Environmental Water Markets and Regulation

A comparative legal approach

Katherine Owens

• Publisher: Routledge
• Year: 2016
• Print ISBN: 9781138183209
• eBook ISBN: 9781317293644
• Edition: 1
• Topic: Diritto
• Subtopic: Diritto ambientale

River systems around the world are degraded and are being used unsustainably. Meeting this challenge requires the development of flexible regimes that have the potential to meet essential consumptive needs while restoring environmental flows. This book focuses on how water trading frameworks can be repurposed for environmental water recovery and aims to conceptualise the most appropriate role for law in supporting recovery through these frameworks.

The author presents a comprehensive study of the legal frameworks in four jurisdictions: the States of Oregon and Colorado in the western United States; the province of Alberta in Canada; and the Murray-Darling Basin in Australia/Basin State of New South Wales. A close comparative analysis of these four jurisdictions reveals a variety of distinctive regulatory arrangements and collaborations between public and private actors. In all cases, the law has been deployed to steer and coordinate these water governance activities.

The book argues that each regime is based on a particular regulatory strategy, with different conceptions of the appropriate roles for, and relationships between, various actors and institutions. Legal frameworks do not have the capacity to rationalise and provide an overarching and absolute solution to the complex environmental and governance issues that arise in the context of environmental water transactions. Rather, the role of law in this context needs to be reconceptualised within the paradigm of regulatory capitalism as establishing and maintaining the limits within which regulatory participants can operate, innovate and collaborate.

1
Introduction

One of the most critical challenges facing humankind is to secure a continued supply of freshwater in the context of overexploited supplies.¹ The old adage that ‘whiskey’s for drinking, water’s for fighting over’² presages what is to become an increasingly geopolitical problem, particularly in arid and semi-arid regions affected by droughts and climate variability that are also subject to development pressure. To meet these challenges, governments have traditionally turned to supply measures in order to distribute available resources between a range of pressing consumptive needs. It is now recognised, however, that water scarcity not only reduces the amount of water available for various consumptive uses but also reduces the amount and regularity of water available for water-dependent ecosystems. Governments are therefore transitioning to regulatory approaches that enable complex trade-offs between human and ecological needs.³ Existing water-allocation and transfer frameworks have been repurposed to achieve ecological goals, and governments and private actors have cooperated in the development of market-orientated environmental water allocation frameworks (MEWA frameworks) to recover water for the environment. This book presents the first comprehensive examination of the role of law in supporting the use of voluntary water transactions for this purpose.

My primary aim is to conceptualise the most appropriate role for law under MEWA frameworks in recovering water for the environment. A comparative law method has been adopted in order to cast light on the variety of frameworks in place, the transnational nature of particular regulatory ideas and influences in relation to environmental water transactions, and the vulnerabilities of these models in practice. In particular, my examination will focus on the complex framework of law and regulation enabling environmental water transactions in the State of Oregon and the State of Colorado, in the western United States; the province of Alberta in Canada; and the Murray–Darling Basin in Australia, along with the Basin State of New South Wales, where relevant. A basin approach has been taken within Australia, given that a particular statutory regime has been developed for the Murray–Darling Basin under the Water Act 2007 (Cth), which interlocks with existing water-allocation and planning systems developed at the Basin State level. The four jurisdictions have been selected on the basis of a demonstrated emerging or established practice of utilising water transfers for environmental purposes, and on the basis of their commonalities, in that each MEWA framework authorises the use of water resources for environmental watering activities, enables water transfers and establishes public and private funding measures to support environmental water transactions.⁴ The legal responses of these MEWA frameworks to the problem of water scarcity, however, and the need to provide for environmental water needs, operate in multi-faceted ways, and draw on a range of public and private law tools, from statutory water planning to contract law. Environmental water transactions have attracted considerable scholarly interest, with commentators focussing their research on the most appropriate institutional arrangements for delivering environmental outcomes in this context, as well as transaction costs.⁵ I will contribute to this body of knowledge by demonstrating the legal varieties of market-based water allocation regimes, and making findings as to the appropriate role of law in facilitating environmentally sustainable outcomes under these frameworks. I will also seek to demonstrate how each regime is based on a particular regulatory strategy, with different conceptions of the roles of, and relationships between, various actors and institutions. In order to do so, I adopt a broader perspective of regulatory change under the theory of regulatory capitalism.⁶

