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The Business of Water

Abstract and Keywords

Over the past three decades, water supply has become big business, and fierce debates have emerged in many countries over water privatization and water markets. This chapter reviews five dimensions of this debate: (1) the privatization of ownership and management; (2) the commercialization of water management organizations; (3) the environmental valuation and pricing of water; (4) the marketization of exchange mechanisms (“water trading” and “water markets”); and (5) the neoliberalization of governance. The analysis offers an analytical framework within which more structured, comprehensive assessments of market environmentalism—which is multifaceted and highly varied, difficult to implement in practice, and by no means hegemonic—in the water sector might be conducted. The chapter concludes with some reflections on the future of this debate.

Keywords: water, privatization, commercialization, market, environmentalism

Introduction

Over the past three decades, water supply has become big business. This trend is underpinned by the doctrine of market environmentalism, which asserts the desirability of achieving positive environmental outcomes through the introduction of markets and market-derived institutions and organizations, premised on the assertion of mutual synergies between environmental conservation and protection, economic growth, market economies, and neoliberal governance (Anderson and Leal 2001; Bernstein 2001).1 The growth in appeal of market environmentalism over the past two decades must be understood in the context of growing concerns among academics and policymakers over the vulnerability of human populations and ecosystems to water insecurity in particular, and environmental insecurity more generally (Bernstein and Cashore 2007; Cashore 2002; Conca 2006; Cook and Bakker 2012).

Proponents assert that market environmentalism is a solution to water insecurity: briefly, they assert that the use of markets (e.g., for water allocation) and market mechanisms (e.g., water pricing to signal scarcity) will reduce water consumption, and thereby increase both human and environmental water security, with numerous benefits ranging from reductions in biodiversity loss to decreases in water-related diseases (Allouche and Finger 2003; Budds and McGranahan 2003; Johnstone et al. 2001).2 However, the market environmentalism argument has provoked controversy (Bakker 2010, 2013a, 2013b; Bauer 2012; Biro 2012; Boelens et al. 2014; Conca 2006; Garrick and Aylward 2012; Gómez-Baggethun and Muradian 2015; Heynen et al. 2007; Stephenson and Shabman 2011). Opponents of market environmentalism emphasize the limitations of markets in achieving environmental and human water security goals. Their arguments range across political, economic, and ecological issues, and invoke empirical claims (e.g., the negative consequences of privatization and commercialization), theoretical claims (e.g., the existence of market failures with respect to water management), and ethical claims (e.g., the incommensurability of indigenous collective stewardship or (p. 408) customary rights to water and Western conceptions of individual human rights). This controversy is unsurprising that water fulfills multiple functions and holds multiple meanings for different users: essential for life, it is simultaneously an economic input, an aesthetic reference, a religious symbol, a public service, a private good, a cornerstone of public health, and a biophysical necessity for humans and ecosystems alike.

This debate is also beset by disparate definitions of key terms, including privatization, pricing, and indeed market environmentalism. For example, some opponents portray market environmentalism as an iteration of a long-standing capitalist trend of “accumulation by dispossession”; whereas some proponents portray it as an ethically neutral, robust technique of environmental economics. Disagreement over definitions aside, there is also considerable variation in the application of market environmentalism “on the ground” in countries around the world. In an effort to lend a degree of clarity, this chapter explores this debate through a review of five dimensions of market environmentalism in the water sector (table 18.1): (1) the privatization of ownership and management; (2) the commercialization of water management organizations; (3) the environmental valuation and pricing of water; (4) the marketization of exchange mechanisms (“water trading” and “water markets”); and (5) the neoliberalization of governance. These five dimensions are the most common strategies deployed under market environmentalism; they are often concomitant, although each may (and does) occur independently. This analysis thus represents an attempt to offer a precise analytical framework within which more structured, comprehensive assessments of market environmentalism might take place.

The Limits of Privatization

Privatization entails the transfer of ownership or management of water supply infrastructure (or, in rare instances, water resources) to private individuals or companies. This may involve a full transfer of ownership (asset sale of infrastructure, for example), or a temporary transfer of control through long-term leases or management contracts (private sector participation) (Budds and McGranahan 2003; Davis 2005). In the modern era, private sector participation in water supply has existed since the inception of (largely urban) water supply networks in fast-growing 19th-century cities such as London and Paris. However, the majority of water supply networks were state-funded and state-owned throughout much of the 20th century (Bakker 2010; Linton 2010).

One of the central justifications for privatization in the 1990s was the fact that more than one billion people around the world lack access to clean, safe drinking water (Gilbert 2012; Prasad 2006). Proponents of market environmentalism argue that private finance, management, and ownership are necessary to meet the challenge of human water security, and claim that government management of urban water supply is beset by several interrelated problems, including low rates of cost recovery, low tariffs, underinvestment, deteriorating infrastructure, overstaffing, inefficient management, and unresponsiveness to the needs of the poor. From this perspective, proponents of market (p. 409) environmentalism argue that it is unethical not to involve private companies if they can perform better than governments at providing water, particularly to the poor. An additional set of incentives pertains to politicians, as privatization (in theory) offers the opportunity to devolve political accountability for price increases, as well as a means of obtaining financing—incentives which coincide, in some instances, with theoretical arguments in favor of market environmentalism.

