the water was unsafe for swimming. Today, the rivers and their surroundings have been reha- bilitated. This dramatic change began with the recognition in 1964 of six river basins as the nat- ural units for water resource management in France, and the creation of six river basin agencies to manage them accordingly. How was this done? The six river basin agencies were established to implement basin-wide sustainable and coherent water management systems, with targets and standards defined by national laws and regulations to ensure the security of water supplies protect the ecological resources of the river environment improve the efficiency of the municipal water supply and wastewater treatment The main tools included consensual agreements among all stakeholders and technical advice and financial support for water "owners"--mainly municipalities, industries, and farmers. The neces- sary financial resources came from water pricing and the enforcement of the consumer-pays prin- ciple for quantitative management and the polluter-pays principle for pollution control. The water resource management plan and a master development plan were drawn up for each five-year period. The plans were proposed by a River Basin Committee ("Water Parliament"), which included all stakeholders. It was complemented by smaller plans, drawn up by local water commit- tees at each subbasin level. An important aspect was the introduction of a system of volume-based water use and effluent charges that fully reflected the treatment costs of specific pollutants (suspended solids, oxygen demand, nitrogen, phosphorus, soluble salts, hydrocarbons, and toxic metals) in each basin's own wastewater treatment plants. Revenues were exclusively used to fund investment and operating costs of the treatment facilities and to provide financial incentives (below-market credits) for pol- lution abatement by industrial plants. Since the program started, more than 500 new wastewater treatment plants have been built, increasing the previous municipal treatment efficiency by about 20 percent for the control of organic pollution and by more than 50 percent for the nutrients. The treatment of industrial discharges has increased by more than 30 percent. As a result, reports show a continuous improvement in the quality of rivers. The one exception is the continuing high level of nitrogen, more than 66 percent of which comes from nonpoint sources. Sources: UNESCO (2003) and http://www.lesagencesdeleau.fr/. A D D R E S S I N G C H I N A ' S W A T E R S C A R C I T Y 33 W A T E R R E S O U R C E S M A N A G E M E N T I N C H I N A : A N O V E R V I E W O F D E T E R M I N A N T V A R I A B L E S system and is planning to initiate reforms to shift covering water allocation, water withdrawal, and from fragmented management to integrated man- water rights transfer. There are also pilots and agement. In his speech at the 17th National Con- experiments in water rights administration at the gress of the CPC in October 2007, China's local, regional, and river-basin levels. President Hu Jintao promoted institutional re- The system of water rights administration in form toward more integrated institutions. In the China is far from mature. First, the initial rights new round of governmental restructuring of of water ownership are not very clearly defined. the State Council initiated in March 2008, some According to the 2002 Water Law, all water ministries/agencies, such as Ministry of Personnel, resources (except those in ponds and reservoirs Ministry of Labor and Social Security, were inte- belonging to rural collectives) are owned by the grated. Therefore, a more integrated water man- state, and the State Council exercises the right of agement system is expected to be set up in the next ownership on behalf of the state. In reality, the few years. State Council has delegated water ownership rights to local governments under the super- vision of MWR. MWR supervises water alloca- POLICY FAILURES IN tions through the RBMCs, which only have the WATER MANAGEMENT responsibility to formulate water-use plans and The most significant policy failures in China's allocate water for major cross-provincial rivers. water management include an underdeveloped For water bodies within provinces, municipali- system of water rights administration; an exces- ties, or counties, water is subject to allocation by sive focus on supply rather than demand man- administrative authorities of the relevant provin- agement; an excessive reliance on administrative cial, municipal, or county governments. measures rather than market-based instruments; Second, under the current system, there is no insufficient financing for pollution control; and link between the amount of water authorized for low levels of pollution charges. use and an overall water resources allocation plan based on water balance analyses at the river-basin level. While basin-wide water allocation plans An Underdeveloped System of Water are prepared by the RBMCs, water rights at the Rights Administration user level are administered by local governments, A sound system of water rights administration which are not represented in the RBMCs. based on clearly defined and tradable water rights Third, the current water rights administration is a prerequisite for more effective water resources system does not cover all water users. The current management through market mechanisms. Dur- water use rights in irrigation areas are allocated to ing the long period of the planned economy, intermediary organizations responsible for irriga- there was no definition of water rights in China. tion rather than to end users. Many users, espe- It was only in the 1988 Water Law that legal stip- cially farmers, withdraw water without permits, ulations were imposed on the ownership of water notably from underground aquifers, which are resources. Since 2000, China has formulated a not regulated at all. series of laws/regulations and policy guidelines Fourth, despite provisions and principles for on water rights administration, including the water rights transfers, there are no specific regu- amended Water Law in 2002 and MWR's 2005 lations on conditions, procedures, and operating Framework for Water Rights System Develop- guidelines for such transfers. ment. Based on these laws/regulations and policy Finally, there are some technical barriers to guidelines, China has established a preliminary effective water rights administration in China. system framework of water rights administration For example, China lacks facilities for measur- 34 A D D R E S S I N G C H I N A ' S W A T E R S C A R C I T Y W A T E R R E S O U R C E S M A N A G E M E N T I N C H I N A : A N O V E R V I E W O F D E T E R M I N A N T V A R I A B L E S ing water use, especially groundwater use. Its built many reservoirs, dug wells to pump ground- current approach is entirely based on measuring water, built canals to transfer water, and more water withdrawals from surface and ground- recently, plans to produce desalinated water. This water sources, rather than "real" water use, in focus on increasing supply without managing terms of the amounts of water consumed by demand has contributed to over-withdrawal and crops and trees for evapotranspiration (ET), and inefficient use of water. taking account of water reflows after use. Recent A greater focus on demand management, espe- advances in technology have made it possible for cially the use of prices to reflect the scarcity value such an approach to be implemented, particu- of water and stimulate its more efficient use, larly for agricultural uses (Box 3.4). would be appropriate. At present, water-use effi- ciency in China is quite low compared to many countries, and the price of water for many uses Excessive Focus on Supply, Rather (domestic, agricultural, industrial) is also low Than Demand Management compared to the scarcity value of water. In 2003, Lack of effective water resources policies that water use per unit of GDP was 4.5 times the level focus on demand management and encourage in developed countries, while water use per unit efficient water use is an important factor caus- of industry-added value was 5 to 10 times the level ing current water scarcity. Traditionally, China's of developed countries. The average crop produc- policies were more focused on meeting the de- tivity of water was 1 kg/m3, only half of the level mands for water by increasing supply rather than of developed countries.4 Therefore, there is great managing demand. In order to increase water sup- potential for demand management to play an ply to meet continuously growing demands from important role in effective water management in economic activities and domestic uses, China China. B O X 3 . 4 Planning Scarce Water Resources Using Evapotranspiration Quotas Recent advances in remote sensing and GIS techniques have made it feasible to manage irrigation water resources in terms of the amounts consumed by crops, trees, and weeds for evapotranspiration (ET), rather than water withdrawals from surface and groundwater sources. The portion consumed through ET is the "real" consumption that is lost to users downstream. The portion that returns to the surface or groundwater systems is still available for downstream uses, unless its quality has deteriorated to the point that the water cannot be reused, in which case this represents "real" losses. In water-scarce areas, it is important to manage water resources in terms of net water con- sumption (ET) quotas. This approach encourages farmers to reduce the evaporation and transpi- ration that does not contribute to plant growth. For example, they will reduce evaporation by shifting toward dry-seeded species (from paddy), reducing waterlogged areas, irrigating when evaporation is lowest (at night instead of during the day), using moisture-retaining mulches, and replacing open canals and ditches with pipes. They may also reduce plant transpiration by weed- ing, using water-stress-resistant varieties, and fine-tuning deficit irrigation. Where excessive fer- tilizer and pesticides runoff is a problem, they will be encouraged to reduce nonpoint pollution, since return flows that are not reusable downstream will be deducted from their ET quota. The Hai basin project in China will pilot water resources planning through the allocation of ET quotas. The objective is to increase the volume and value of agricultural production in the demon- stration areas using a target ET amount. The target amount will be less than the current ET, and be gradually lowered until enough water is released to maintain environmental functions and avoid groundwater depletion; that is, until the existing water gap is closed. This goal can be achieved by gradually raising crop water-use efficiency and reducing nonbeneficial ET. Source: The Development Research Center of the Ministry of Water Resources 2007a. A D D R E S S I N G C H I N A ' S W A T E R S C A R C I T Y 35 W A T E R R E S O U R C E S M A N A G E M E N T I N C H I N A : A N O V E R V I E W O F D E T E R M I N A N T V A R I A B L E S Excessive Reliance on Administrative An adjustment in water prices to more fully Measures Rather Than reflect its scarcity value would greatly stimulate Market-Based Instruments the adoption of water-saving techniques. Recent studies have estimated price elasticities of water Due to the long tradition of a planned economy demand for the irrigation of grains in the range and centralized power, China has mainly relied on of -0.17 to -0.21, suggesting that a 100 percent administrative ("command-and-control") mea- increase in price would lead to a 17 to 21 percent sures rather than market-based instruments for reduction in water use (Huang et al. 2006b). water management. For example, market-based These savings would largely result from the water pricing should be an important policy greater use of water-saving technologies such instrument for improving water resource alloca- as border and furrow irrigation, alternate wet- tion among different economic uses and for ting and drying irrigation, field leveling, mini- enhancing water-use efficiency. However, water mum tilling, plastic sheeting, drought-resistant prices in China are determined politically and by varieties, surface and underground piping sys- top-down administrative commands rather than tems, and canal lining and sprinkler systems. Some by the market. of these technologies--such as plastic sheeting-- For example, the price of water for irrigation have been reported to reduce water requirements does not reflect the full cost of water supply, by up to 90 percent (Blanke et al. 2006). These including operation and maintenance costs plus technologies are familiar in many parts of China, overhaul and replacement costs of water delivery yet the extent of adoption is quite low, largely systems. There are no extraction fees for the agri- due to inadequate appreciation of the scarcity cultural use of groundwater, and the only pay- value of water, as well as lack of supportive insti- ment made is for the cost of energy for pumping tutional arrangements. (in the range of 0.08 yuan/m3 to 0.56 yuan/m3 An increase in the price of water for industry in the Hai basin). In most irrigation districts, and the domestic sector can also be expected to water fees are assessed on the basis of the size of stimulate an increase in water-use efficiency, a household's irrigated area, encouraging vast mainly through higher rates of water treatment water waste by farmers. When the cost of water to allow for its recycling and reuse.5 In recent is low or unrelated to the quantity used, the ben- decades, substantial advancements in wastewater efit from saving water is low. As a result, the cur- treatment processes make it possible to effec- rent cost recovery approach to water pricing in tively remove biodegradable material, nutrients, the agricultural sector has not been effective in pathogens, and heavy metals from effluent streams providing incentives to save water (Huang et al. so that the treated waters can be reused in a wide 2006b). range of applications. Costs will vary. A recent The price of water for domestic use by urban survey of Chinese enterprises and wastewater households is lower than the production cost of treatment plants estimated that treatment costs water. For instance, water supply for households range from 1.0 to 3.8 yuan/m3 for industrial in Xi'an is priced at 1.6 yuan/m3, while the full uses, and from 0.8 to 0.9 yuan/m3 for domestic cost is 5 yuan/m3, estimated by the local water uses. Both are below the scarcity value of water, affairs bureau (OECD 2007). Due to low water at least in North China (Table 3.2). prices, expenditures by urban households on The results of a recent study on economic val- water currently account for only 1.2 percent of ues of water (EVW) in different regions and sec- disposable income. This is lower than the level tors in the Hai basin well reflect both market needed to provide an incentive for water-saving and policy failures in water management in behavior. China. According to this research, which was 36 A D D R E S S I N G C H I N A ' S W A T E R S C A R C I T Y W A T E R R E S O U R C E S M A N A G E M E N T I N C H I N A : A N O V E R V I E W O F D E T E R M I N A N T V A R I A B L E S scarcity of water and increase water productivity. T A B L E 3 . 2 Wastewater Treatment Cost for Major Industrial An indication of the direction of the structural and Domestic Sectors changes is provided by an analysis of the amount of water embedded in each crop, the virtual Treatment Cost water content (Table 3.3). From this analysis it Sector (yuan/m3) is evident that as part of a strategy to balance the supply and demand of water, a country or region Coal mining and washing 2.00 Food processing 3.20 that is water scarce should increase it reliance on Food manufacturing 1.95 the import of commodities with high water con- Beverage manufacturing 1.65 tent (for example, beef, pork, rice, and wheat), Textile manufacturing 2.50 Paper and paper products and apply its limited water resources to crops manufacturing 2.50 with low water requirements (for example, milk, Raw chemical materials maize, and potatoes). and products 3.70 Petrochemicals 3.80 Medicines manufacturing 1.90 Insufficient Financing for Chemicals manufacturing 3.70 Chemical fibers manufacturing 2.80 Pollution Control Non-metallic mineral products 2.65 Iron and steel smelting In the last three five-year plan periods, invest- and pressing 3.50 ments in environmental protection accounted for Power generation and heating 2.00 only 0.68 percent, 0.81 percent, and 1.19 percent Domestic wastewater 0.8­0.9 of China's GDP, respectively, which is insufficient to reach the expected level as originally planned Source: CAEP 2006. (World Bank 2007a). Although investment in environmental protection in the 11th FYP period (2006­10) is expected to increase by 85 percent conducted in eight case study counties in the over the 10th FYP level, the growth rate is still Hai River basin, the integrated EVWs in differ- below the GDP growth rate of 80 to 120 per- ent sectors vary greatly, with those in service sec- cent every five years (Ma 2006b). Moreover, the tor more than 7 times and 1.6 times as high as increase of investment in water pollution control those in the industrial sector and agriculture (pri- has been lower than that for flood control, soil mary) sectors, respectively (Figure 3.3). If the erosion control, and water resource allocation. market worked well, these differences would Consequently, as acknowledged by the Chinese tend to be much smaller, since the sectors with government, lack of investment as well as poor higher EVWs would be able to purchase water supervision has largely contributed to the failure from the sectors with lower EVWs, until the to meet the nation's pollution control targets, EVWs were more or less equalized, subject to such as reducing COD discharge by 10 percent differences in water quality and transmission during the period from 2001 to 2005, and to the costs. While some differences could be justified deterioration of the environment. by policies for food security, their magnitude China began to set up the targets of urban and persistence are still indicative of market fail- sewage treatment in the mid-1990s. It aimed to ure or a serious lack of market consciousness in treat 25 percent of urban sewage by the end of the water allocation process. the 9th FYP in 2000. The target went up to The adjustment of water prices can also be 45 percent by 2005 in the 10th FYP and 70 per- expected to drive a change in the structure of cent by 2010 in the 11th FYP. During the 9th agricultural production to more fully reflect the FYP period (1996­2000), the total investment in A D D R E S S I N G C H I N A ' S W A T E R S C A R C I T Y 37 W A T E R R E S O U R C E S M A N A G E M E N T I N C H I N A : A N O V E R V I E W O F D E T E R M I N A N T V A R I A B L E S F I G U R E 3 . 3 Integrated Economic Values of Water and Water Withdrawals in the Primary, Industrial, and Service Sectors in Eight Regions ) 3 40 Service sector (yuan/m 30 water of Industrial sector 20 values 10 Primary sector Economic 0 779 1633 5319 Water withdrawal (m3, millions) Source: Chinese Academy of Hydraulic and Hydropower Research (2007). sewerage networks and sewage treatment was of all urban fixed-asset investment, while sewage RMB 60.27 billion yuan. Although the invest- treatment accounted for only 4 percent (Com- ment went up to 159.5 billion RMB yuan prehensive Financial Department, Ministry of (including RMB 82.52 billion yuan for sewage Construction 2006). More importantly, while treatment) during the 10th FYP period, this is still total urban pollution discharge kept on increas- a relatively small spending item in the country's ing, the percentage of investment in the drainage total fixed-assets investment (Table 3.4). For network and sewage treatment kept on decreasing example, road and bridge construction invest- during the 10th FYP period. Investment in the ment climbed to RMB 875.2 billion yuan during drainage network during the 10th FYP period was the 10th FYP, accounting for about 43 percent smaller than that of 9th FYP period. Although it was reported officially that the treatment rate went up to 45.6 percent by installed T A B L E 3 . 3 Virtual Water Content of capacity in 2004 and then to 56 percent in 2006,6 Selected Products the shortage of sewerage networks and funds for operation have been widely reported, causing a Product Liters of Water per kilo of Crop low operation rate. With insufficient investment, Wheat 1,150 wastewater treatment facilities, including sewer- Rice 2,656 age networks, have not been adequately built, Maize 450 especially in small cities and "established towns." Potatoes 160 It is unlikely that the real treatment rate of urban Soybeans 2,300 Beef 15,977 sewage reaches 45 percent. After all, over half of Pork 5,906 wastewater is untreated and directly discharged Poultry 2,828 into the water environment, offsetting the reduc- Eggs 4,657 Milk 865 tion in industrial wastewater discharge. The fail- Cheese 5,288 ure in achieving water pollution control goals has been well documented in the Huai River Source: Adapted from Hoekstra (2003). basin and other areas. 38 A D D R E S S I N G C H I N A ' S W A T E R S C A R C I T Y W A T E R R E S O U R C E S M A N A G E M E N T I N C H I N A : A N O V E R V I E W O F D E T E R M I N A N T V A R I A B L E S T A B L E 3 . 4 Urban Fixed-Asset Investment during the 9th and 10th Five-Year Period (RMB billion yuan) Sewage Treatmenta Drainage Networkb Road and Bridge Year Total Amount Percent Amount Percent Amount Percent 1996 94.86 ­ ­ 6.68 7.04 12.61 13.29 1997 114.27 ­ ­ 9.01 7.88 12.83 11.23 1998 147.76 ­ ­ 15.45 10.46 16.1 10.90 1999 159.08 ­ ­ 14.2 8.93 14.67 9.22 2000 189.07 ­ ­ 14.93 7.90 14.24 7.53 1996­2000 705.04 ­ ­ 60.27 8.55 70.45 9.99 2001 235.19 11.64 4.95 22.45 9.55 85.64 36.41 2002 312.32 14.41 4.61 27.5 8.81 118.22 37.85 2003 446.24 19.88 4.46 37.52 8.41 204.14 45.75 2004 476.22 17.45 3.66 35.23 7.40 212.87 44.70 2005 560.22 19.14 3.42 36.8 6.57 254.32 45.40 2001­05 2030.19 82.52 4.06 159.5 7.86 875.19 43.11 Source: Comprehensive Financial Department, Ministry of Construction (2006). a. Data for sewage treatment investment in the 9th FYP period are unavailable. b. Fixed-asset investment of drainage network is gained by subtracting fixed-asset investment of sewage treat- ment from that of drainage network. These two data are also from the China Statistical Yearbooks. ­ = Not available. Low Levels of Pollution Charge cost of causing pollution is low compared to international standards. The low levels of the In developed countries, polluters are often liable pollution levy provide little incentive for indus- for the full cost of remediation and compensa- tries to abate pollution and reduce pollution dis- tion. In China, although the country has imple- charges. In many cases, it is cheaper for polluters mented a pollution levy system since the 1980s, to pay the levy than to take actions to abate or its pollution levy and penalties for noncompli- reduce pollution. Box 3.5 provides an example ance are low and not often prohibitive, and the of a specific chemical plant. B O X 3 . 5 Distorted Economic Incentive for Pollution Discharge The financial trade-offs faced by a chemical enterprise in China that is required to meet discharge standards illustrate the distorted economic incentive for pollution control. The plant discharges 1,000 m3/day of wastewater with a pH of 10.8, with average 750mg/L COD, 180 mg/L anionic sur- factants, 190mg/L BOD, and 330mg/L suspended solids. These pollutants exceed the Grade II wastewater discharge standards that the plant is required to meet. Based on the Collection and Management Provisions of Pollutants Discharge Fee (State Council, 2003 Order No. 31), the discharge fee for such noncompliant discharge should be 3.01 yuan/m3. On the other hand, should the enter- prise choose to treat its wastewater prior to discharging, its investment is equivalent to a capital cost of 6.90 yuan/m3, not including operation cost, to which should be added a discharge fee of 0.17 yuan/m3 for the pollutants remaining in the treated and compliant wastewater. Thus, paying for the noncompliant discharge is much cheaper than building a WWTP. Source: Louis Berger Group (2007). A D D R E S S I N G C H I N A ' S W A T E R S C A R C I T Y 39 W A T E R R E S O U R C E S M A N A G E M E N T I N C H I N A : A N O V E R V I E W O F D E T E R M I N A N T V A R I A B L E S SUMMARY moting a system and measures to strengthen water pollution control; and (f ) improving both Many technically and economically feasible op- emergency response and prevention to mitigate tions are available to increase the efficiency of environmental disasters. water use and reduce pollution. Their imple- mentation, however, has been limited. This is mainly due to the country's weak institutional Endnotes and policy framework for water resources man- 1. See China Economic Net. 2006. "Seawater desalina- agement. The fragmented institutional arrange- tion to relieve water shortage in China." Insight 2006- ments and policy failures, which rely heavily on 2-28-2006. Beijing. Available at: http://en.ce.cn/ administrative instruments without the adequate Insight/200602/28/t20060228_6217706.shtml. 