Regulatory capitalism

‘Regulatory capitalism’ denotes a political, economic and social order in which regulation is the key focus of government, and the focal point for a range of political, economic and social actors.⁷ Key theorists, David Levi-Faur, Jacinct Jordana and John Braithwaite, characterise the new order as a ‘regulatory explosion’, in which sophisticated regulatory techniques are deployed in the form of hybrid regulation and more varied and complex forms of regulatory regime.⁸ Regulatory capitalism involves a deliberate separation of the services provision and regulatory functions of the state, and between state and society, which reflects the metaphor of the state ‘steering’ but not ‘rowing’.⁹ The theory is also driven by the observation that neoliberalism has not in fact ‘conquered the world’.¹⁰ At an ideological level, it is argued, neoliberalism promotes privatisation, deregulation and a reduced public sphere.¹¹ However, the regulatory phenomena observed are inconsistent with neoliberalism having become an ‘institutional reality’, and a more accurate description of what has been happening in late capitalist societies since the 1980s is ‘more capitalism, more regulation’.¹² Regulatory capitalism is characterised by:

(1) a new division of labour between state and society (for example, privatization), (2) an increase in delegation (remaking the boundaries between the experts and the politicians), (3) proliferation of new technologies of regulation, (4) formalization of interinstitutional and intrainstitutional relations and the proliferation of mechanisms of self-regulation in the shadow of the state, and (5) the growth in the influence of experts in general and of international networks of experts in particular. It is suggested that this notion of a new order of regulatory capitalism goes beyond privatization and includes an increase in delegation to autonomous agencies, formalization of relationships, proliferation of new technologies of regulation in both public and private spheres, and the creation of new layers of both national and international regulation. In other words, a regulatory revolution is gathering pace despite the hegemony of neoliberal ideology.¹³

In this context, market forces and the tensions those forces generate provide important incentives for innovation and efficiency among the various public and private actors.¹⁴ However, the market does not provide any guidance as to how to structure the law to optimise environmentally sustainable outcomes under MEWA frameworks. Much of the legal and institutional complexity has arisen from the nature of the resource itself, which has been conceptualised variously as a common-pool resource, an economic good and a public good.

The nature of water resources

Common-pool resources are non-exclusive,¹⁵ and ‘subtractible’ in that ‘if one person removes or degrades part of a common pool, then they are subtracting benefits that others might enjoy’.¹⁶ Water is typically considered to be a ‘common pool’ resource,¹⁷ and a high degree of vigilance and collaboration is required to govern water resources effectively as, without effective regulation, there is a risk that a ‘tragedy of the commons’ may occur, in which the resource is degraded or exhausted completely, to the detriment of all users.¹⁸ Social scientists have observed that a wide variety of institutional arrangements may be effective in avoiding a tragedy of the commons, and these are broadly grouped into governmental, private or community ownership categories.¹⁹ A common response to the potential for overexploitation of a common-pool resource is to create property rights in that resource, on the basis that overexploitation arises from incompletely defined and enforced property rights.²⁰ Property rights, in turn, allow for the creation of markets, which provide price signals to individual users in order for those users to weigh the costs and benefits of extraction.²¹ Property-rights based measures have also enabled the promotion of a neoliberal agenda in relation to various common-pool resources, or ‘market environmentalism’.²² Through these agendas, there has also been a growing trend, since the 1990s, to treat water as an ‘economic good’.²³

The concept of water as an ‘economic good’ arose during the preparatory meetings for the 1992 United Nations Conference on Environment and Development (the Earth Summit) in Rio de Janeiro.²⁴ It was then developed during the Dublin Conference on Water and the Environment and elevated to one of the four Dublin Principles.²⁵ The emergence of this principle did not, however, provide sufficient direction as to how water may be defined as an economic good, or how to apply the principle in practice.²⁶ At a fundamental level, questions have been raised as to whether or not water is an economic commodity, and whether it can be analysed using the conceptual framework of economics in the same way as any other commodity.²⁷ During the Dublin Conference there were certainly fears that the market pricing implied by this principle would lead to inequities in relation to water distribution to the poor, and render irrigated agriculture unviable;²⁸ accordingly, the fourth Dublin Principle also acknowledges that water is a ‘social’ good, and that water should be affordable to the poorer sections of society.²⁹

A further source of confusion as to the nature of water resources arises from frequent references to water in public debate as a ‘public good’. As Karen Bakker observes:

Water is frequently termed, in conventional debates, a public good. This term is often used imprecisely; it sometimes means that water is non-substitutable, or that it is essential for life, or that its supply has critical public...

Table of contents

• Cover
• Title
• Copyright
• Contents
• Acknowledgements
• 1 Introduction
• PART 1 Regulatory capitalism and the emergence of environmental water markets
• PART 2 The steering mechanisms
• PART 3 Codification
• PART 4 Conclusions
• Index