2. See Hui Dian Market Research Network (July 22, 2005), use of market-based instruments, are important Statement by MWR Vice Minister Zhai Haohui at 2005 causes of ineffective water management. There- Summit on China's Development to establish a resource- fore, institutional reforms emphasizing a more saving society. Available at: http://freereport.3see.com/ integrated management, and policy reforms items/2005/07/22/3074.html. emphasizing market mechanisms, would be 3. China undertook a new round of governmental restruc- turing in March 2008, in which the former State Envi- important to improve water resources manage- ronmental Protection Administration (SEPA) was ment and address China's water scarcity. transformed into the Ministry of Environmental Protec- To assist China in improving its water tion, the former Ministry of Construction into the Min- resources management in line with that orienta- istry of Housing and Urban and Rural Construction, and tion, the following chapters of this report will the former State Civil Aviation Administration into the State Civil Aviation Agency as a subordinate organization focus on key areas where the design and opera- of the Ministry of Transportation. In Chinese terms, the tion of the institutional and policy framework number nine often means "multiple" instead of an accu- can be improved to stimulate an increase in rate number. water-use efficiency and reduce pollution. Such 4. China Water Development Report 2005. areas include (a) strengthening key dimensions 5. Water reuse is the use of treated wastewater for general uses such as agricultural irrigation and industrial cooling. of water institutions and governance; (b) allo- Water recycling is the reuse of effluent water within the cating and administering water rights, which is same (industrial) plant, often after treatment. essential for the market to work; (c) setting 6. According to the NDRC report on the implementation prices right based on market mechanisms, while of the 2006 National Plan of Economic and Social Development submitted by the National Development protecting the poor; (d) piloting market-based and Reform Commission (NDRC) to the National Peo- ecological compensation to achieve financially ple's Congress (NPC) in March 2007. See http://202. sustainable and natural conservation; (e) pro- 123.110.5/2007lh/content_553601.htm. 40 A D D R E S S I N G C H I N A ' S W A T E R S C A R C I T Y 4 Improving Water Governance For thousands of years, the Chinese people have been confronted with the challenges of controlling floods and fighting droughts caused by too much or too little water [in the nation's given natural conditions.] In response, they gradually developed a governing system and techniques for water manage- ment. The Dujiangyan Water Project, completed more than 2,200 years ago in the Min River basin of Sichuan Province, demonstrates the great efforts and wisdom of the Chinese people in coping with these challenges. However, traditional wisdom is insufficient for addressing current water issues, which are far more complicated than before. As discussed in earlier chapters, the water issues currently faced by China are a result of interactions among several factors, both natural and man-made. Man-made factors have had by far the greatest impact. For example, the "sudden" burst of blue algae in Tai Lake in eastern China in May 2007, which contaminated the drinking water source and interrupted water supply to millions of residents in the city of Wuxi in Jiangsu Province, was a combined effect of unusual weather (higher temperature, less rainfall) and heavy pollution from the rapid economic industrialization and urbanization of the basin of Tai Lake over the past three decades. Due to the nature of water management and inter-dependence among various water problems, the opportunity for China to address its water issues lies more in human actions--more specifically, in good water governance. This chapter focuses on water governance in China in more general terms. It begins with an overview of water governance in concept. The following four sec- tions examine four major aspects of water governance in China: the legal envi- ronment, institutional arrangements, information disclosure and transparency, and public participation. Each section includes an overview of the current situ- ation, points to areas for improvement, refers to relevant international experi- ences, and puts forward recommendations. To avoid repeating the discussion in previous chapters, the discussion of institutional arrangements is mainly focused on organizational arrangements without much elaboration on policy issues. The A D D R E S S I N G C H I N A ' S W A T E R S C A R C I T Y 41 I M P R O V I N G W A T E R G O V E R N A N C E final section concludes with recommendations for communication; (3) coherence and integration; improving water governance in China. (4) equity and ethics; (5) accountability; (6) effi- ciency; (7) responsiveness; and (8) sustainability THE CONCEPT OF (Rogers and Hall 2002). WATER GOVERNANCE These definitions of water governance suggest that the three main pillars of water governance are Both governance and water governance are quite the legal framework, institutional arrangements, new concepts. In just the last 10 years or so, the and civil society. The legal framework covers all the two concepts attracted much attention and were water-related laws and regulations that (1) define used in studies and discussions among academi- water property rights and necessary environmen- cians and practitioners worldwide when it comes tal and technical standards; (2) establish instru- to public policy and public management. As a ments for implementing the rights and achieving result, a number of definitions of these terms have the standards, including decision-making and been devised by various researchers and organi- planning instruments, implementing instruments, zations, each with a somewhat different focus. and monitoring and evaluation instruments; According to UNDP (2003), governance covers (3) create an institutional system for water gov- the way in which power is exercised in the manage- ernance; and (4) set up enforcement procedures. ment of resources (natural, economic, and social) The institutional arrangements for water gov- and broadly embraces the formal and informal ernance include all governmental entities that institutions by which authority is exercised. It is have direct executive responsibilities related to related to the broader social system of governing water, their authorities and duties, the inter- and as opposed to the narrower perspective of gov- intra-department relationships established by the ernment as the main decision-making political laws, and the processes and mechanisms of their entity. Thus the essential elements for good gover- operation. nance include (1) openness, transparency, and Lastly, civil society, as the third pillar of water accountability; (2) fairness and equity in dealing governance, reveals itself through many varied with citizens; (3) efficient and effective services; channels and forms. Public participation is one of (4) clear and transparent laws and regulations; the features of civil society involvement, which (5) consistency and coherence in policy forma- in turn differentiates water governance from tradi- tion; (6) respect for the rule of law; and (7) high tional water management by government. There- standards of ethical behavior (OECD 1997). fore, good water governance depends on the In line with the general definition of gover- well-coordinated efforts of all stakeholders-- nance, UNDP defines water governance as the including governmental organizations at all lev- range of political, social, economic, and admin- els, relevant business communities, the public at istrative systems that are in place to develop and large, and NGOs--working within a sound legal manage water resources and the delivery of water framework. services at different levels of society (UNDP 2006a). Good water governance depends on a THE LEGAL ENVIRONMENT number of factors, including (1) strong policy, FOR WATER MANAGEMENT legal, and regulatory frameworks; (2) more effec- tive implementing organizations; (3) a civic deter- Over the past two decades, China has made much mination to improve water governance; and progress in improving its legal framework for (4) appropriate investment (World Bank 2006b). water management, both in legislation and in Some researchers identify other principles for enforcement of laws/regulations. The existing effective water governance, such as (1) openness framework includes relevant stipulations in the and transparency; (2) inclusiveness and effective Constitution as the primary source of legality 42 A D D R E S S I N G C H I N A ' S W A T E R S C A R C I T Y I M P R O V I N G W A T E R G O V E R N A N C E and authority. At the second level are national enforcement in this area has been lax in China, as laws and their implementation guidelines, such evidenced by the nation's serious water-related as the Water Law, Water Pollution Prevention and problems, including rampant nationwide water Control Law, Water and Soil Conservation Law, pollution dramatized by the algae outbreak in Flood Control Law, and Fishery Law. The third Tai Lake. Many studies (Chinese Academy of level of legislation includes national and sec- Sciences 2007; China Institute of Water Resources toral administrative regulations on water, such and Hydropower Research 2007) have pointed as the Regulation of River Channels, and the out that the legal framework leaves much room Regulation of Flood Prevention; and local regu- for improvement. Its main weaknesses and areas lations and rules that have played a critical role in for improvement are summarized below. regional water management.1 Within this frame- work, the Water Law promotes an administrative Weak law enforcement structure for water resources that integrates river Law enforcement is a real problem in China, not basin management with regional administra- only in the area of water pollution control, but tive management, and recognizes the legal status also in broader areas like water exploitation and and responsibilities of river basin management conservation. Ineffective law enforcement can be organizations. attributed to three main factors: While strengthening legislation for water management, China has also made efforts to 1. Lack of mechanisms and procedures. Exist- strengthen law enforcement. The NPC and rel- ing laws and regulations usually are focused evant ministries/authorities at the central level on principles and lack mechanisms and pro- of government inspect the implementation and cedures for enforcement, such as super- enforcement of laws and regulations on a regular vision, monitoring, reporting, evaluation, basis. Some authorities such as MWR and SEPA and imposition of penalties against violators. make scheduled or unscheduled performance eval- As mentioned above, the newly amended uations to improve the enforcement of laws and Water Pollution Prevention and Control regulations. In 2006, the establishment of five Law includes stricter penalties against non- Regional Environmental Supervision Centers in compliers. However, without more detailed China (as subordinated offices of SEPA) was a guidelines for implementing the law and pro- new attempt to strengthen enforcement of envi- found reform of the law enforcement system, ronmental laws, including those related to water effective implementation of those measures pollution management. In the 11th Five-Year remains a question. Plan for Environmental Protection, one of the 2. Inadequate institutional arrangements. The major tasks is to establish a comprehensive system central government relies on local government for environmental law/regulation enforcement agencies in law enforcement. In some cases, and supervision. In the newly amended Water when local governments feel that enforcement Pollution Prevention and Control Law promul- could cause losses in local economic growth gated in February 2008 and effective on June 1, and local tax revenue, they tend to hinder law 2008, stricter penalties against noncompliers are enforcement or take a passive attitude toward added to enhance law enforcement. enforcement. Insufficient resources available for enforcement agencies also result in weak Areas for Improvement governmental enforcement capacity. Despite the progress described above, the effec- 3. Lack of transparency and participation. Lack tiveness of the legal framework for water resource of transparency and relatively low levels of management is unsatisfactory. Overall, law public participation have led to poor public A D D R E S S I N G C H I N A ' S W A T E R S C A R C I T Y 43 I M P R O V I N G W A T E R G O V E R N A N C E supervision, contributing to weak law enforce- Incomplete legal system ment. In this regard, China can learn good The coverage of the existing legal framework is practices of law enforcement from other coun- still limited. For example, while the Water Pol- tries (for example, see Box 4.1 regarding expe- lution Prevention and Control Law requires that riences in the United States). the state establish and improve compensation B O X 4 . 1 The U.S. Experience in Promoting Law Enforcement The Clean Water Act (CWA) in the U.S. has various stipulations on violations and penalties, such as: (i) "Any person who violates a permit condition or order of the EPA Administrator shall be subject to a civil penalty not to exceed $25,000 per day for each violation;" (ii) "In determining the amount of a civil penalty the court shall consider the seriousness of the violation or violations, the economic benefit (if any) resulting from the violation, any history of such violations, any good-faith efforts to comply with the applicable requirements, the economic impact of the penalty on the violator, and such other matters as justice may require"; and (iii) "Any person who knowingly makes a false state- ment in any report or who knowingly falsifies any monitoring device shall, upon conviction, be pun- ished by a fine up to $10,000 or imprisonment for no more than 2 years or both." The following three examples illustrate how these provisions are applied: Example 1. United States v. Roll Coater, Inc. 21 ELR 21073 (S.D. Ind. 1991). Roll Coater is a coil coat- ing company accused of emitting "unsatisfactorily treated effluent" into the City of Greenfield's wastewater system. The District Court for the Southern District of Indiana calculated the statutory maximum penalty under § 309(d) to be $52,945,000. However, §309(d) also includes mitigating fac- tors, which eventually lessened the fine to $2,093,456 because the firm needed time to test out new treatment technologies. Example 2. United States v. Smithfield Foods, Inc. 972 F. Supp. 338 (E.D. Va. 1997). Smithfield Foods is a large pig slaughtering and processing operator. For years it discharged waste into the Pagan River in Virginia in violation of its permit. The court calculated the economic benefit to Smith- field of noncompliance with the CWA to be $4.2 million. Citing statutory factors such as the fre- quency and severity of Smithfield's violations and their impact on water quality, Smithfield's history of violations, and the inadequate compliance efforts, the court increased the penalty to $12.6 mil- lion (or 7.2 percent of the maximum penalty). 191 F.3d 516 (4th Circuit, 1999). Example 3. Exxon Valdez Oil Spill Prince William Sound, Alaska. The U.S. and Alaska brought a lawsuit against Exxon under CWA 311(f) for injury to natural resources to recover costs of clean-up and restoration following an 11-million-gallon crude oil spill in 1989. Exxon spent $2 billion on clean-up. 10/8/1991 Consent Decree--compensation for damages to fishermen and businesses of at least $900 million. Fishermen and businesses that suffered injury also sought punitive damages. The trial court jury awarded punitive damages of $5 billion. The federal appellate court, In re Exxon Valdez, 270 F. 3rd 1215 (9th Circuit, 2001), reduced this to $2.5 billion. On 10/29/07, the U.S. Supreme Court agreed to review the appropriateness of punitive damages under CWA and federal maritime law. There are also many other means of promoting compliance and enforcement in the U.S., such as: (1) media--newspapers or TV report on corporate pollution, often based on information supplied by citizen groups; (2) banks loaning money to a corporation or municipality may want evidence that a company is in compliance with environmental laws; (3) government contracts may require that a company be in compliance with all environmental laws; (4) disclosure by corporations of legal proceedings in financial documents filed with the U.S. Securities and Exchange Commission (SEC); (5) Item 101 of SEC regulation requires a company to disclose the material effects that compliance with federal, state and local environmental laws may have upon its capital expenditures, earnings, and competitive position; (6) A firm must disclose any material administrative or judicial proceed- ings arising under environmental laws. 17 CFR § 229.103. Source: Tripp 2007. 44 A D D R E S S I N G C H I N A ' S W A T E R S C A R C I T Y I M P R O V I N G W A T E R G O V E R N A N C E mechanisms for ecological protection of the water ferent ministries/entities in the drafting of the law, environment in drinking water source areas and it is not unusual that such a law adopted by the upstream of rivers, lakes, and reservoirs by instru- NPC may represent sectoral interests and conflict ments such as payment transfers, there are no with other laws drafted by other line ministries or supporting national laws or regulations in sup- authorities. For instance, before it was amended port of ecological compensation in river basins. recently, the Water Pollution Prevention and Neither is there a law on water rights and trading. Control Law (Article 18) stipulated that water There are few laws to specify the procedure of resource protection agencies in river basins are making and enforcing water-related laws and responsible for monitoring and evaluating sur- policies, contributing to ineffective law enforce- face water quality and reporting to SEPA and ment, as mentioned above. In addition, while MWR. However, the Water Law (Article 32) there are some general rules and regulations in requires that the water bureaus of the local place requiring an overall plan and integrated governments above the county level and river utilization for water resources, there is no spe- basin organizations be responsible for monitor- cific regulation on master plans for management ing water quality in water function zones and of cross-boundary rivers and lakes. report to local governments and environmental protection agencies. Ambiguous legal provisions Some laws contain ambiguities. For example, the Recommendations for Legal Water Law does not clearly define the authority of System Reforms the local governments and the river basin man- agement organizations. Neither does it clearly Based on this discussion, we offer several recom- demarcate the authority of environmental protec- mendations. tion agencies versus the role of water administra- tive organizations in aspects of water management, Developing an action plan for improving such as water quality monitoring. The Water the legal framework Pollution Prevention and Control Law defines the China is currently in the process of a broad reform responsibilities and duties of local government in targeted to strengthen the rule of law. The actions water environmental protection, but does not pro- to improve the legal framework for water manage- vide financial arrangements for local governments ment should keep pace with this overall process. assuming the responsibilities. Such ambiguity While it is unrealistic to have the legal frame- in the provisions causes a vacuum of authority and work perfected within a short period, an overall weakens the effectiveness of the legal system. plan and road map for improving the legal envi- ronment should be worked out. In the short term, Conflict between legal provisions the emphasis should be on improving the inte- Some laws tend to serve the interests of certain gration and coordination of various water-related sectors instead of national interests. In some areas, laws and regulations--especially the Water Law these sectoral laws contradict each other. This and the Water Pollution Prevention and Control is partially due to the "sector-based" legislative Law--to avoid contradictions and conflicts. In the process, in which a ministry or administrative long run, it should aim to establish a comprehen- entity of the central government is normally sive water management legal system to cover the entrusted with the drafting of a law or regulation remaining areas of water resource management. on a subject within its jurisdiction. Because of the weak capacity of the NPC for legislation on some Improving law enforcement special subjects (due to lack of expertise and poor Improving law enforcement is the number one consultation) and poor coordination between dif- priority to make the legal framework useful and A D D R E S S I N G C H I N A ' S W A T E R S C A R C I T Y 45 I M P R O V I N G W A T E R G O V E R N A N C E effective. As stipulated in the State Council's preparing water-related laws/regulations through Compendium of Implementation for Fully Pro- a coordinating mechanism set up in the State moting Law-Based Administration promulgated Council, so that any water-related law or regu- in 2004, a series of actions need to be taken: lation is reviewed and accepted on a consensus basis by all relevant ministries/entities before it 1. Implementation procedures: Detailed imple- is submitted to the Congress for deliberation and mentation procedures should be stipulated in approval. In addition, public participation such all water-related laws and regulations to make as public hearings should be required and imple- existing laws and regulations operational and mented as an important step in the legislative enforceable. For example, detailed guidelines process. for implementing the Water Pollution Preven- tion and Control Law should be developed, Amending and improving existing and the existing systems of total pollutant con- water-related laws and regulations trol and pollution emission permits should Given the vagueness and even contradictions of be improved. existing laws and regulations, the NPCs should 2. Strengthened supervision and inspection: carry out a careful review of all existing water- Supervision and inspection by the national and related laws. The laws and regulations should local congresses and administrative branches be revised, also taking into account the enforce- should be strengthened. Adequate budget and ment issue and integrated water management. personnel for such inspection and supervision For the Water Law, it should more clearly define should be provided by law so that the local the authorities, responsibilities, and coordination agencies responsible for law enforcement can mechanism for different administrative organiza- be independent of local authorities. tions such as MWR, MEP, RBMCs, and relevant 3. Public participation: The public should be organizations at the local level. It should also empowered to help monitor and track down clarify the linkages between all these organiza- violators and supervise local agencies responsi- tions; clarify the status, responsibilities, operational ble for law enforcement. Public-private part- mechanisms, and process of river basin manage- nerships should be encouraged by laws and ment organizations; and require a stakeholder regulations. participation mechanism at the basin level. For other water-related laws and regulations, amend- Overcoming sectoral and local interests ments are needed to make them consistent with in the process of legislation the Water Law and the newly amended Water The current legislative process has undermined the Pollution Prevention and Control Law. quality of laws and regulations. The Compendium of Implementation for Fully Promoting Law-Based Providing a legal basis for RBMCs with the Administration has reiterated the importance of active participation of local governments developing sound and effective procedures for leg- The role of RBMCs in planning, allocation, and islation. One option is to strengthen the role of the development of water resources should be legally People's Congresses at different levels in preparing specified, preferably in primary legislation. Given laws and regulations, with a special emphasis on the important role of local governments in water reviewing and evaluating draft laws/regulations by resource management, their participation as a experts and various stakeholders as an indispens- member of the RBMC in planning and imple- able step in the process of legislation. Another is mentation should be required by law. Realizing that different ministries/entities should take a that it may take some time to enact such a law or more coordinated and integrated approach in legal provision, China should start with feasibil- 46 A D D R E S S I N G C H I N A ' S W A T E R S C A R C I T Y I M P R O V I N G W A T E R G O V E R N A N C E B O X 4 . 2 River Basin Management Legislation in the United States: The Case of the Susquehanna River Basin The Susquehanna River, the sixteenth largest river in the United States, runs through populous areas in the states of New York, Pennsylvania, and Maryland. It is classified as a navigable waterway by the federal government. The Susquehanna River basin, though still relatively wild and partially undevel- oped, experienced a period of environmental negligence. The river was polluted, its water resources overexploited. Because the river runs through three states, there was clearly a strong need for coordinating the efforts of the three states, together with the federal government. The parties agreed to establish one management system to oversee the use of water and related natural resources throughout the basin. This collaboration also led to the drafting of the Susquehanna River Basin Compact. The compact, as adopted by the Congress of the United States and the legislatures of New York, Pennsylvania, and Maryland, was signed into law on December 24, 1970. It provides the manage- ment mechanism to guide the conservation, development, and administration of the water resources of the river basin. Under the compact, the Susquehanna River Basin Commission (SRBC) was estab- lished as the agency to coordinate the three states and federal government. The federal and local governments have since then worked closely to solve the problems in the Susquehanna River basin. Strict laws have been introduced to prohibit point-source pollution, regulate mining, and control erosion. Source: http://www.srbc.net/. ity studies and pilots at the local level. As part of Areas for Improvement this process, it is useful to examine international As discussed in Chapter 3, a major weakness is the experience in river basin legislation and manage- excessively fragmented water management system. ment (see Box 4.2). Horizontally, too many agencies are involved in water management along sectoral lines, with only INSTITUTIONAL ARRANGEMENTS FOR vague boundaries separating their responsibilities. WATER RESOURCE MANAGEMENT This has not only led to overlapping responsi- The UNDP's Human Development Report 2006 bilities, but also to inconsistent and sometimes (UNDP 2006b) concludes that the global crisis conflicting policies made by different agencies of freshwater supply is essentially a public man- with weak coordination among them. From a agement crisis, which in turn is primarily the result vertical perspective, water management is tied to of an improper and incomplete public man- administrative boundaries. Within the five-tiered agement system and slow reform progress. That administrative structure (national, provincial, statement fits the case of China. As discussed in municipal, county, and township), most water- chapter 3, for China there are many economically related institutions respond to only a single level, feasible technical options available to increase the with no relationship to the levels above or below. efficiency of water use and reduce pollution that Each administrative unit (provinces, municipal- would contribute to addressing its water issues. ities, counties, etc.) is responsible for making and However, because of its weak water management implementing policies within its jurisdiction, system, these options have only been adopted mostly based on its own interest and priorities and implemented to a very limited extent. In line without enough attention to their impacts on the with lessons from global experience, it is expected integrity of water resources and the whole river that their wider implementation will have to be basin. Ironically, although China has a rather supported by improved institutional arrangements centralized power structure, the central govern- for the various levels of government in China. ment's policies are often resisted or ignored by A D D R E S S I N G C H I N A ' S W A T E R S C A R C I T Y 47 I M P R O V I N G W A T E R G O V E R N A N C E local governments responsible for their imple- greatly, some can be shared by many countries mentation. Efforts to deal with externalities and (Box 4.3). the characteristics of water resources as a public Since the 1990s, in response to the complex good tend to end in failure. water problems they are facing, more and more Other areas for improvement discussed in countries have adopted a more systematic and Chapter 3 include (1) an underdeveloped system integrated approach to water management to of water rights administration, particularly the consider water supply, pollution control, agri- vague definition of water ownership that has ham- culture, hydropower, flood control, and navigation pered the implementation of market mechanisms; together. For example, the European Commission (2) an excessive focus on supply rather than promulgated the Water Framework Directive demand management, which contributes to the (WFD) in 2000 (Box 4.4) and set up a common low efficiency of water use and increased pressure integrated approach, making integrated river- on water resources; (3) an excessive reliance on basin planning and management compulsory for administrative measures rather than market-based its member states and candidate countries. The instruments, which not only burdens the admin- U.S. Clean Water Act also adopts an integrated istrative capacity of the government and raises approach, shifting from the conventional strategy their administrative costs, but also distorts the allo- of pollution control from project to project, from cation of water resources; (4) insufficient public source to source, and from pollutant to pollutant financing for water pollution control, especially to a new strategy of integrated, river-basin-based when compared to the economy's rapid growth pollution control. and accompanying water pollution, which con- In line with this integrated approach, govern- tribute to the difficulty of reducing overall pollu- mental institutions for water management have tion levels; and (5) low levels of pollution charges been arranged or restructured in several countries. and resource pricing, which fail to provide incen- Two features are common in these governmental tives for pollution reduction and resource saving. arrangements. First, at the national level, water management duties are assumed by one or two institutions. For example, in the UK, the Environ- International Experience mental Agency (EA) is the leading central admin- in Institutional Arrangements istrative body with responsibility for long-term Most countries are faced with water issues in one water resource planning and the duty to conserve, way or another and have been making efforts to augment, redistribute, and secure the proper use address them. In terms of institutional arrange- of water. In France, major agencies at the national ments, while practices of different countries vary level responsible for water resource management B O X 4 . 3 Three Models of Water Resource Institutions in Europe Model 1: River-basin (watershed)-based management systems. In the UK and France, these have cen- tralized administrations; in Spain, a semi-federal administration. The scope of these entities is defined by the geographical boundaries of a river basin, whose water resources they manage in coor- dination with different interests along the entire river basin. Model 2: Administration-boundary-based systems. Adopted in many countries, the scope of these entities is defined by administrative regions within which they coordinate with relevant agencies on the integrated management of the water resources. Model 3: Coordinating model in the Netherlands. A combination of the above two, focusing on coordinating and balancing the interests of the administrative regions and the whole river basin. 48 A D D R E S S I N G C H I N A ' S W A T E R S C A R C I T Y I M P R O V I N G W A T E R G O V E R N A N C E B O X 4 . 4 The EU Water Framework Directive Early European water legislation began in 1975 with a "first wave" of standards for rivers and lakes used as sources of drinking water and culminated in 1980 with a set of binding quality targets for drinking water. A second wave of water legislation followed in 1991 with the adoption of the Urban Waste Water Treatment Directive, which provided for secondary (biological) wastewater treatment, and the Nitrates Directive, addressing water pollution by nitrates from agriculture. It was completed in 2000 with the adoption of the EU Water Framework Directive. Some of the key elements of this directive are: (1) A single system of water management: river basin management. The best model for a single sys- tem of water management is management by river basin--the natural geographical and hydro- logical unit--instead of according to administrative or political boundaries. (2) Coordination of objectives: good status for all waters by a set deadline. There are a number of objectives. The key ones are (a) general protection of the aquatic ecology, (b) specific protection of unique and valuable habitats, (c) protection of drinking water resources, and (d) protection of bathing water, all of which must be integrated for each river basin. (3) Coordination of measures. The aim is to coordinate the application of measures at the community level to tackle particular pollution problems, key examples of which are the Urban Waste Water Treatment Directive and the Nitrates Directive. (4) Public participation. There are two main reasons for an extension of public participation: balancing the interests of various groups, and to underpin enforceability. (5) Getting the prices right. The aim is to set water prices at levels adequate to act as an incentive for the sustainable use of water resources in order to reflect the true costs of the environmental objectives. Sources: Gislev 2007; see also http://ec.europa.eu/environment/water/water-framework/index_en.html. are the Environment Ministry and the National and Water Resources, the restructured PUB's Water Committee. The Environment Ministry responsibilities have been extended and now is responsible for protection, management, and include sewage treatment and reuse, flood con- upgrading of aquatic environments and river trol, and the sewer system, in addition to water systems, water quality, programming, and coor- resources and supply. dination of state intervention in relevant sectors. The other feature is that water management The National Water Committee, chaired by a is based on river basins instead of boundaries of member of the Parliament and composed of rep- administrative jurisdictions or sectors, and spe- resentatives of the National Assembly and the cific organizations based on river basins are set Senate and of important institutions and national up for water resource management. For example, federations, plays a key role in national water the UK Environment Agency has eight regional policy and in drafting legislative and regulatory offices corresponding to the eight big river basins texts. In Singapore, the Ministry of Environment in England and Wales. France has set up a river and Water Resources was established in 2002 basin committee and water agency in each river through the merging of the former Public Utilities basin, both involved in the preparation of the Board (PUB), which used to be responsible for Water Resources Development and Management water resources and supply only, and the for- Master Plan, and supervised by the Ministry of mer Ministry of Environment, which used to be the Environment. In the United States, the Envi- responsible for sewage treatment and the sewerage ronmental Protection Agency has ten regional system. As part of the Ministry of Environment offices; each covers several states and one or more A D D R E S S I N G C H I N A ' S W A T E R S C A R C I T Y 49 I M P R O V I N G W A T E R G O V E R N A N C E entire river basins that cross several state jurisdic- the concept of integrated river-basin management tions. The U.S. also set up some river-basin-based has been increasingly adopted by governments water commissions as interstate institutions to of many countries (Box 4.5). address cross-state water management issues. These experiences of other countries in insti- Typically, members of these commissions include tutional arrangements for water management representatives of the federal government, state provide useful information for China to improve governments, and other stakeholders. In addition, its water governance. B O X 4 . 5 Integrated River Basin Management Since the 1990s, the experience of water governance in various countries has led to a broad interna- tional consensus that the best solution for water issues lies in drafting overall plans to manage water- related affairs at the river-basin level. This process, known as integrated river basin management (IRBM), came to prominence after the 2002 Earth Summit in Johannesburg, South Africa. IRBM has been implemented in EU countries, the United States, Canada, South Africa, and elsewhere. IRBM is a process of coordinating the management and development of water, land, biological, and other resources within a river basin so as to maximize economic and social benefits in an equitable way, while at the same time conserving freshwater ecosystems, species, and resource ser- vices for people. IRBM is not a simple amalgamation of existing management of water, soil, biological, and other aspects. It moves away from the former practice of separated regional and sectoral administration and features the following: · A river basin is an ecosystem that cannot be split into isolated sections. IRBM can help understand the cycles of evolution, development, and change to river basin ecosystems and adapt their man- agement to fit with the natural order by using ecosystem approaches to manage water, soil, and other natural resources basin-wide. · In terms of management objectives, IRBM tries to balance economic development, social progress, and ecological and environmental protection to maximize the economic, social, and environmental benefits throughout a river basin. This could be achieved through the active participation of stake- holders, and coordination between different governmental agencies. Strict environmental stan- dards, as well as pressure on local governments from both the central government and the public, can also play significant roles. · IRBM administrative targets focus on water and water resources, aiming for systematic manage- ment of water resources, the water environment, land resources, and aquatic ecosystems. This could help solve the conflicts between governmental agencies regarding water resource manage- ment, water environmental management, as well as land resources management. · IRBM involves a combination of structural and nonstructural measures, with special care taken when adopting irreversible measures to harness a river basin. It advocates management approaches that cut across sectoral and jurisdictional boundaries and the use of legislative, administrative, economic, planning, and scientific and technologic instruments in a comprehensive fashion. · IRBM emphasizes management processes that include the active participation of stakeholders. The involvement of stakeholders in management, planning, and policy making, as well as many other basin-level affairs, is essential for the success of IRBM. IRBM has not been easy to implement in either developed or developing countries. This is especially the case for China with its fast-growing economy. The first steps toward implementing IRBM should be to define the rights, responsibilities, and obligations of the relevant stakeholders; discuss how to enhance information sharing, communication, and coordination between and among them in order to reach consensus on IRBM; and jointly seek the best solutions to these basin-level issues. Source: Wang et al. 2007. 50 A D D R E S S I N G C H I N A ' S W A T E R S C A R C I T Y I M P R O V I N G W A T E R G O V E R N A N C E Recommendations for related affairs across the country at the highest Organizational Reform level of government. It should be chaired by the premier or a vice premier, and its members would Focusing on the areas for improvement in institu- be heads of all water-related ministries/agencies tional arrangements for water management in at the central level. Its major missions would be to China discussed above, and based on international direct the development of a national water strategy, experience, our recommendations are as follows: examine long-term plans for water develop- ment, allocation, and use, and coordinate all Shifting to a new paradigm water-related ministries/agencies to avoid pol- of water management icy inconsistency and conflicts before they are The traditional approach to water management, implemented. This commission will serve as a fragmented along sectoral and regional lines, can high-level water policy-making body, much like exacerbate water problems rather than address the newly established State Energy Commission them. China should make a shift from the current headed by the premier. At the ministry level, an paradigm to a new paradigm of integrated water option would be to merge major water-related management. That suggests a profound reform, duties currently put under different government ranging from restructuring government organi- agencies (namely MWR, MEP, MOA, MOC, zations, to improving legal frameworks, and to and MLR) and establish a new super ministry to developing innovative policy instruments. implement unified management of water quantity and quality, surface water and groundwater, water Strengthening coordination among existing resource conservation and use, and water environ- agencies and organizations mental protection. As water involves so many stakeholders, even in countries adopting the integrated approach, there Establishing and reshaping river are still many institutions and organizations basin commissions involved in water management. For example, 17 China should establish river basin commissions organizations at the federal level are involved in for all major rivers and lakes that run across groundwater management in the U.S. In China-- different provinces/municipalities. Specific pro- given the reality of the multiple-tier government visions should be added to the Water Law and structure and multiple agencies at each tier other laws/regulations to provide legal status involved in water management--in the short run and clarify the authorities/responsibilities of it is more important and feasible to first strengthen the new type of RBMCs. Since the existing coordination among those agencies by establishing RBMCs for the seven major rivers in China, as a proper coordinating mechanism. Regular inter- subordinates of MWR instead of real "commis- agency consultation, compulsory information sions" as they should be, do not have enough sharing, cross review and endorsement of relevant power or representatives from local govern- policies and plans, and joint policy making are ments, they should be reshaped. In the short components of the coordinating mechanism. run, as organizations on behalf of the central government, RBMCs could consider the involve- Restructuring governmental organizations ment of representatives from MEP. In the long for integrated water management run, they should be made independent of MWR at the national level and accountable to the State Council directly. There are several options. One option is to estab- Their governing board should include repre- lish a State Water Resources Commission as a sentatives from both the central government and coordinating and steering organization on water- provincial/municipal governments to ensure A D D R E S S I N G C H I N A ' S W A T E R S C A R C I T Y 51 I M P R O V I N G W A T E R G O V E R N A N C E appropriate accountability for basin-wide water official bulletins and public hearings to web- resources management. based channels. The Regulation of Hydrology, issued in 2007, focused on water quality moni- toring and also set requirements on information TRANSPARENCY AND disclosure. INFORMATION DISCLOSURE SEPA also issued official documents to enhance Transparency is one of the essential elements of information disclosure. The Provisional Regula- good governance and a basic prerequisite for pub- tion on Public Participation in Environmental lic participation in public management. In terms Impact Assessment, promulgated in 2005, defines of water management particularly, transparency the scope of information that project organiza- means that the public can have better access to tions should make available to the public, as information on water resources, policies, and insti- well as forms of disclosure and time limits for tutions on water-related issues and water-related disclosure. MEP's Environmental Information behaviors of various stakeholders. Disclosure Decree, which was put into effect on May 1, 2008, makes it a compulsory responsibil- ity for enterprises and governments to disclose Current Status their important environmental information to The Chinese government has been aware of the the public. importance of transparency to good governance In addition to these regulations by central and made efforts to increase the openness of governmental agencies, local governments have public administration. In the Compendium of also promulgated regulations and policies to Implementation for Fully Promoting Law-Based promote water-related information disclosure. Administration promulgated in 2004 by the State Reports on the state of large river basins have Council, administrative agencies are required to been delivered on an annual basis to provide open to the public all governmental information information on water conditions and manage- except that related to state secrets, business secrets, ment in whole river basins. As a result, the pub- or personal privacy. In 2005, the Guidance for lic has better access to water-related information, Further Enforcing Openness of Administrative and the administration of water issues is much Affairs (GFEOAA) was promulgated. In April more transparent than before. 2007, the Government Information Disclosure Regulation (GIDR)--which was promulgated Areas for Improvement by the State Council and took effect on May 1, 2008--defines the range of government infor- Even with the progress above, especially in policy mation, sets methods and procedure for infor- making for enhancing transparency, the openness mation disclosure, designs dispute resolution of public administration in water management mechanisms, and provides specific provisions on is still limited in China. Major areas for improve- performance supervision. ment are summarized below. Following these important official documents by the State Council, the MWR issued GFEOAA Limited disclosure of information on water for Water Management in June 2005, and Most of the information that existing regulations MWR's Provisional Regulation on Openness of require to be made open to the public is on gov- Administrative Affairs in May 2006. These two ernment organizations in charge of water affairs documents define the scope of information that and their responsibilities and behaviors. Infor- should be disclosed to the public and various mation on water itself--including water quality forms of information disclosure, ranging from and quantity and such causal factors as water 52 A D D R E S S I N G C H I N A ' S W A T E R S C A R C I T Y I M P R O V I N G W A T E R G O V E R N A N C E users and pollution sources--is not emphasized Decree provides for a punishment for nondis- enough. In reality, such information is not only closure, with a maximum fine of 100,000 yuan inaccessible to the public, but also inaccessible to (less than $14,000), but that is too low to be an other governmental organizations outside those effective incentive. Besides, current laws do not sectoral or local government organizations. It is specify how to provide compensation for the losses not unusual that a specific organization respon- caused by noncompliance with information dis- sible for water management has kept the infor- closure requirements. In addition, although sev- mation it collected and does not share it with eral regulations on information disclosure are other organizations. As a result, each organiza- promulgated, they are not implemented well tion has its own database, and the information because of weak supervision by both the govern- issued is not consistent. This is illustrated, for ment itself and the public. example, by the different water quality data for the Huai River reported by MEP and MWR International Experience in shown in Figure 3.2 in Chapter 3. Enhancing Transparency and Ambiguity of terms leading to Information Disclosure noncompliance in information disclosure As information disclosure is essential to good In some existing regulations, the definition of water governance, many countries, especially what information should be disclosed to the developed countries, attach importance to it public is not clear enough. As a result, some and have enacted substantial legal measures to organizations take advantage of the vagueness of enhance it. the regulations and refuse to disclose water- In 1990, the EU adopted the Directive on the related information. For example, the current Freedom of Access to Information on the Envi- regulations require that all information except ronment, which promotes environmental infor- that related to state secrets, business secrets, or mation disclosure (Box 4.6). In 1998, the EU personal privacy should be open to the public. signed the Convention on Access to Informa- However, there is no clear definition of what tion, Public Participation in Decision-Making information relates to state secrets or business and Access to Justice in Environmental Matters secrets. Thus, some organizations or enterprises (the Ĺrhus Convention), which was put into refuse to disclose water-related information in effect on October 30, 2001. In this convention, the name of protecting state secrets or business the right of access to information is regarded as secrets. one of three pillars of public participation in environmental management. In 2003, the EU Incomplete legal system for issued a new Directive on Public Access to Envi- information disclosure ronmental Information, which took effect on The citizens' right of access to information is not February 14, 2005. As a binding document for emphasized properly in formal laws. For example, all member states, the directive grants the public there are very few clauses on information disclosure a right of access to environmental information, in the Water Law and the newly amended Water provides for a broader definition of environ- Pollution Prevention and Control Law. In the mental information, and establishes a deadline of existing regulations on information disclosure, one month (reduced from the previous two) for the provisions on the procedure of information public authorities to supply the information disclosure are not detailed and very few provi- requested. It also clarifies the circumstances sions are provided for measures against noncom- under which authorities may refuse to provide pliers. The Environmental Information Disclosure information. Access to information shall be A D D R E S S I N G C H I N A ' S W A T E R S C A R C I T Y 53 I M P R O V I N G W A T E R G O V E R N A N C E B O X 4 . 6 EU Directive on the Freedom of Access to Information on the Environment The main EU legal instrument on access to environmental information is the Directive on the Free- dom of Access to Information on the Environment adopted in June 1990. The directive makes it clear that: · Providing a general right of access to information, rather than a more specific right of access to environmental information, is preferable. · Access to information should be a right. Exceptions to this right of access should be interpreted narrowly and used only in exceptional circumstances. · The time limits for the provision of information should be short--weeks or days rather than months. · Fees for the provision of information should be reasonable and well known to the requester. · Continuing awareness building and training of officials is crucial in building a good access-to-infor- mation system. · The public should be informed about what information is available and the means for obtaining that information. · The appeals process should be inexpensive, and decisions on appeals need to be speedy. Source: Resources for the Future (2001), http://www.rff.org/documents/RFF-RPT-pubaccess.pdf. granted if the public interest served by the dis- Recommendations for Actions closure outweighs the interest served by a refusal. to Enhance Transparency The directive grants the public the right to chal- To protect the citizens' right of access to infor- lenge acts or omissions of public authorities mation on public affairs, facilitate public partic- relating to requests for environmental informa- ipation in water management, and prevent the tion and specifies review procedures for that. public from harm by water emergencies, it is Following these EU directives, the member crucial for China to take actions to enhance the states revised or made laws/regulations to enhance transparency of the government and water-related information disclosure. information disclosure. Major actions recom- In the United States as early as 1979--in laws mended are summarized below. such as the Clean Water Act, the Resource Con- servation and Recovery Act, and the Safe Drink- ing Water Act--the Environmental Protection Make public information disclosure a Agency promulgated regulations setting minimum compulsory obligation of the government, regulatory requirements and suggested informa- companies, and relevant entities tion, notification, and consultation responsibilities The government should be fully committed to as program elements for public participation. It using the information disclosure approach in required that each agency should provide the water resource management. Public information public with information on continuing policy, disclosure requirements should be incorporated program, and technical issues at the earliest prac- in all major development strategies, policies, ticable time. For controversial issues or significant regulations, and operational procedures. Rele- decisions, each agency is required to provide one vant governmental organizations should regularly or more central depositories of reports, studies, release to the public information on water quality plans, and other documents in a convenient loca- and pollution sources. The information must be tion, such as public libraries. accessible for the public and concerned groups/ 54 A D D R E S S I N G C H I N A ' S W A T E R S C A R C I T Y I M P R O V I N G W A T E R G O V E R N A N C E communities and be made available through of access to information is generally low. China multiple channels. should raise awareness through public education and campaigns so that the public can be more Build a sound legal base for active in requesting water-related information information disclosure from relevant government organizations or enter- The legal basis for information disclosure has to prises. This is essential to effective enforcement be strengthened. For this purpose, China should of laws/regulations on information disclosure. (1) add clauses in such laws as the Water Law, Environmental Protection Law, and Water Pollu- PUBLIC PARTICIPATION IN tion Prevention and Control Law to emphasize the WATER MANAGEMENT citizens' right of access to environmental infor- mation and make information disclosure a com- As water management is related to the interests of pulsory obligation of governmental organizations, a wide range of stakeholders at different levels, water companies, enterprises discharging pollu- including the general public, public participation tants, and other major stakeholders; (2) define is also crucial to good water governance. Public in more detail in laws/regulations the scope of participation is helpful to tailor policy to local sit- information that is supposed to be disclosed to uations, to maximize the social welfare and utility the public and the scope of information regarded of resources use, and to protect vulnerable groups. as state secrets or business secrets subject to pro- It is an inherent part of the integrated model of tection, and specify the forms, procedures, and water management, both as a driving force for time requirements for information disclosure; other stakeholders to fulfill their duties and as a and (3) draft clauses on the liability of those who policy instrument of water management. have not disclosed information as required, as well as measures against noncompliance. Current Status of Public Participation Develop information systems to facilitate Traditionally, China had a highly centralized the citizen's access to water information bureaucratic system with a top-down governance Two types of information systems should be approach and weak public participation. Over developed. One is on water quantity and quality the past three decades, with economic and admin- at both levels of river basins and administrative istrative reform deepened, public participation units, covering surface and groundwater. The has been increasing in public affairs. In water other is information on major water users or management, China has taken a number of ini- groups of users and their pollution data, also at tiatives to encourage and facilitate public partic- both the river-basin level and administrative- ipation in recent years. unit level. In particular, systems of information In the Environment Impact Assessment Law on toxic chemicals are urgently needed to prevent passed in 2003, specific articles are provided on water pollution incidents. Organizations manag- public participation in the formulation of gov- ing these information systems should share the ernmental plans and the design of construction information with other governmental organiza- projects. The Administrative License Law passed tions and disclose it to the public. in June 2004 acknowledges the right of the pub- lic to express their opinions in public hearings. Improve public awareness of In February 2006, a specialized law on public information disclosure participation--the Preliminary Regulation on Due to weak participation in environmental man- Public Participation in Environment Impact agement, the public's awareness of their right Assessment--was promulgated by SEPA. It makes A D D R E S S I N G C H I N A ' S W A T E R S C A R C I T Y 55 I M P R O V I N G W A T E R G O V E R N A N C E organizational provisions for public participation, the public spontaneously, 1,116 by students, and and clarifies the forms and procedures for public 68 were branches of overseas/international NGOs. participation in environmental impact assessment. The total staff of these NGOs amounted to In May 2006, the MWR issued the Regulation 224,000, with 69,000 working full-time (SEPA on Public Hearings for Administrative Permits 2006a). These environmental NGOs are playing in Water Sector, defining the scope of admin- an increasingly important role in environmental istrative permits for which public hearings are protection in China. Some of them participate necessary and making detailed stipulations on in water management actively and make their organizing public hearings. The Regulations contributions to water resource conservation and on Water Withdrawal and Collection of Water water quality protection. One good example is the Resource Fees (2006) makes it clear that the pub- China Water Pollution Map, which is managed by lic should be informed and public hearings should the Institute of Public and Environmental Affairs be held when an application for water with- and used to disclose water polluters. Another is the drawal is related to public benefits. It is believed active participation of Green Earth Volunteers that the overall legal framework has been much and other NGOs in the water resource develop- improved for promoting and protecting the legal ment planning of the Nu (Nujiang) River. rights of the public as well as protecting state and Major forms of public participation in water business secrets as defined by laws. management in China are (1) public opinion In recent years, the water users association solicitation, where public opinions are solicited (WUA), as an organization of water users, has on a certain issue in water management; (2) pub- become a very popular form of public participation lic hearings, where formal public hearings are in water management in rural China. In October organized by government agencies in which rep- 2005, MWR, NDRC, and the Ministry of Civil resentatives of various stakeholders can express Affairs jointly promulgated the Guidance for their viewpoints and raise questions over cer- Facilitating Establishment of Farmer Water Users tain water-related issues; (3) experts' assessment/ Association, specifying principles and proce- reviews of development plans and programs, where dures for establishing such associations and professionals with expertise are involved in water their role and responsibilities in relation to management; and (4) stakeholder coordination, governmental organizations and water supply where representatives of various stakeholders enterprises. According to MWR, water users' communicate and negotiate over water-related participation in irrigation water management issues relevant to their interests. To date, experts' had taken place in 30 provinces/municipalities assessment/reviews and public hearings have across China by mid-2007. More than 20,000 been the most common in practice. organizations of farmer water users, mostly in the form of farmer WUAs, have been estab- Areas for Improvement lished, involving more than 60 million farmers participating in water management on behalf Public participation in water management in of end-users of water.2 China is still quite low. That can be attributed Ever since the Friends of Nature, the first to several weaknesses; the major ones are sum- environmental NGO in China, was established marized below. in 1994, the number of environmental NGOs has increased rapidly. A survey by the China Union of Low awareness and capacity Environmental Protection in 2005 found a total of of public participation 2,768 environmental NGOs in China. Of these, Given the long tradition of government domi- 1,382 were initiated by the government, 202 by nance in water management, neither govern- 56 A D D R E S S I N G C H I N A ' S W A T E R S C A R C I T Y I M P R O V I N G W A T E R G O V E R N A N C E ment agencies nor the public in general have Barriers for NGOs strong awareness of the potential for public par- The existing procedural and financial require- ticipation in water management. Because of lack ments for registration of NGOs set by existing of experience and the low level of organization, regulations pose significant barriers to develop- the public in general has limited capacity for par- ment and participation of NGOs. For example, ticipation in water management. Consequently, according to the Regulation on Registration and most citizens do not participate at the early Management of Civil Organizations promul- stages until their quality of life has been seriously gated in October 1998, any civil organization affected. Once they feel compelled to partici- needs to get the approval of a governmental pate, their actions tend to be more aggressive, organization or a quasi-governmental organiza- sometimes irrationally so. On the other hand, tion authorized by the government above county many government agencies have no intention to level before it can be registered as a legal organi- involve the public unless they are compelled by zation. For a nationwide civil organization, the the law or agencies at higher levels. amount of operational funds should be no less than 100,000 yuan, and for a local one, no less Incomplete legal system than 30,000 yuan. If there is already a civil orga- The legal provisions on public participation in nization with the same or similar business in the water management are incomplete. First of all, in same administrative units, the new one would be such essential laws as the Water Law and Law on regarded as superfluous and refused registration. Environmental Protection, the citizens' rights to Because of such requirements, some NGOs have access to information, to participate in decision to be registered as for-profit companies that have making, and to question and supervise govern- to pay taxes. Since participation of the NGOs mental agencies, are not clearly stated. Second, spontaneously initiated by citizens is sometimes there are few legal provisions for the public to not welcome by government agencies, NGOs challenge government decision making through initiated by governmental organizations play a litigation or judicial review. Third, the provisions/ more important role in water management. How- regulations on the procedure and mechanisms ever, their representation of the public interest is of public participation are not detailed or clear not always ensured. enough, leading to distorted implementation. For example, although it is required that government International Experience in agencies should respond to questions or appeals of Enhancing Public Participation the public, it is not clear how they should respond and what the result would be if they did not Involving the public in water management is a respond. global trend. Many countries, developed and developing, centralized or decentralized, have Distorted operations taken actions to enhance public participation in Due to lax legal requirement and weak super- water management. vision, the activities of public participation are As mentioned earlier, the EU signed the Ĺrhus often distorted in practice, deliberately or un- Convention enhancing public participation in consciously. In such forms of public participation environmental management. It identifies three as public hearings and expert assessments, the pillars of public participation: (1) the public's procedures for selecting representatives of stake- right to receive environmental information held by holders and experts are not followed strictly in public authorities; (2) the right to participate from practice. Some organizers tend to select those in an early stage in environmental decision making; favor of the views or interests of the organizers. and (3) the right to challenge, in a court of law, A D D R E S S I N G C H I N A ' S W A T E R S C A R C I T Y 57 I M P R O V I N G W A T E R G O V E R N A N C E public decisions that have been made without affected by a forthcoming action and perform- respecting the two aforementioned rights or envi- ing associated actions; (3) providing (if needed) ronmental law in general. Following the conven- technical or financial assistance to the public to tion, the EU formulated the Water Framework facilitate involvement; (4) providing information Directive, requiring that all member states should and outreach; (5) conducting public consultation; encourage the active involvement of all interested (6) reviewing and using input and providing parties in the implementation of the directive, and feedback; and (7) evaluating public involvement in particular in the production, review, and updat- activities. ing of river basin management plans. Public participation in such forms as a water In France there are institutional arrangements users association is also very popular and plays for public participation. At the river basin level, the an important role in water resource management river basin committees consist of representatives in many developing countries, including India, of different stakeholders, including water users, Mexico, and Brazil. experts, and professional associations (accounting for 40 to 45 percent of the total), different admin- Recommendations for Actions istrative districts (36 to 38 percent), and the cen- to Promote Public Participation tral government (19 to 23 percent). The board of directors of the water agency for each river basin As a public good with strong externalities and a also consists of representatives of local government strategic resource crucial to the economy, envi- officials, water users and experts, and central gov- ronment, and public life, water is closely related ernment officials, each accounting for one-third. to the interests of various stakeholders, including At the regional level, local water committees are set the general public. To balance the interests of up for tributary subbasins. Of all members of each various groups, and especially to protect the committee, 25 percent are representatives of water benefits of vulnerable groups whose voices often users, owners of land along the tributary, and pro- cannot be heard, China should make a greater fessional associations. At the local level, water fed- effort and take stronger actions to promote pub- erations are set up in two-thirds of cities/towns. lic participation in water resources management. These federations consist of representatives of Aiming at the existing weaknesses in terms of government, water users, and water companies. public participation, and based upon experiences In the United States, the EPA issued the of other countries, major recommendations for Public Involvement Policy in 2003 to provide actions promoting public participation in water for meaningful public involvement in all its management are summarized below. programs and consistently look for new ways to enhance public participation. It requires that Governments should be fully committed EPA staff and managers should (1) seek inputs to and take gradual actions for promoting reflecting all points of view and carefully consider public participation the input when making decisions; (2) work to Public participation should be widely adopted as ensure that decision-making processes are open a complement to government actions in water and accessible to all interested groups; and (3) not resource management, ranging from planning and accept any recommendation or proposal with- policy making to law and policy enforcement and out careful, critical examination. It also outlines education. It should be emphasized that encour- seven basic steps for effective public involvement: aging public participation in public affairs is in (1) planning and budgeting for public involve- line with China's long-term development goal to ment activities; (2) determining who needs to develop a more democratic and harmonious or should be informed of, is interested in, or is society. Given the low awareness and capacity of 58 A D D R E S S I N G C H I N A ' S W A T E R S C A R C I T Y I M P R O V I N G W A T E R G O V E R N A N C E public participation, China should work out a plan Providing support for development of action for promoting public participation grad- and participation of NGOs ually. At the current stage, China should improve China should adjust the existing legal policy on implementation of existing policies on promoting NGO management, simplifying the formalities of public participation in water management, focus establishment, lowering the requirements, and, on increasing the involvement of experts, and especially, granting them independent status. Poli- enhance the participation of the public in water cies should be made to encourage their involve- issues that are directly related to their lives. ment in water management in various forms. In addition, to enhance the awareness and Building a strong legal foundation capacity of citizens in public participation, apart for public participation from information dissemination activities targeted The rights of public participation should be to adults, China should start by enhancing the emphasized in relevant laws to empower the education of schoolchildren on environmental public. In such laws as the Water Law and Law and natural resource management issues. on Environment Protection, articles should be added to explicitly grant rights of participa- tion in water management to the public. Three SUMMARY rights should be clearly defined: (1) the right of Good water governance is composed of a series access to information, (2) right of participation of elements. To address the serious challenges it in decision making, and (3) right to challenge is facing in terms of water management, it is water-related decisions by the government. Spe- vitally important for China to improve its water cific and detailed provisions should be made on governance. Given the nation's current situation, forms, steps, and procedures of public participa- China needs to treat water as a strategic resource tion to avoid distortion in practice, either delib- and attach the same importance to it as to food erately or unconsciously. Provisions should be security and energy security. To achieve good made for administrative re-examination, litiga- water governance, China should make sustained tion, or administrative punishment against behav- efforts and initiate a wide range of actions. The iors infringing the aforementioned "three rights" most fundamental one is that China should shift granted by law in practice. to a new paradigm of water management, mov- ing from traditional fragmented management to Involving the public in water integrated water management. This requires a management organizations change in the mindset of both government offi- As recommended above, a representative water cials as well as the general public so that a consen- management organization or commission should sus can be reached that water is a scarce resource be established at the river-basin level for each that should be effectively allocated through mar- river basin. For the long run, membership in the ket mechanisms. At the same time, access to clean organization should be further extended to not water and a clean environment are basic rights of only central and local government agencies but the people, and these rights should be protected also representatives of various stakeholders, includ- through legal provisions, regulatory measures, ing water suppliers, water users, and the general and enforcement. public. At the current stage, to facilitate partici- To adapt to this new paradigm, China should pation of water users, China should encourage improve its legal system, organizational arrange- and support the establishment of such organiza- ments, and policy instruments. tions as water users associations and involve them In terms of the legal system, China should in water management. (1) continue to strengthen the legal framework A D D R E S S I N G C H I N A ' S W A T E R S C A R C I T Y 59 I M P R O V I N G W A T E R G O V E R N A N C E for water resource management and pollution governments, water users/the public, and experts control; (2) focus on improving compliance and to balance the interests of various stakeholders. enforcement, especially by strengthening public In terms of policy instruments, China participation; (3) incorporate in water-related laws should combine various instruments, including the integrated approach to water management; command-and-control measures, market-based and (4) grant legal status to river basin manage- instruments, information disclosure, and pub- ment commissions. lic participation. In designing policies, market In terms of organizational arrangements, China mechanisms should be used more to improve should (1) set up a more effective mechanism the efficiency of water use, while direct govern- in the central government--possibly a Water ment intervention (such as subsidies or invest- Resource Management Commission, the high- ments) can be used in some areas for the sake of est level of coordinating and policy-making body equity and social benefits. Information disclo- consisting of leaders of various water-related sure and public participation in various forms ministries/agencies and chaired by a vice premier, should be promoted to impose pressure on pol- and/or a consolidated super ministry combin- luters and administrations to avoid temporally ing the water-related functions of MWR, SEPA, and spatially biased behaviors, and to protect MLR, and other ministries--with proper author- the public from water-related environmental ity and capacity for coordinating different sectors incidents. and provinces/municipalities to implement inte- grated water management; (2) establish a more effective mechanism for coordinating different Endnotes governmental organizations at central and local 1. For the details of water-related laws and regulations in levels; and (3) reform river basin management China, please see the background report prepared by the commissions (RBMCs). The river basin man- China Institute of Water Resources and Hydropower Research, 2007. agement commission should consist of repre- 2. Source: http://www.chinacitywater.org/bbs/viewthread. sentatives of central government agencies, local php?tid=42076 60 A D D R E S S I N G C H I N A ' S W A T E R S C A R C I T Y 5 Deepening Water Rights Administration and Developing Water Markets The allocation of water rights and the establishment of water markets can improve the economic efficiency of water use in China and help resolve water shortages. China is encountering growing difficulties in meeting its rapidly growing demand for water. At the same time, the environmental impacts of overexploitation of water resources are becoming increasingly apparent. It is therefore timely to consider options for improving initial water allocations, deepening the reform of water rights administration, and establishing water trading in China. This chapter focuses on water rights administration, water allocation, and water markets. It discusses (a) the concepts behind and requirements for water rights administration and water allocation, with insights from international expe- rience; (b) the water rights system in China, drawing on case studies and pilot projects to illustrate good practice and key challenges; (c) the rationale for water markets and trading; and (d) international experience in trades of various types, and recent Chinese experience with both local and regional/inter-sectoral trading. It concludes with recommendations. THEORY OF WATER RIGHTS AND INTERNATIONAL PRACTICE Water rights can be characterized in many different ways. Essentially, they are an entitlement (or a de facto "property right") of an individual or entity to a share of a common water resource. Beyond this, however, are the legal and insti- tutional arrangements surrounding the right. These arrangements define and give meaning to a water right--both for the right holder, for other water users, for the government (as resource regulator), and for all those with an interest in water resources (WET 2006). In this chapter, water rights are not used to refer to legal ownership rights (which are typically held by the state, as is the case in China). Water rights refer to rights to allocate, take, or use water. Establishing a water right usually starts with a definition of the right of a user to abstract and/or use a certain amount of water from a water source, A D D R E S S I N G C H I N A ' S W A T E R S C A R C I T Y 61 D E E P E N I N G W A T E R R I G H T S A D M I N I S T R A T I O N A N D D E V E L O P I N G W A T E R M A R K E T S such as a river, stream, pond, or aquifer. To effec- rights system. Those rules may allow for govern- tively manage water resources, a complete water ment to amend the rights under certain circum- rights system needs to explicitly specify the stances, or for individuals to trade their rights in amount of water resources that may be extracted accordance with specified rules. and consumed per unit of time, with a responsi- Finally, we note that formalized, statutory bility to return a certain amount of water--with rights are not the only source of authority that satisfactory water quality--back to the local water helps regulate water use, particularly in rural areas system. In other words, a water right includes where formal systems can become difficult to three components: (1) the amount of water that implement for single enterprises/users. Box 5.2 may be extracted, (2) the amount of water that discusses other ways in which rights are defined may be consumed (or lost to the system), and and claimed. (3) the amount of water that must be returned with defined quality to the local water system. Rationale for Rights-Based These three components define the parameters of Management a given water right. The amount of water consumed can be more A water rights system fundamentally involves accurately measured by evapotranspiration (ET). identifying the total available resource and then ET refers to the transpiration and evaporation of assigning the rights to that resource among dif- water. Based on the water balance theory for a ferent groups (Hodgson 2006; WET 2006). Man- basin or an area, when rainfall and inflow and agement of water resources via a rights-based outflow water remain unchanged, the control system has several drivers: of evapotranspiraton is the key to keeping the · Security. Lack of security can act as a barrier to groundwater table from dropping and keeping investment in water-dependent activities. A surface water flow steady. Hence, the ET quota water rights system can provide legal protec- (for the basin) should become the core control tion for rights' holders and certainty regarding indicator and mechanism for the water rights sys- the water that will be available to them and the tem in the basin. Whether it is water rights allo- process through which allocations are made. cation or control, water rights management · Ecological sustainability. By defining the water should eventually be based on the allocation and available to different parties, a water rights sys- control of ET quotas. Putting it another way, the tem sets a limit--a cap--on the total water ET approach focuses on measuring and manag- available for use. This cap can be set at a level ing the scarce resource (water that is actually "con- to ensure water abstraction is at an ecologically sumed" or lost to the system and local users) sustainable level. rather than on water that is extracted but then · Transparency. A transparent approach to the returned to the system. Hence the ET approach is allocation of water provides confidence to all more focused on managing actual water con- parties that water resources are being managed sumption, and can help improve overall water in a way that will deliver certainty, security, management and system efficiency. The ET and ecological sustainability. approach is being tried in many countries: an · Efficient water use. Clearly identifying the shares example from New Mexico in the United States available to different entities provides an incen- is presented in Box 5.1. tive for investment in water conservation. An allocation process defines initial rights to water. Subsequently, these rights may change in In addition, an effective water rights system pro- accordance with the rules that govern the water vides the basis for a number of different policy 62 A D D R E S S I N G C H I N A ' S W A T E R S C A R C I T Y D E E P E N I N G W A T E R R I G H T S A D M I N I S T R A T I O N A N D D E V E L O P I N G W A T E R M A R K E T S BOX 5 . 1 Water Rights in New Mexico In 2005, the southwestern U.S. state of New Mexico adopted new rules and regulations (R&Rs) with the objective of establishing standards and procedures to administer the appropriation, allocation, and use of the state's surface and supplemental groundwater. The R&Rs define the five basic components of a water right: (1) point of diversion, (2) place of use, (3) purpose of use, (4) owner, and (5) quantity. However, "beneficial use" is now the basis, measure, and limit of a water right. Beneficial use is further defined as the direct use of water by man for ben- eficial purposes, including irrigation, municipal, commercial, industrial, domestic, livestock, fish and wild life, and recreational uses. For beneficial irrigation water use, a consumptive irrigation require- ment is defined as the quantity of irrigation water, expressed as a depth or volume, exclusive of effec- tive rainfall that is consumptively used by plants or is evaporated from the soil surface. Consumptive use is then defined as the quantity of water consumed during the application of water to beneficial use. The quantity of water beneficially consumed depends on the requirements of a particular enter- prise and how it applies and consumes the water. The authorized diversion of water that is not bene- ficially consumed in the course of water use is not part of the allowable consumptive use allocation of the water right. The consumptive use by a crop (beneficial evapotranspiration) does not include deple- tions such as evaporation from canals, ditches, or irrigation fields during surface application, transpi- ration by vegetation along ditches, evaporation or leakage from irrigation water pipes, evaporation of sprinkler spray and drift losses, and evaporation of runoff and seepage from irrigated fields (non- beneficial ET). The volume of water right for irrigation use is set based on the calculation of beneficial ET and other factors. The ET calculations are redone periodically to confirm that water is being used beneficially. The state is developing long-term data sets that will improve the process over time. Return Flow Credit. An innovative and integral part of the water right includes a provision whereby water users can receive a credit on surface water return flows, expressed as a percentage of the total diversion of surface water that has been applied to beneficial use and returned to the same surface water stream from which it was appropriated. A return flow credit does not entitle the user to increase the authorized consumptive use amount. The return flow credit process is administered separately to ensure that return flows meet certain water quality standards (state and national). Note: Further information is available on the website http://www.ose.state.nm.us/. BOX 5 . 2 From Formal Rights to Contracts and Claims Much of the literature on water rights focuses narrowly on formal rights and ownership regimes. Hence, rights are often discussed only as legal instruments issued by state agencies, or in terms of private/public and ownership/use distinctions. In practice, law is not the only source of authority that assigns effective rights, particularly where logistical and administrative hurdles make it difficult for the state to assign, monitor, and enforce individual entitlements. Internationally, contractual agreements and rights asserted through user groups are widespread, particularly in irrigation schemes. Such arrangements can also be found in China. In some irrigation districts, for example, an agency will supply water to water user associations (WUAs) on a contractual basis: contracts have no legal authorization, but do specify the rights and obligations of both the agency and WUAs. At the farmer level, membership in a WUA then confers an entitlement to receive a bundled water service, subject to payment for that service. Such arrangements can work well, even though they lack legal force. In particular, allowing farm- ers a say in decision making through a WUA can strengthen their ability to assert a claim to water proportionate to land area in systems where farm-level, volumetric monitoring is not possible. A key lesson is the need to improve participation and accountability, and thus strengthen rights. Sources: Meinzen-Dick and Bruns 2000; WET 2007. A D D R E S S I N G C H I N A ' S W A T E R S C A R C I T Y 63 D E E P E N I N G W A T E R R I G H T S A D M I N I S T R A T I O N A N D D E V E L O P I N G W A T E R M A R K E T S options for managing water demand (Perry et al. aquifers--rather than political or administra- 1997; Hodgson 2006; WET 2006). For example: tive boundaries. · All water sources should be managed in an · Government-facilitated reallocations. A water integrated way, including both surface and rights system provides greater transparency groundwater. when the government chooses to reallocate · Total control over water use is maintained, water among water users. This in turn can including regulating water abstraction, con- provide confidence as to the consequences of sumption, and discharge volumes where the reallocation. necessary. · Reducing total water allocation and use. Regula- tions can be used to reduce the water available Due to the inherent variability in water resources, under water rights, providing a fair and trans- water rights will often assign a share of the avail- parent mechanism for reducing total water able resource as opposed to a fixed volume.2 The use.1 actual volume available to the right holder will · Pricing mechanisms. Clearly defined water rights vary depending on climatic conditions and the can provide an equitable basis for levying water volume available at a particular time (in the reser- charges, including both service charges and voir, aquifer, or river). Consequently, water rights resource management fees. need to be allocated both in terms of the long- · Water markets and trading of water rights. Well- term right to water (via the water resources defined water rights are an essential prerequisite allocation plans, abstraction permits, and water for the establishment of a water market. certificates described above), and on an annual or seasonal basis, depending on actual availability in a given year. Annual entitlements to water would Requirements for a Water normally be a function of the long-term rights to Rights System water and the actual water available. The process of determining annual water shares A water rights system depends on clear, certain is critical to providing certainty to water users. entitlements to water. For a system to deliver this Where this process is based on a pre-set formula, requires that all relevant water and water use be water users can be confident their share of the managed within the regulatory system. Alloca- water resource is allocated in a consistent and tions need to be based on a planned approach, transparent manner. Box 5.3 describes the annual recognizing the entirety of the resource being and longer-term basis for determining allocations allocated, as well as both current and future water in Israel, where volumetric quotas are the princi- use requirements. The allocations then need to pal instrument for ensuring a balance between be regulated at the water user level. To do this, a demand and supply. water rights system typically relies on (a) a plan- Water rights systems also depend on robust ning mechanism to identify the available water registration systems for recording water rights, resource and demands and define the total vol- sound monitoring systems to ensure water users ume available for allocation--usually this is via take water only in accordance with their entitle- some form of water allocation plan; and (b) a reg- ments, and water accounting and reporting sys- ulatory mechanism to enforce the allocations tems to provide transparency and confidence that made under the water allocation plan, usually in the agreed management regime is being imple- the form of a licensing system. mented. Systematic registration and monitoring This, in turn, requires that: of rights is a major challenge in many countries, · Water allocation plans should be based on and particularly so in China because of the num- hydraulic boundaries--natural water basins or bers of water rights involved. Box 5.4 compares 64 A D D R E S S I N G C H I N A ' S W A T E R S C A R C I T Y D E E P E N I N G W A T E R R I G H T S A D M I N I S T R A T I O N A N D D E V E L O P I N G W A T E R M A R K E T S BOX 5 . 3 Water Allocation Priorities in the Middle East: the Case of Israel The Middle East is one of the most water-scarce regions of the world, with an average per capita water availability of less than 1,000 m3. Within the region, each country has to struggle with a fun- damental challenge: how to safeguard the interests of agricultural users whilst meeting the needs of domestic and industrial consumers. Israel, with a per capita water availability of less than 300 m3, has arguably gone furthest in promoting water conservation and reallocation, based on the rigorous assignment and monitoring of quota-based rights. As in China, Israel's 1959 Water Law defines water resources as public property subject to control by the state, with centralized powers for allocating water between competing uses. Specifically, the amount of water allocated between broad sectors in each calendar year is fixed by a water commis- sioner with wide-ranging powers, while water use within sectors is controlled through permits and pricing. All users in Israel require a license, which is issued annually. Over the last two decades, Israel has gradually reduced annual allocations of freshwater to agri- culture from over 70 percent of total allocations in 1985 to 55 percent in 2005. The change in water allocation has been possible for two main reasons. First, the country's economy is industrializing and there is waning dependence on agriculture. Second, there is rigorous enforcement of sectoral quo- tas and technical standards, with incentives to avoid waste within quotas through pricing. Sources: Allan (2001); Cornish (2004); Zhou (2006). BOX 5 . 4 Registering and Monitoring Users: International Comparisons with Groundwater Management The Asian debate on how to create an effective groundwater management regime has been swayed by success stories from Australia, the United States, and Europe. Recommendations have therefore focused on the assignment and monitoring of clear water rights through well licensing. A major problem in transferring such lessons to China, however, is the number of people involved. In a typical groundwater district in the U.S. or Australia, the total number of farmers is probably less than a thousand. In a comparable area in China, there may be 100,000 farmers, each withdraw- ing small volumes of water. Such users might be exempt from licensing in many countries. In the Murray-Darling basin in Australia, for example, permits are mandatory for all groundwater users, except those withdrawing water for domestic or livestock needs, or for irrigating small plots of 2 ha or less. A similar exemption applied on the North China Plains would exclude over 95 percent of groundwater irrigators. What are the implications? In groundwater-dependent northern China, "thick and deep" approaches to rights-based regulation may only be practical in some well-defined, strategically important areas. In other areas, alternatives may have to be considered. One approach, currently being piloted, is to issue volumetric licenses to groups of groundwater users organized as WUAs. Water bureaus would be responsible for setting volumetric caps, but users themselves would moni- tor and enforce compliance, with penalties for above-quote abstraction and incentives for below- quota abstraction. Sources: Shah et al. 2003; Calow et al. 2006. rural groundwater management approaches in mental water requirements (commonly referred Australia, the U.S., and Europe. to as environmental or ecological flows). By deter- mining how much water can be abstracted by water users, a water rights system--whether delib- Water Allocation and erately or by default--will determine the volume Environmental Flows of water left for in-stream environmental pur- The granting of water rights is inherently linked poses (WET 2007). The water resources alloca- to the process of providing for in-stream environ- tion plan then is the key regulatory instrument for A D D R E S S I N G C H I N A ' S W A T E R S C A R C I T Y 65 D E E P E N I N G W A T E R R I G H T S A D M I N I S T R A T I O N A N D D E V E L O P I N G W A T E R M A R K E T S determining the volume of water available for cific water reserve is set aside for environmen- consumption, as well as for prescribing the envi- tal purposes. In Mexico, a statutory definition of ronmental flows that will be maintained in a minimum flows for rivers is defined (Hodgson watercourse or aquifer. 2006). Box 5.5 provides a summary of how envi- The first step in the water allocation process ronmental flows could be defined and allocated in should involve the division of water between envi- China based on international experience. ronmental and human (consumptive) needs. The water set aside for human needs can then be The Need for Public Participation subdivided amongst different regions, sectors, or individuals as required. The water set aside for the Most modern water codes also emphasize the need environment may be specified as a clearly defined for user participation in developing and approving "water right," held by some entity on behalf of the plans and monitoring compliance. This is because environment (as is now the case in some jurisdic- the public is the primary stakeholder and main tions in Australia), or may simply be the differ- beneficiary of an effective water management sys- ence between the total resource less that allocated tem. The core of public participation is access to for consumptive purposes. In South Africa, a spe- information, which is discussed in chapter 4. The BOX 5 . 5 Determining and Defining Environmental Flows Flow regimes are important to riverine health and freshwater biodiversity for several reasons. For example, (a) flow is a major determinant of the physical habitat in streams and rivers; (b) river species have evolved life cycles in response to natural flow patterns; and (c) flows maintain natural patterns of longitudinal and lateral connection. To protect freshwater biodiversity and maintain environ- mental services, it is therefore important to mimic components of natural flow variability. How can this be achieved? A methodology for defining and providing environmental flow The following steps should form part of the water resources allocation process. They are designed to identify the key assets, the flows they depend on, and management options to deliver those flows: · Step 1. Identify the key river assets: these may be ecological, social, or economic, and can include specific species (e.g., a key commercial fishery) or habitats (e.g., an important wetland). · Step 2. Identify the constraints on the asset: determine whether it is changes to the flow regime or other factors (e.g., pollution) that are affecting the asset. · Step 3. Determine the key parts of the flow regime (e.g., low flows, summer flows, floods, etc) that are important to the asset. Determine how these flows have been, or will be, affected by water resources development. Assess the extent to which this change is likely to impact on the asset, based on analysis of historic flow patterns in the subject river or similar rivers. · Step 4. Assess the capacity to alter water resources management rules to provide for the flows identified as important to the key river assets. Set environmental flow objectives, and develop management options to meet these objectives. · Step 5. Establish monitoring requirements to assess whether the environmental flow objectives are being achieved. Management options for delivering environmental flows Management options can include a combination of: capping total water abstractions (i.e., total num- ber and volume of permits); setting water sharing rules to decide the water available for each user (including the environment) in each year; setting specific operational rules that require reservoir oper- ators to release water at certain times; and providing a specific allocation of water for the environment. Source: WET 2007. 66 A D D R E S S I N G C H I N A ' S W A T E R S C A R C I T Y D E E P E N I N G W A T E R R I G H T S A D M I N I S T R A T I O N A N D D E V E L O P I N G W A T E R M A R K E T S success of public participation in water resource The River Basin Management Commissions management in the form of water user associations (RBMCs) are authorized by MWR to manage (WUAs) has been demonstrated in a number of water resources in their respective river basins. pilot projects in China, including the World Water resources bureaus of local governments Bank's Water Conservation Project. above the county level are responsible for water resources administration within their political boundaries. DEVELOPMENT OF WATER RIGHTS IN CHINA Water Resources Allocation, Legal and Institutional Abstraction Permits, and Certificates Arrangements The Water Law 2002 describes the requirements Ownership of water resources is addressed in for water resources allocation plans. Allocation China's Constitution and the Water Law 2002. of water is via both basin and regional water These state that water resources are owned by the resources allocation plans, through which water state on behalf of the whole people, with owner- is allocated among administrative regions. Thus, ship exercised by the State Council on behalf of water in a transprovincial river is allocated among the people. provinces. Provincial-level plans allocate water The Water Law 2002 is the key law dealing among prefectures, and prefecture-level plans with water rights. It provides a comprehensive allocate water among counties. Departmental framework for water planning and for the allo- guidelines on water resource allocation plans are cation of water rights. The law includes provi- currently being prepared. sions on water resource ownership, rights of The nature of the allocation to regions varies; collectives to use water, water abstraction rights, in the northern part of China, it typically consists water resource planning, water resource devel- of an annual average water consumption volume; opment and utilization, water resource conser- in the southern part of the nation, it is typically an vation, water resource allocation, water use and annual water abstraction volume. In some cases in savings, dispute settlement, and administrative the north, plans specify required end-of-system responsibilities. flow requirements. In some cases in the south, The Regulation on Water Abstraction Permits allocation is done by flow rate in the dry season. and Water Resource Fee Collection (the Water In addition to regional allocations, plans may also Permit Regulation) then provides a framework for allocate water to particular sectors (agricultural, granting and managing water abstraction permits. industrial, etc). The allocated volume may be for Water permits are subject to the provisions of the both groundwater and surface water. Law on Administrative Licenses. Access to water resources by an individual or The Ministry of Water Resources, on behalf unit is regulated by a water abstraction permit- of the State Council, has the primary responsi- ting system. By law, all water abstractions require bility for water resources management. Under the a water abstraction permit. There are certain Water Law, MWR is responsible for managing exemptions, such as for livestock and domestic water resources development, utilization, saving, purposes in rural areas and rural collectives tak- conservation, and flood prevention. It is respon- ing water from their own ponds and reservoirs. sible for the preparation of water plans (regional The permitting system is governed by a regula- and basin, flood management, water allocation, tion issued by the State Council in April 2006. water protection, etc.) and for the management of The water abstraction permit regulation provides water abstraction permits. a framework to be applied by all provinces in man- A D D R E S S I N G C H I N A ' S W A T E R S C A R C I T Y 67 D E E P E N I N G W A T E R R I G H T S A D M I N I S T R A T I O N A N D D E V E L O P I N G W A T E R M A R K E T S aging water abstraction permits. The regulation Holders of water abstraction permits are provides details on the process for granting and required to submit an annual water use plan to managing permits. In general, a water withdrawal their administering authority. This is used as the permit is valid for 5­10 years. The regulation basis for preparing an annual water abstraction requires that issuing water withdrawal permits plan, which dictates the actual volume available should be based on approved water resources allo- to the permit holder for the year. At the irriga- cation plans and allocated water quotas. tion district level, annual or seasonal plans may Within irrigation districts, an abstraction per- then identify the actual water available that year mit for the whole district is usually held by the and when it will be delivered. Some level of con- government agency responsible for administer- sultation is usually undertaken with farmers. ing the district. Farmers are then supplied their Increasingly this consultation is via newly estab- share of the water available to the irrigation dis- lished water user associations. Again, this process trict under the permit. In some areas in northern is generally limited to the drier, northern parts of China, a district plan is developed that identifies China. each farmer or village's share of the available water. In most instances farmers do not hold any form of Structure of Water Rights in China individual entitlement and allocations are made based on land area. In a few pilot areas trials have Drawing on the above, water rights in China can been conducted on granting water certificates to be described in terms of three different levels of farmers that identify each farmer's share of the rights (WET 2006): resource. This is coupled with a water ticket sys- tem, under which farmers pre-pay for the water · At a regional level. Water resources allocation they want in a particular year, season, or watering. plans allocate available water within and A farmer is allowed to purchase water tickets up to between different provinces, prefectures, and a limit, based on their certificate volume and sea- counties, as well as between different sectors. sonal availability (see Boxes 5.6 and 5.11). · At the abstractor level. Rights are assigned to individual abstractors. · At the village or farmer level. Rights to a share Annual Allocation of Water Supplies of the water available within an irrigation dis- In addition to the process for allocating long- trict are shared among farmers, households, or term rights to water, a separate but connected villages. process exists for determining the actual volume available for abstraction (or consumption) dur- Further, water rights at each of these levels exist in ing any given year. terms of both long-term and annual or seasonal At the basin and region level, the annual allo- rights to water. cation of water rights occurs via the annual water regulation plan. This plan is usually prepared Water Rights Management based on the available and/or predicted water sup- ply for the year. Some water regulation plans, The Water Law 2002 requires that water use be such as that for the Yellow River, may be adjusted metered and subject to volumetric charges (water during the year to bring the plan into line with resources fees). Currently, domestic and indus- actual water conditions. In practice, annual regu- trial water users in most parts of China are sub- lation plans are not prepared for many rivers, par- ject to water resource charges based on quantities ticularly in southern China, where water resources used. Measurement and monitoring facilities for are relatively abundant. regulation and enforcement are weak. There is 68 A D D R E S S I N G C H I N A ' S W A T E R S C A R C I T Y D E E P E N I N G W A T E R R I G H T S A D M I N I S T R A T I O N A N D D E V E L O P I N G W A T E R M A R K E T S still a significant amount of water use that is not innovative approaches (including water tickets measured, and water for irrigation use is largely and marketable quotas) to implement policies; measured by the area of irrigation land, not the use of consultation (in some cases) between the quantity of water withdrawn or consump- the various water users and institutional partners; tively used. The registration and measurement monitoring and evaluation procedures to deter- of groundwater abstraction is particularly limited mine allowable withdrawals; the use of trades and due to the large number of dispersed wells markets to help promote more efficient use of (Lohmar et al. 2003; Shah et al. 2004; Wang scarce water supplies; and the constant need for et al. 2007b). institutional or legal changes to permit these sys- While the water rights and discharge control tems to develop. systems are well-advanced in terms of issuing A recent development is a shift from focus- rights, there are major deficiencies in regard to ing on water extraction to water consumption. control and enforcement. In many cases water Advances in remote sensing and geographic rights are paper documents not effectively used information system (GIS) techniques have made in water resources management because of inad- it feasible to manage irrigation water resources in equate control and enforcement of water use and terms of the amounts of water actually consumed discharges. by crops, trees, and weeds for evapotranspiration (ET) rather than manage total water withdrawals from surface and groundwater sources. The WATER RIGHTS REFORM IN portion consumed through ET is the "real" con- CHINA: CASE STUDIES AND sumption that is lost and not available for users PROJECT INSIGHTS downstream or from the aquifer. In contrast, the Water rights systems typically evolve to meet the portion that returns to the surface or groundwater requirements of the local conditions. In particu- systems is still available for other users downstream lar, it is clear that the most detailed and robust sys- or from the aquifer, unless its quality has deterio- tems inevitably develop in those regions where rated to the point that it is not suitable for eco- water is most scarce, and where there is greatest nomic use, in which case the losses are "real" losses. pressure on the resource. For these same reasons, The ET approach may be particularly useful the allocation of water rights in the Yellow River in China. In its water-scarce areas, it is important provides perhaps the most sophisticated example to manage water resources in terms of net water of the application of a water rights system in consumption (i.e., ET). Past management in China (WET 2006). Box 5.6 summarizes how China based on water withdrawals has been water is first shared among the 10 provinces and shown to be unsuccessful because even with the autonomous regions that take water from the same water withdrawal, the saved water from Yellow River and, using Inner Mongolia as an water conservation may be used to irrigate more example, describes how shares are assigned within land; that is, more water is consumed with less the region, and to irrigators in Hangjin Irrigation water returning to the local water system. In con- District in particular. trast, the ET approach focuses on actual water In addition, a growing number of projects are consumption, and encourages farmers to reduce contributing to water rights reform and lesson water consumption. For example, farmers can learning. Although each initiative has its unique reduce evaporation by reducing waterlogged characteristics, many share common points, areas, irrigating when evaporation is lowest (at including the assignment of water rights to spe- night instead of during the day), using moisture- cific institutions or groups; the transfer of funds retaining mulches, and replacing open canals and between suppliers and users of water; the use of ditches with pipes. Where excessive fertilizer A D D R E S S I N G C H I N A ' S W A T E R S C A R C I T Y 69 D E E P E N I N G W A T E R R I G H T S A D M I N I S T R A T I O N A N D D E V E L O P I N G W A T E R M A R K E T S BOX 5 . 6 From River to Farm: Water Rights and Allocation in Inner Mongolia Water Resources Allo- cation Plan for the Yellow River In 1987, the State Council approved a water resources allocation plan--the Plan of the Available Sup- ply for Water Distribution--for the Yellow River to coordinate the water demands of the multiple users and regions within the basin. The Yellow River Basin Management Commission is charged with setting minimum flow requirements for the river at provincial boundaries and allocating relative shares of available water to 10 provinces and regions. In a normal year, Inner Mongolia receives 5.86 billion m3 out of a total flow of 37 billion m3. In a drought year, however, shares across provinces are reduced. Ongoing shares within any given year are detailed in an Annual Regulation Plan based on the Annual Allocation Plan for the basin (published by the commission), which incorporates an annual water forecast and annual reservoir storage and reservoir "balancing." In addition, the Regulation Plan provides for short-term adjustments. Water rights of abstractors in Inner Mongolia Water abstractors within Inner Mongolia require water abstraction permits, administered in accor- dance with the Regulation on Water Abstraction Permits. The largest of these are for Hetao and Hangjin irrigation districts, held by the Inner Mongolia Yellow River Irrigation Management Bureau (within the Water Resources Department of Inner Mongolia). Permit No. 1 for Hangjin Irrigation Dis- trict (HID) allocates 410 million m3 to HID, including a mandatory return flow of 35 million m3 per year, though actual diversions vary according to available shares. Water sharing within Hangjin Irrigation District Currently there are no formal long-term rights granted to water users within the district. Rather, annual and seasonal plans are implemented through an iterative process of scrutiny and adjust- ment, with demands articulated through WUAs adjusted, as necessary, to account for supply restric- tions imposed by the YRCC. The allocation process combines bulk volumetric charging to WUAs with area-based charging for farmers. Water User Associations purchase water tickets on behalf of farm members in advance of each irrigation, as part of what is both a preordering and prepay- ment system. A pilot project within HID has defined water entitlements to the WUA level--the lowest volu- metrically monitored points on the system. Allocations to WUAs can now be formalized by granting water certificates to each WUA. The annual-seasonal allocation process, and the sale of water tick- ets to farmers, would be undertaken within this framework. Once all stakeholders have gained expe- rience in operating the rights-based system, water trading between WUAs can be contemplated. Lessons From a water rights perspective, the process of allocating water within the Yellow River demon- strates clearly how inter-connected the different management arrangements are. The water enti- tlement of a farmer within HID is a function of the rights held by the district as a whole, and of Inner Mongolia's share of the available water from the Yellow River. A robust water rights system depends on an integrated and consistent approach to managing these water rights, at all levels. Source: WET (2007). and pesticides runoff is a problem, the ET A key element of this project is the distinction approach will encourage farmers to reduce their made between consumptive and nonconsump- chemical use and runoff, since return flows that tive water use, and the practical implications this are unusable downstream will be deducted from has for the definition, allocation, and monitoring individual ET quotas. of rights. As noted in Chapter 3 (Box 3.4), the One such ET-based initiative is the Hai Basin distinction is a vital one in any demand manage- Integrated Water and Environment Manage- ment strategy, since only those savings in con- ment Project, which is discussed in Box 5.7. sumptive water use--specifically, nonbeneficial 70 A D D R E S S I N G C H I N A ' S W A T E R S C A R C I T Y D E E P E N I N G W A T E R R I G H T S A D M I N I S T R A T I O N A N D D E V E L O P I N G W A T E R M A R K E T S BOX 5 . 7 Defining and Allocating Consumptive Water Rights in the Hai Basin The Hai Basin Integrated Water and Environment Management Project has been under implemen- tation since 2002. It is managed by the Chinese government with the assistance of the World Bank through a Global Environment Fund (GEF) grant. The project is piloting water resources planning and management through the allocation of ET quotas. The objective is to increase the volume and value of agricultural production in the demonstration areas, while not exceeding the ecologically sustainable withdrawal limits. Because of current excessive withdrawals of water resources in the basin, this amount will be less than the current ET and will be gradually lowered until enough water is released to maintain environmental functions and avoid groundwater depletion. This goal can only be achieved by reducing nonbeneficial and low-beneficial ET, and raising crop water produc- tivity (yield and value of production per unit of ET). The project uses satellite remote sensing techniques to measure, target, and monitor ET at the basin level and at lower levels all the way down to individual farm plots. Once the complete moni- toring system is in place and functioning, it will be possible to implement a water trading system to improve the economic efficiency of water use, while at the same time ensuring that water usage is sustainable and not overexploiting the water resources. The Hai basin project also establishes that a cooperative coordination mechanism among governments and departments at different levels is cru- cial for implementing ET-based water rights administration. Source: Development Research Center of the Ministry of Water Resources 2007. ET and flows to nonrecoverable sinks--represent Comprehensive reform of water rights has "real" water savings. A similar ET-based approach also occurred in the Heihe (Black River) basin in has also been adopted in the World Bank­funded Gansu, with Zhangye City selected by MWR as MWR Water Conservation Project to reduce the first pilot project in China to build a water- the current overexploitation of groundwater on saving society and establish new systems of water the North China Plain (see Foster and Garduno rights administration. This initiative is discussed 2004). further in Box 5.12. In the Song-Liao River basin, pilot projects aimed at reforming and modernizing the water BASICS OF WATER MARKET rights regime have also been implemented at the AND TRADING watershed level. Here, the Song-Liao Basin Com- mission selected the Daling River basin and the The Advantages and Disadvantages Huoling River basin within the watershed as sites of Market Allocation for pilot projects for allocating water rights. The initial allocation of water rights considers current Growing water scarcity and increasing differ- water use and future water needs, and determines ences in water values among users have water quotas for each province based on individ- prompted growing interest in water markets as a ual water use quotas to promote an equitable allo- means of improving water allocation and reduc- cation. Somewhat unique to this case in China ing scarcity costs. The theoretical foundation was extensive consultation and coordination underlying water trading is based on the differ- among the various authorities involved in water ence in the economic value of water in different resources management and explicit consideration uses. When water availability is insufficient to of maintaining sufficient stream flows to support cover all water needs, water markets with legally aquatic ecosystems. Water allocation plans were defined, market-tradable rights allow for the pur- developed at the basin level with active participa- chase or lease of water-use rights among users. tion of the provincial governments. The result is to reallocate water from low-value A D D R E S S I N G C H I N A ' S W A T E R S C A R C I T Y 71 D E E P E N I N G W A T E R R I G H T S A D M I N I S T R A T I O N A N D D E V E L O P I N G W A T E R M A R K E T S uses to higher-value uses, with both buyers and sure of ET--a physical "loss" from the water sellers better off than before. In this way, market system); investing in the necessary conveyance transfers can raise the average productivity of systems; and the need to account for external or water within a sector (typically agriculture), as "third party" impacts, such as those that might well as provide a mechanism for reallocating occur if return flows from irrigation are sold water between sectors (from agriculture to without reference to downstream groundwater urban-industrial users). Water markets should users (Dinar et al. 1997; Cornish et al. 2004; define the three central components of water Perry 2007). rights: water extraction, actual water consump- tion (an ET measure), and return flows. Note Water Rights and Market Types that most sellers of water rights are not con- cerned with how water is actually used by the Internationally, the most common types of mar- "buyer" of the water right (that is, consumed or ket transaction occur through informal "spot" just passed through the system), since the neg- markets in the absence of formally defined rights. These usually involve trading water among simi- ative impacts will occur further downstream and lar uses: the sale or exchange of irrigation "turns" will not, in most cases, affect the initial seller of in a rotational system, for example, or the sale of the water right. water by the owner of a groundwater borehole to When properly measured and defined, mar- nearby farmers (Perry et al. 1997). ket transfers of water have a number of potential Tradable water rights, on the other hand, are benefits over alternative allocation mechanisms. based on an initial specification of rights deter- In contrast to allocation through administrative mined by available supply, and specification of order, for example, market allocation guarantees the conditions under which rights may be traded. compensation to users, with decisions based on Volumetric rights can then be assigned to indi- individual (or group) assessment of the value of vidual beneficiaries within sustainable limits, with water in alternative uses. In contrast to water rights holders allowed to buy or sell either the pricing, a system of tradable rights is also volun- right itself (a market in tradable rights), or buy tary: only those entering the market will pay (or and sell the water only (a lease market) subject to receive) additional charges associated with the certain rules. In both cases, the initial specification purchase (or sale) of entitlements. The realloca- of rights--and their subsequent monitoring and tion of water then becomes a matter of voluntary enforcement--should ensure a balance between and mutually beneficial agreements between will- demand and supply, with specified assignments ing buyers and willing sellers (Dinar et al. 1997; for social and environmental uses. Chong and Sunding 2006). The voluntary nature It follows that tradable water rights are more of water trades serves to safeguard sellers (for likely to support inter-sectoral and/or inter- example, farmers) who always choose to stay out regional transfers. However, such transfers may of the market to ensure they will not be worse off also have to meet stricter preconditions. For as a result of the trade. example, restrictions may apply to ensure that Market transfers also have some disadvan- certain minimum flows in a stream or river are tages, however, related to the specific character- maintained for environmental or recreation rea- istics of water and the potential for market failure. sons, or to protect the rights of other users who These include defining water rights, especially may be affected by a transfer. The volume of when flows are variable; measuring water flows, return flow (extractions for use minus the actual especially in systems where monitoring is weak ET consumption) is a key variable. For this rea- or absent; enforcing withdrawal rules; properly son, most formal markets have been confined to accounting for actual water consumption (a mea- individual basins or service areas. 72 A D D R E S S I N G C H I N A ' S W A T E R S C A R C I T Y D E E P E N I N G W A T E R R I G H T S A D M I N I S T R A T I O N A N D D E V E L O P I N G W A T E R M A R K E T S INTERNATIONAL EXPERIENCE WITH and institutional framework that carefully reg- WATER MARKETS ulates external effects, with the Office of the State Engineer investigating all aspects of pro- Internationally, tradable water rights are still a posed developments and transfers. Moreover, rarity. Most countries facing severe water scarcity each of the seven water basins in Colorado has (for example, the case of Israel in Box 5.2) have its own specialist Water Court, dealing exclu- opted instead for administrative systems based on sively with water issues and water disputes. top-down allocation plans and licensing arrange- Only consumptive rights can be sold, and only ments. Nonetheless, interest in water markets is under the condition that no injury is done to growing, and experience in countries such as the downstream users (Perry et al. 1997; Marino U.S., Spain, Australia, Mexico, and Chile indi- and Kemper 1999). cates that market transfers can generate signifi- While such arrangements provide safeguards cant economic benefits (Saleth and Dinar 2004; for third parties, obtaining authorization to Chong and Sunding 2006). change water use is often a lengthy and costly The water-scarce western United States is process. An exception is the Colorado Big home to some of the world's most active water Thompson Project, where relatively unrestricted markets (Landry and Anderson 1997). Water trading of water rights is permitted (Box 5.8). rights regimes vary between states but, in most Because of significant variations in water demand cases, are tightly controlled and regulated. Col- between areas and users, the Northern Colorado orado, for example, has a strict system of water Water Conservancy District established a water rights based on the prior appropriation doc- market allowing rights to be traded on a perma- trine that is legally enforced, transparent, and nent basis, with a central registry for recording provides all users--favored or otherwise--with ownership and ownership transfers. In this case, information for planning their operations. rights are defined as diversions rather than as Market transactions are embedded in a legal consumptive uses; downstream users who may BOX 5 . 8 The Colorado­Big Thompson (C-BT) Project The C-BT Project represents one of the most active and well-established water markets in the west- ern U.S. The Northern Colorado Water Conservancy District (NCWCD) is granted by contract the per- petual right to use all water made available by the construction and operation of the C-BT Project. The NCWCD has the authority to allocate, reallocate, and set assessment rates on water allotment contracts. Permanent ownership and transfer of water allotments can only be approved for benefi- cial uses within the boundaries of the project area. Each year, the NCWCD Board of Directors determines an "April Quota," which sets the maximum amount of water available from project supplies for the current year based on hydrologic conditions and anticipated water demand. This may be adjusted according to hydrologic conditions during the course of the year. Individual water users obtain water rights through allotment contracts signed with the district. Annual fees are collected on each allotment to cover the fixed and operating costs of the project. Since the early 1960s, water within the district has been actively traded among agriculture, munic- ipal, and industrial uses. The success of the C-BT water market can be attributed to the establishment of clearly defined water rights, the high reliability of supply, its use as a supplemental "new" supply for the region, a well-developed distribution system, the large number and diversity of market par- ticipants, and, especially, to institutional rules and administrative procedures that minimize transfer restrictions and costs. Source: Michelsen 1994; Marino and Kemper 1999. A D D R E S S I N G C H I N A ' S W A T E R S C A R C I T Y 73 D E E P E N I N G W A T E R R I G H T S A D M I N I S T R A T I O N A N D D E V E L O P I N G W A T E R M A R K E T S benefit from return flows are not entitled to The process began with the formalization of compensation if their water rights are affected by historic rights based on patterns of land use, trade.3 This arrangement lowers the transactions with each riparian assigned an entitlement, or costs of trade as third-party impacts are not con- entitlements, specified in terms of both volume sidered, but raises the wider question as to when and security. Variations in the security of enti- such impacts can and cannot be advantageously tlement help ensure consistency with the erratic ignored. nature of water availability. The system is com- The United States has also accumulated plex, allowing for the possibility to buy and sell substantial experience in water banking, both high-, medium-, and low-security entitlements, temporary and permanent. Water banking is and provisions for both seasonal and permanent an organized water trade conducted through a transfers (Box 5.10). clearinghouse to facilitate transfers within a given service area. Idaho's water supply bank EMERGING EXPERIENCE OF WATER was established in 1980 to facilitate short-term TRADING IN CHINA: CASE STUDIES leasing or renting of water (Box 5.9). Elsewhere, Chile has been a leading interna- The trading of water rights is just beginning in tional example of the use of pro-market policies China. Current water laws have few provisions on for water resources management (Bauer 1997). water rights transfer, and provisions on aspects Chile's National Water Code of 1981 established such as transfer conditions, procedures, and ben- a system of water rights that are transferable eficiaries of transfer are incomplete. For example, and independent of land use and ownership-- MWR's Opinions on Water Rights Transfer, essential preconditions for the development of issued in 2005, sets out some fundamental prin- formal water markets--with transfers subject to ciples to guide market arrangements, but provides the general system of real estate title registration little detail on how tradable rights should be (Bauer 1997). Water rights are defined as perma- defined and managed in terms of consumptive nent (from unexhausted sources) or contingent and nonconsumptive uses, return flows, and pro- (temporary, from surplus water), and as con- tection for third parties. sumptive and nonconsumptive. Although not strictly a market in tradable The Murray Darling basin in southeastern rights, pressure to release water for growing Australia began allowing the market transfer of urban demands is driving ad hoc experimenta- water entitlements in the 1980s in response to tion in inter-sectoral and/or regional transfers. growing scarcity and variable water distribution. For example, the cities of Dongyang and Yiwu in BOX 5 . 9 Idaho Water SupplyBank The Water Supply Bank manages natural stream flows and groundwater and is administered through the Idaho Department of Water Resources (IDWR). It substitutes for a water rights transfer process by removing some of the assessment requirements of transfers. Consequently, access to water sought through the Water Bank is generally provided within a couple of weeks, as opposed to several months through a water transfer. The IDWR keeps a list of water rights available for lease on the Internet; interested parties can call the IDWR to see if water may be available to them. Water users who in any given year have rights to more water than they need can put the excess stored water or natural flow rights they will not use in the bank. From there, the water can be sold or leased to people who do not have enough to meet their needs. This system helps make excess water available to other users for irrigation or other authorized uses. Water from the Water Supply Bank has also proven valuable in providing stored water for downstream salmon recovery efforts. 74 A D D R E S S I N G C H I N A ' S W A T E R S C A R C I T Y D E E P E N I N G W A T E R R I G H T S A D M I N I S T R A T I O N A N D D E V E L O P I N G W A T E R M A R K E T S BOX 5 . 1 0 Water Markets in the MurrayDarling Basin, Australia The Murray Darling basin is home to probably the most advanced system of tradable water rights in the world. In a process that began more than 20 years ago, water rights in the basin have been formalized, separated from land ownership, and specified in terms of both volume and supply security. Water users in all states now hold a legal entitlement to a water share specifying the source of water, its reliability and/or security, and conditions on how that water may be used. In addition, salinity entitlements--the rights of an area to export (i.e., flush away) salt--have also been defined, with each area obliged to stay within its entitlement or face stiff penalties. Water trading can be either temporary or permanent. In temporary trading, a right to take water--but not the right itself--is sold for a particular season once the water has been confirmed as available. Such transfers are widely used to reallocate water locally between individual users, gen- erally within irrigation schemes. In permanent trading, ownership of the water allocation itself changes and the seller relinquishes all rights to the entitlement. These trades generally reflect some form of structural adjustment within an enterprise or the introduction of water efficiency measures. To date, the market for temporary transfers has been much larger than that for permanent trade. For example, of the 990 million m3 traded across the Murray-Darling basin in 2001­02, only 8 per- cent was traded permanently. This reflects the fact that temporary trades are more localized, easier to organize, and not subject to the same kinds of restrictions that apply to permanent transfers. In both cases, transfers are voluntary, with prices agreed between buyer and seller, and with price and sale information made publicly available, often online. Water trading within states has been possible since the late 1980s. Procedures for interstate trad- ing have only recently been developed and piloted. These include the specification of "equivalent ratios" defining, at a basin scale, what a unit of water in one place equates to in another; approval processes in both buying and selling states' water licensing authorities (both states must approve the trade); and annual adjustments to state allocations made by the commission to reflect any transfers that have taken place. Source: Murray Darling Commission website, www.mdbc.gov.au; Turral et al. 2005; WET 2006. Zhejiang Province signed China's first intercity problems. Dongyang was obliged to transfer trading agreement under which Dongyang 50 million m3 of water to Yiwu even during agrees to transfer a total of 50 million m3 of drought, adversely affecting agricultural pro- water each year to fast-growing Yiwu at a price duction and generating strong opposition from of RMB 200 million yuan. Dongyang will bear local people. the cost of water reservoir maintenance, and Similar types of transfer have also been bro- Yiwu will pay a management fee based on actual kered between irrigation districts and down- water supply at a rate of RMB 0.1/m3 in addi- stream urban-industrial users. For example, the tion to constructing the water conveyance infra- Inner Mongolia Water Resources Department structure. However, such arrangements do not has initiated pilot projects in which industries are constitute an exchange of clearly defined trad- encouraged to invest in water-saving facilities in able rights. Rather, transferred water is assumed agriculture and, in return, receive the water from to be owned exclusively as a private good by leakage and waste reduction in irrigation. Under the donor city, or water resources administra- the guidance of the Yellow River Conservancy tion, with trade occurring via closed contractual Commission and MWR, Inner Mongolia has agreement rather than a market with many assigned water withdrawal quotas among six potential buyers and sellers. In this instance, riverside cities, drafted a plan for water transfers, specification of the transfer as a fixed volume and established an Office for Water Transfer rather than a share of available supply has led to Affairs to manage transfer funds and oversee A D D R E S S I N G C H I N A ' S W A T E R S C A R C I T Y 75 D E E P E N I N G W A T E R R I G H T S A D M I N I S T R A T I O N A N D D E V E L O P I N G W A T E R M A R K E T S implementation. One such agreement is dis- pinnings of rights-based management, with water cussed in Box 5.11. trading viewed as one of a number of benefi- The channel lining and water transfer model cial outcomes. One initiative combining many is, in many respects, an attractive one: down- different elements has been implemented in stream industries can weigh up the costs and the water-scarce Heihe (Black River) basin in benefits of water-saving investment in irrigation Gansu Province. The city of Zhangye accounts districts and reach market decisions; the water for 92 percent of the population and 83 percent permits of IDs can be adjusted and enforced by of the total water withdrawal in the river basin, government agencies to reflect transfers; new and has a critical role in the sustainable use of the investment in supply augmentation can be de- basin's water resources. To optimally utilize the ferred or canceled, and farmers see their irrigation water resources of the Black River and mitigate charges fall as they no longer pay for leakage. conflicts between water withdrawals and envi- Nonetheless, the Hangjin experience also high- ronmental flows, a range of measures has been lights some potentially negative impacts, particu- implemented (see Box 5.12). larly in terms of agency financing and third-party Since implementing the pilot project, Zhangye effects.4 Moreover, rights to the traded water has made good progress in water resources man- remain ambiguous. In particular, it is unclear agement. Water withdrawals from the Black River whether the permits assigned to irrigation districts have been reduced by more than 300 million m3 are owned by the irrigation agency, or just held by each year; downstream aquatic ecosystems and such organizations on behalf of farmers in a form the environment are gradually recovering; and of "trusteeship." Other programs in China have Lake Juyanhai has restored streamflow after many focused more on establishing the basic under- dry years. BOX 5 . 1 1 Channel Lining and Water Transfer: Experience from Hangjin Irrigation District, Inner Mongolia In order to address water shortages experienced by downstream industrial users on the Yellow River, the Office for Water Transfers Affairs under the Water Resources Department of Erdos City has ini- tiated a novel water transfer project. Beginning in 2004, the office has overseen a program in which irrigation returns saved through channel lining in Hangjin Irrigation District are transferred to down- stream industries, with the costs of lining met directly by industrial beneficiaries. The outcome is a transfer of 78 million m3 of water to downstream users. Although the transfer program is a new one, its effects on different stakeholders are already becoming apparent. In particular: · Impact on industry. The willingness of industrial enterprises to invest in channel lining indicates that this is a least-cost supply option for them, at least in the short to medium term. · Impact on farmers. Farmers have benefited from reduced irrigation fees as they no longer have to pay for unlined delivery (and therefore leakage) to WUA purchase points. Farmers are also likely to benefit from reduced soil salinity as waterlogging in some areas is a serious problem. · Impact on the irrigation agency. Hangjin Irrigation Management Bureau has seen its financial posi- tion undermined by the channel lining program, with losses of around 1 million CNY/year antici- pated by project completion. This is because farmers are no longer paying for leakage. · Impact on other uses/users. Some wetlands toward the tail of the irrigation district have dried up, and impacts on groundwater levels within and outside the district are uncertain. Questions remain over whether leakage reduction programs in water-stressed basins generate "real" savings (see Box 3.4). Source: WET 2007. 76 A D D R E S S I N G C H I N A ' S W A T E R S C A R C I T Y D E E P E N I N G W A T E R R I G H T S A D M I N I S T R A T I O N A N D D E V E L O P I N G W A T E R M A R K E T S BOX 5 . 1 2 Defining, Allocating, and Trading Rights in the Heihe Basin Zhangye City in the water-stressed Heihe (Black River) basin of Gansu Province was chosen by the MWR as the first pilot project to build a water-saving society and establish a system of water rights administration. A sequenced approach to improving water resources management has been imple- mented, focusing initially on data collection and analysis and the definition and allocation of water rights. Following this, various demand management measures were implemented, including water use controls, quota management, water pricing, and the introduction of water markets. · Water allocation and quota management. Water rights were defined and clarified with quanti- tative targets for water consumption determined in the Water Allocation Plan for the Black River. Local governments at district or county levels and their water bureaus allocate water among reser- voirs, irrigation, urban water supply, and other water uses. · Water ticket and trading system for irrigation. A water ticket system was established for the irri- gation area of the Liyuan River, with WUAs purchasing group tickets from the water administra- tion on behalf of farmers based on their water use permits. · Farmers' water user associations (WUAs). WUAs were established at the village level to promote voluntary participation in water management. Water user groups were then formed within the WUAs. Authorized by the government, all or part of the rights in maintaining, managing, and using engineering facilities were granted to water users for self-management. · Institutional arrangements. Various institutional systems and administrative rules were established to support water rights management, such as Measures on Water Resources Administration, Rules on Water Rights Transaction Administration, Conventions on Water Affairs Consultation, and Measures on Management of Pumping Wells. There are more examples of rights reform well specified. It is not always clear who holds and water trading in China not included here. the right and to what the right entitles them. A general observation is that few represent purely Water resources allocation plans have only been market-based transactions. In most instances, completed in some basins, and seldom at all there has been major government involvement regional levels. Similarly, there are many water in identifying the parties involved and broker- abstractors--particularly farmers in surface ing the deal. This is not a criticism, simply a water irrigation districts and rural groundwater recognition that there are multiple options for users--that do not hold abstraction permits. reassigning water, and in many instances effi- · Consistency and integration need improvement. ciencies can be gained from some form of central There is little or no coordination between control over the process. water resources allocation plans at different levels. This leaves open the likelihood that plans that apply to the same area may be CHALLENGES AND LESSONS inconsistent. Similarly, there is little or no FOR CHINA connection between water resources allocation There are a number of aspects of the current plans and abstraction permits. Permits should water management system in China that pose a be granted based on the volume of water avail- problem to the introduction of a comprehensive able under an allocation plan; however, this is water rights system of the kind outlined above. not currently the case with permits, which are These are summarized below. generally decided on a case-by-case basis. · No total control over water use. Different reg- · Rights to water are not clearly defined. The rights ulatory instruments (for example, different afforded the holder of the entitlement are not allocation plans or abstraction permits) can A D D R E S S I N G C H I N A ' S W A T E R S C A R C I T Y 77 D E E P E N I N G W A T E R R I G H T S A D M I N I S T R A T I O N A N D D E V E L O P I N G W A T E R M A R K E T S take different approaches to the way water the public to be involved in, and to develop an rights are defined. In some cases, rights are understanding of, water rights and the alloca- defined as an abstraction volume, in others tion process. as a consumption volume. These different · Implementation, monitoring, and enforcement approaches are not of themselves a problem. are generally poor. In many cases, the overarch- However, rights may be granted for abstrac- ing policies may be strong, but the capacity and tion, with an assumption that certain water resources do not exist to implement them fully. will be returned to the system; that is, there is This is particularly so for rural groundwater use an assumption about the volume actually in northern China. consumed. Where there is no requirement for this water to be returned, there is a risk that Specific lessons on water rights and trading can the assumption will prove false, resulting in be drawn from market experience in other coun- overconsumption. tries and China's emerging experience. These · Environmental sustainability. There is a gen- lessons include the following: eral lack of consideration, and provision for, environmental water requirements. In some Lesson 1 instances water has been set aside for the envi- The entitlements of users under different levels ronment, but these volumes are generally not of water availability should be clearly defined, allocated on a sound scientific basis. This with assignments for environmental uses as poses a threat both to the long-term health of appropriate. In particular, allocated water rights the water resources in question, and hence also should not exceed water availability, determined to the ability of the source to supply water through sound water balance analyses and ongo- suitable for human consumption. ing monitoring. · Limited security. There are few rules in place The initial specification of rights should ensure that protect against changes to water rights an overall balance between demand and supply. and no clear provisions dealing with what In China, the step-wise approach to rights speci- happens where an entitlement is adversely fication, allocation, and enforcement adopted in affected. Also, there is limited certainty for the Heihe basin and the Hangjin Irrigation Dis- water users. There is broad discretion in trict suggests a sensible way forward. The trading terms of decisions affecting what water will difficulties that emerged between the cities of be available under an entitlement in any Dongyang and Yiwu, on the other hand, indicate given year--whether at the regional, abstrac- how problems can occur when rights are not tor, or farmer level. clearly defined at the outset. · Limited information and transparency of process. Major differences between the Chinese and There is limited information publicly available international contexts should be noted, how- regarding how water is allocated from year ever. In China, most irrigation schemes were to year, the details of permits, the monitoring not designed or engineered to deliver control- of water abstractions, etc. This information is lable, monitored flows to individual farmers. often stored in paper records by different agen- This means that individual rights, of the kind cies, and is difficult for other agencies or the taken for granted in the U.S. or Australia, have public to access. to be asserted indirectly though a water user · Limited public participation. Procedures for group. In these circumstances, defining and allo- public participation during the initial alloca- cating group entitlements is a practical alterna- tion of rights, trading, and management are tive, but raises questions about the democratic not clearly defined, and there is little scope for nature of group decision making in water trading 78 A D D R E S S I N G C H I N A ' S W A T E R S C A R C I T Y D E E P E N I N G W A T E R R I G H T S A D M I N I S T R A T I O N A N D D E V E L O P I N G W A T E R M A R K E T S decisions. Finally, there is the issue of environ- However, from an overall perspective, ET- mental flows to be considered in water rights. based water rights administration has not been accompanied by a replicable, developed, and Lesson 2 sound administrative framework and institu- Infrastructure needs to be in place that is capa- tional system, and still requires in-depth studies ble of delivering changing allocations. and explorations. In China, most of the trades described in this chapter use existing infrastructure to reallocate Lesson 4 water. For example, the water liberated from Monitoring and measurement procedures and channel lining in Hangjin Irrigation District standards that are acceptable to both buyers and flows downstream to industrial buyers, with the sellers should be in place. permits of both buyer and seller adjusted accord- Volumetric allocations require volumetric ingly. Local trade within IDs is also an option, measurement, ideally direct measurement via though infrastructure has to be capable of re- water meters and sluices. In addition, measure- distributing water--at least to WUA purchase ment standards and procedures need to be points--in accordance with market signals. One accepted as legitimate by both buyers and sellers. advantage of channel lining programs is that Monitoring is more than a hardware issue. There they enhance water control, making it easier to are some sharp distinctions between international allocate water between areas and sluices and and Chinese contexts. Irrigation districts in China thus, potentially, between WUAs trading group may include many thousands of small landhold- entitlements. ers, each using small volumes of (un-metered) water. Most systems combine bulk volumetric Lesson 3 delivery to intermediate purchase points with The ET approach targeting reduction in con- area-based charging within each irrigation area. sumptive water use can be a powerful instrument Transfers within irrigation systems (other than for water management in conditions of extreme those arranged informally between neighbors, for water stress. example) will require the definition and realloca- The goal of improved water resources man- tion of group rights. agement and water rights allocation is the more Monitoring clearly becomes more complex rational use of scarce water resources. The ET- when a distinction is made between consumptive based water resource management being piloted and nonconsumptive uses of water withdrawn (as in the Hai basin and elsewhere in China is an is explicit in the ET-based approach). Restricting innovative approach. The ET approach helps trade to consumptive use has a fundamental promote the sustainability of the water resource advantage: third-party objections to transfers are system by focusing on the better management of potentially reduced since the amount of return actual consumption of water (actual ET) rather flow can be specified. than just the extraction and use of water. This may be particularly important in the agricultural Lesson 5 sector where different production techniques can Effective regulation is needed, with procedures in result in very different ET outcomes, even with place to identify and address third-party effects the same nominal water extraction quotas. In and resolve disputes, particularly for large-scale urban areas, an ET strategy will be designed to transfers. reduce water consumption (and increase return Trading is embedded in a legal and adminis- flows) rather than just focusing on reducing the trative framework that carefully regulates trans- gross use (extraction) of water. actions. Specifically, where water trading has A D D R E S S I N G C H I N A ' S W A T E R S C A R C I T Y 79 D E E P E N I N G W A T E R R I G H T S A D M I N I S T R A T I O N A N D D E V E L O P I N G W A T E R M A R K E T S worked beyond the purely local level, there are in fied in volumetric terms and need to be linked place laws assigning rights, laws describing how to the initial allocation of water established in rights may be traded, legal systems that enforce the water resource plan. The total amount of such rights and punish infringements, and (in water withdrawal permits should be limited to most cases) systems in place for protecting the the maximum allowable amount based on sus- interests of third parties. A key challenge is to tainable water use with sufficient consideration encourage as much trading as possible while still of environmental uses and new water uses. addressing externalities. · Where feasible, an ET-based water resource management should be promoted. The ET approach focuses on actual water consumption RECOMMENDATIONS and hence encourages more efficient use of Drawing on both international and Chinese expe- water, increased return flows, and the adoption rience, this chapter has examined the require- of more water-saving technologies. The ET ments for and functioning of a modern water approach can thus help improve the sustain- rights system, and has analyzed opportunities ability of the water resource system in both and constraints for the further development of agricultural and urban areas. Based on the water trading in China. We offer the following experience of the pilot projects in Hai basin, recommendations. the governments should promote the ET- based water resource management, especially · Use water resources allocation plans as the basis in water-stressed areas. for water rights. Water resources allocation plans · Explore opportunities for trading but recognize should be developed--first at the basin level, its limitations. The sale or lease of water rights then at the regional level--as the basis for allo- can be an effective approach to raising the pro- cating water within a basin. Plans should clearly ductivity of and returns to water within and identify three components: (1) the water avail- between sectors. International experience-- able for abstraction, (2) the amounts of water though limited--indicates that active mar- consumed, and (3) the amounts that must kets of varying hues can generate significant be returned to the local water system. Water economic benefits once certain precondi- rights should then be defined accordingly with tions are in place. However, establishing clear, plans setting a cap for total water abstraction enforceable rights--and then developing effec- permits in the plan area. Where possible, a tive markets that work in the public interest-- practical distinction should be made between are often a complex and time-consuming consumptive and nonconsumptive use so that process. A step-wise approach to water trading water conservation efforts are effectively tar- needs to be adopted. geted, and water trading does not affect the · Build capacity in water rights administration and interests of other users. trading and clarify responsibilities. Water rights · Recognize ecological limits of water resources. administration needs to be strengthened, with Water resource allocation plans (and associated the conditions, procedures, rights, and obliga- water rights) should recognize the requirements tions for water withdrawal, consumption, and of the in-stream environment for water. Water return flows clearly specified. Adequate moni- should be set aside for this purpose, recognizing toring, reporting, and enforcing are part of the importance of different parts of the flow effective water rights administration. Farmer regime for different parts of the ecosystem. claims to water shares within a group entitle- · Water withdrawal permits need to be clearly spec- ment can be strengthened through investment ified and implemented. Permits must be speci- in WUAs to raise participation and account- 80 A D D R E S S I N G C H I N A ' S W A T E R S C A R C I T Y D E E P E N I N G W A T E R R I G H T S A D M I N I S T R A T I O N A N D D E V E L O P I N G W A T E R M A R K E T S ability. Allocating group rights to rural ground- 2. Even where rights are specified in absolute terms water associations or user groups can also help (e.g., Chile, Mexico), allocations may--for practical purposes--be translated into proportional shares address the problem of excessive groundwater (Hodgson 2006). withdrawals. Water trading further requires 3. Neglecting third-party impacts represents an exception to laws assigning rights, laws describing how the law in the western U.S., where return flows are treated rights may be traded, legal systems that en- as part of the system and subject to appropriation. The force such rights and punish infringements, exception is possible here because of the transfer of sup- plemental water from another basin. The federal govern- data on resource conditions and trends, and (in ment retains ownership of all return flows (Frederick most cases) procedures in place for protecting 1993; Marino and Kemper 1999). the interests of third parties. 4. This is also a subject of vigorous debate in the United States. For example, the saving "gains" from channel lining in a major, gravity-fed irrigation scheme were Endnotes initially defined in terms of leakage reduction. Detailed analysis of the situation to determine water 1. To maintain confidence in the water rights system, any available for transfer, however, revealed that 80 to 90 reductions should be made in accordance with pre- percent of the leaked water was already consumed else- determined principles, particularly with respect to any where, and thus potential "savings" were minimal compensation payable as a result of the reduction. (Perry 2007). A D D R E S S I N G C H I N A ' S W A T E R S C A R C I T Y 81 6 Improving Efficiency and Equity in Water Pricing The pricing of water is a key determinant of the demand for water and the efficiency of water use. In recognition of this, central and local governments in China since the early 1990s have been increasingly using water tariffs to manage resources and improve water services, cost recovery, and demand management. Nevertheless, repeated studies have shown that water supply and sewerage prices are generally still too low in relation to the scarcity value of water, and are not yet adequate to balance supply and demand at a level that is sustainable for the long term. A key concern is the potential impact of further tariff increases on the poor. To address such concerns, this chapter focuses on pricing issues regarding the supply of water--and the disposal of wastewater--for residential, indus- trial, and commercial use. It first presents an overview of water pricing pol- icy and actual practice in China. Next, it looks beyond financial objectives, emphasizing that in principle prices should reflect the full delivery, environ- mental, and depletion costs. The chapter then reviews issues of social impact and affordability, and discusses pricing and income support methods to pro- tect the poor. It refers to a number of implementation issues, as well as finan- cial issues and metering. It concludes with recommendations on how to address potential impacts on the poor through careful design of water tariffs, as well as combining their implementation with expansion and improvement of water services for the poor. WATER PRICING IN CHINA: POLICY AND PRACTICE China has made a commitment to reform water pricing. Since the early 1990s, China has increasingly charged for water and gradually increased the level of water tariffs in both urban and rural areas. There are now regulations and policies laying the basis for governments to charge for water use based on local circumstances. Revenue from water tariffs already covers at least the operations and maintenance costs of most water supply utilities, even in many A D D R E S S I N G C H I N A ' S W A T E R S C A R C I T Y 83 I M P R O V I N G E F F I C I E N C Y A N D E Q U I T Y I N W A T E R P R I C I N G rural communities. The general public is willing by local governments. Zhejiang Province, for to support charges as long as the quality of the instance, specifically states that local governments service is good and the tariff level is acceptable. keep 80 percent of the fee and submit 20 percent The Administrative Regulation on Urban to the provincial government. The fee is to be Water Supply Pricing, introduced in 1998, pro- used for water resources development, saving, vides a legal basis for water supply pricing in protection, and management. The actual use China. The regulation states that (a) the general of the fee varies, depending on local needs. For principles for setting water tariffs are "cost recov- instance, a portion of the fee in Beijing is trans- ery, reasonable profit, water conservation and ferred to the South-North Water Transfer Proj- social equity;" (b) municipalities are responsible ect. Some counties send part of the fee revenue to for approving water tariffs; (c) tariffs should local forestry bureaus for ecological compensation cover operation and maintenance, depreciation, in river basins. and interest costs; (d) tariffs should allow for an To meet the objective of cost recovery, water 8 to 10 percent return on the net value of fixed tariffs in China have been increasing since the early assets, depending on the sources of funds; (e) tar- 1990s. For example, during the period from 1991 iffs should be appropriate to local characteristics to 2004 water tariffs in Beijing increased from and social affordability; (f) municipalities should 0.12 to 3.70 yuan/m3 (Table 6.1). In Chongqing gradually adopt a two-part tariff consisting of a during the period from 1999 to 2006, they rose fixed demand charge and a volumetric charge or from 0.85 to 2.8 yuan/m3. increasing block tariffs (IBT), where the first block Tariffs are expected to continue to rise. Among should meet the basic living needs of residents; China's large cities and megacities, charges typi- and (g) public hearings and notice should be cally range from 1 to over 3 yuan/m3 of water for conducted in the process of setting water tariffs. residential use (Figure 6.1). Compared to charges In terms of charges for wastewater, the Water that were generally below 1 yuan in the 1990s, Pollution Prevention and Control Law of 1996 this is a significant increase. The wastewater treat- provides a legal basis for charging wastewater ment fee ranges from 0.25 to 1.00 yuan/m3, com- fees to all users connected to an urban sewerage pared to the typical 0.08 to 0.10 yuan/m3 prior network. It stipulates, among other things, that to 1996. urban sewage should be treated in a centralized Despite this progress, water pricing in China wastewater treatment plant, and that its costs is still inadequate to finance efficient utility should be recovered through a wastewater treat- management, and, more fundamentally, to sup- ment fee to ensure effective operation. port sustainable long-term development of water In addition to tariffs for water supply and sew- resources. Subsidies from general government erage, water bills typically include a water resource revenues are still the norm. Only a few cities fee and a water development fee. The water devel- charge residential consumers more than a purely opment fee is based upon the cost of the raw water nominal amount for wastewater management. supply infrastructure. The water resource fee, in According to the data from NDRC, the average principle, reflects the opportunity cost and scarcity wastewater charge in 36 large- and medium-sized of the actual raw water source, and is charged to Chinese cities is 0.67 yuan/m3, equivalent to all water users. Guided by the Ordinance of Water two-thirds of the treatment cost.1 By the end of Permits and Water Resource Fee Management 2005, over 150 cities charged nothing for waste- of 2006, water resource fees are determined by the water,2 and 278 of 661 cities had no wastewater local government(s). The fee goes to local and treatment facilities at all.3 This shortfall in waste- central governments as part of general revenue. In water treatment capacity is a major reason for practice, the majority of the fee income is retained China's continuing water pollution problem. 84 A D D R E S S I N G C H I N A ' S W A T E R S C A R C I T Y I M P R O V I N G E F F I C I E N C Y A N D E Q U I T Y I N W A T E R P R I C I N G TABLE 6 . 1 Water Tariffs in Beijing, 1981­2007 (yuan/m3) 1981.1 1992.1 1996.4 1997.12 1998.9 1999.11 2000.11 2002.2 2003.2 2004.8 1991.12 1996.3 1997.11 1998.8 1999.10 2000.10 2002.1 2003.1 2004.7 present Water supply fee 0.12 0.30 0.50 0.70 1.00 1.30 1.60 1.70 1.70 1.70 Wastewater treatment fee 0 0 0 0.10 0.10 0.30 0.40 0.50 0.60 0.90 Water resources fee 0 0 0 0 0 0 0 0.30 0.60 1.10 Residential water tariff 0.12 0.30 0.50 0.80 1.10 1.60 2.00 2.50 2.90 3.70 Source: Beijing Water Company information at http://www.bjwatergroup.com/htm/law/18_2.htm. FIG URE 6 . 1 Municipal Water Tariffs and Wastewater Charges byCity(yuan/m3) 0 300 kilometers 0 100 200 300 miles 2.30/0.5 Harbin 3.70/0.9 BEIJING 2.45/0.25 Tianjin 1.45/0.3 2.90/0.6 Taiyuan Xining 2.40/0.65 1.57/0.27Lanzhou 1.95/0.5 Zhengzhou Xi'an 2.30/1.0 1.93/0.9 Nanjing 1.90/0.8 Shanghai 2.80/0.7 Wuhan Chongqing 2.05/0.85 1.57/0.27 Fuzhou WATER TARIFF/ WASTEWATER CHARGE 2.02/0.7 Guangzhou PROVINCE BOUNDARIES INTERNATIONAL BOUNDARIES Source: The numbers in figure 6.1 are 2006 data reported at http://www.xxpi.com/gongq/ShowArticle.asp?ArticleID=4300. The water tariff of each city includes the sewerage charge. A D D R E S S I N G C H I N A ' S W A T E R S C A R C I T Y 85 I M P R O V I N G E F F I C I E N C Y A N D E Q U I T Y I N W A T E R P R I C I N G Another aspect of water pricing that deserves The Chinese government has been trying to scrutiny concerns the variation in municipal address the low-tariff problem. In 2006, NDRC water tariffs and sewage treatment fees. As illus- asked local governments to raise sewage treat- trated in Figure 6.1, developed coastal cities ment fees to 0.8 yuan/m3 by the end of that year. (especially those in North China and in the lower Although a price increase aiming to raise rev- reaches of river basins) usually charge water tar- enues to expand sewage treatment facilities is iffs and wastewater treatment fees much higher generally in the right direction, the request was than less-developed upstream cities. For instance, made regardless of its affordability for local resi- in 2006 the three cities with the highest sewerage dents in less-developed regions. Meanwhile, some fees were Nanjing (1.0 yuan/m3), Shanghai sewage treatment plants actually earned profits (0.9 yuan), and Beijing (0.9 yuan); the lowest exceeding their financial requirements. This sug- were Xi'an (0.36 yuan per cubic meter), Lanzhou gests that pricing policy needs to be carefully (0.3 yuan), and Xining (0.27 yuan). The cities designed in order to help solve a problem rather with the highest prices are in downstream coastal than cause more problems. areas, while those with the lowest prices are in The low-tariff problem in China has been upstream inland areas. Partly as a result, the down- discussed in detail in a number of studies. For stream cities have much higher wastewater treat- instance, a 2007 analysis by the World Bank-- ment capacity and treat a larger share of their Stepping Up: Improving the Performance of China's wastewater than the upstream cities, leading to Urban Water Utilities--addressed general man- greater environmental damage along the rivers, agement aspects of the urban water sector (World and a lower effectiveness of water pollution invest- Bank 2007b). These studies have typically pro- ment nationwide. While the variation may be posed price reform to encourage more efficient justified by different levels of development and and less wasteful water use, but their main focus differences in affordability among different cities, has been on the recovery of water production establishing a more reasonable mechanism for and delivery costs to permit the efficient opera- setting the price right--taking into account both tion of the concerned enterprises and the ability affordability and environmental objectives--is a to finance needed system expansion. Additional challenge for China. attention is needed to also reflect environmental A particularly egregious example of poorly and depletion costs in water pricing. coordinated water pricing is found in Xi'an City and its surrounding area in Shaanxi Province, PRICING FOR ENVIRONMENT where water shortages are severe and worsened AND DEPLETION by water pollution. Drinking water and sewage tariffs in Xi'an City were 1.95 and 0.36 yuan/m3 To help address China's water shortage, water respectively in 2005.4 In the same period, the prices need to be set at a level that balances sup- drinking water price in Jiaokou, which is down- ply and demand and is sustainable. For the long stream from Xi'an, was reported to be as high as term, this means that prices need to recover the 15 yuan/m3 because the Wei River was heavily marginal opportunity cost (MOC) of supply; polluted and local residents had to transport that is, the full economic cost of providing an drinking water from the city. Yet for a nearby additional unit of water. For the accounting of papermaking mill just across the Wei River, economic costs to be complete, the MOC needs which relied on groundwater, its cost was only to include: (a) the marginal delivery cost 0.08 yuan/m3 (ADB 2005). Such a pricing situ- (MDC), which is the cost incurred in producing ation is obviously not conducive to efficient and delivering an incremental unit of water to water resource use and management. the user, such as extraction, transmission, purifi- 86 A D D R E S S I N G C H I N A ' S W A T E R S C A R C I T Y I M P R O V I N G E F F I C I E N C Y A N D E Q U I T Y I N W A T E R P R I C I N G cation, and distribution; (b) the marginal envi- In Shanghai, on the other hand, where supply ronmental cost (MEC), which reflects the cost costs were not rising rapidly, prices roughly of environmental externalities associated with approximated the economic cost of supply. the use of water, such as wastewater removal and These studies also emphasized that--quite treatment costs; and (c) the marginal user cost apart from avoiding wasteful use at the munici- (MUC), which reflects the value of water in alter- pal level--MOC pricing has a major strategic native uses or the depletion cost (which is the cost role. Allowing regional variations in the real cost of depriving water from alternative users). This of water to be reflected in price policy would can be formally expressed as MOC = MDC + tend to encourage large water-using industries to MEC + MUC (Pearce and Markandya 1989). shift to the cheapest sources of water and to The adoption of MOC as the pricing objective is invest in water treatment, recycling, and reuse. essential to signal the scarcity of water to all Improved pricing would also encourage careful users, and to provide them with the right incen- consideration of the regional water demands of tive to use water efficiently and to adopt appro- agriculture, and the scop