Table 18.1 Market environmentalism in the water sector

Strategy

Examples

Details (references)

Privatization/appropriation

The transfer of ownership or management of resources to the private sector, often associated with the creation or reallocation of private property rights

Divestiture (also termed asset sale)

Sale of water supply infrastructure to private sector (e.g., England and Wales (178, 179)]

Land/water grabbing

Corporate land/water rights acquisition [e.g., sub-Saharan Africa (96)]

Private-sector participation or partnerships

Outsourcing of water supply system management to private companies (29)

Commercialization

The incorporation of market institutions and models in resource management organizations

Corporatization

Conversion of the business model for municipal water supply from a local government department to a publicly owned corporation (114)

New public management

Introduction of alternative service delivery in water supply management [e.g., Ontario, Canada (180)]

Environmental economic valuation

The introduction of full-cost pricing and associated technologies for charging consumers

Full-cost pricing

Water pricing for irrigation water and associated private property rights (126)

Environmental valuation/ecosystem service pricing

Environmental valuation of water incorporated into decision making (29)

Marketization

The introduction of water markets as trading mechanisms, predicated on the existence of secure private property rights

Creation of water markets

Introduction of a water market [e.g., in Chile (145)]

Liberalization of governance

The transfer of decision making and oversight from governments to nongovernmental actors via deregulation, devolution, decentralization, and delegation

Deregulation

Cessation of direct state oversight of water quality mechanisms [e.g., Ontario, Canada (181)]

Delegation and decentralization of decision making authority

Delegation to nonstate actors, often combined with rescaling from national to provincial/state and/or local authorities (182)

(p. 410) In contrast, opponents argue that the involvement of private actors tends to decrease, rather than increase water security. In particular, opponents of private ownership and management argue that government-run water supply systems, when properly supported and resourced, are more effective, equitable, and responsive; have access to cheaper forms of finance (and thus lower tariffs); and perform just as well as their private sector counterparts (Bond 2010; Graham and Marvin 2001; Hall and Lobina 2004; Hall et al. 2005; McDonald and Ruiters 2005; Swyngedouw 2004, 2005). Proponents and opponents of market environmentalism disagree not only on the goals of water management (e.g., efficiency, equity, environmental protection) but also on the methods for comparative assessment of the performance of different providers and impacts of distinct regulatory regimes.

To assess these claims, researchers have conducted meta-analyses of privatization, assessing the performance and outcomes of private sector participation in developing countries (Braadbaart 2005; Prasad 2006). Scholars have reviewed the effects of privatization on a range of issues, including prices (Chong et al. 2006; Marin 2009; Martínez-Espiñeira et al. 2009), coverage for the urban poor (Clarke et al. 2009), governance (Akhmouch and Kauffmann 2013), and—controversially—public health (Galiani et al. 2005; Kosec 2014; Mulreany et al. 2006). The politics of privatization have received attention, including studies of the incentives of various stakeholders, the instrumentalization of government bureaucracies, and the knowledge networks via which privatization was disseminated and promoted (Ahlers 2010; Finger 2005; Larner and Laurie 2010).

Scholars have also scrutinized the limits of privatization, particularly as a means of providing universal coverage (notably to the urban poor) (Bakker 2010; Dilworth 2007; Draper 2008). Following the financial crisis of 2008/9, private companies (such as the English company Thames Water, and French companies Veolia and Suez) strategically reconfigured their approach, changing modes of financing (e.g., from equity to debt financing), and opting for lower-risk contracts (Bakker 2010; Marin 2009). New operators emerged in middle-income countries (e.g., Brazil, China, Russia, Malaysia) to challenge the oligopolistic structure of the sector, dominated by European and American firms. Although the number of customers of private companies continues to grow, this new growth is concentrated in more profitable (usually middle- and high-income) cities, regions, and countries, particularly China (Zhong et al. 2008). Privatization is much less prevalent in low-income countries, post-conflict countries, and countries where regulatory institutions are weak; in these instances, national governments (and in many cases development banks) continue to play a leading role (Schwartz and Halkyard 2006).

The debate over privatization has also taken a new turn; originally focused on water supply, scholars have increasingly turned their attention to the issue of water resources in the past decade. Of particular interest has been the issue of “water grabbing” (associated with “land grabbing”) (Mehta et al. 2012; Rulli et al. 2013). Water grabbing entails the diversion of water resources, depriving local communities of water for livelihoods. Recent interest in water grabbing has arisen because of the trend in “land grabbing” associated with large-scale agricultural investments for biofuel and food production, often driven by food speculation or extra-territorial strategies for increasing food (p. 411) security—particularly on the part of actors from relatively wealthy yet land or water-poor countries (e.g., Saudi Arabia, China) purchasing land or water rights in low- and middle-income countries (Allan et al. 2012; Sebastian and Warner 2013; Sosa and Zwarteveen 2012; Woertz 2013).

Water grabbing may take multiple forms, including land purchases (to which water rights are often legally attached) and the subsequent conversion of that land into large-scale agricultural production; outright purchases of water rights and water infrastructure; or “appropriation by dispossession” in which community rights to water (often not formally recognized in law) are denied as corporate (or state) actors expropriate land and water resources for development (Glassman 2006; Harvey 2003; Sneddon 2007). The recent debate over water and land grabbing, for example, frames the appropriation of water as an economic strategy carried out by “extra-economic” means, which are deeply embedded in political—and at times coercive and violent—relationships, although the extent of land and water grabbing is disputed by some experts (Franco and Kay 2012; Woertz 2011).

As with private sector participation in water management in the 1990s, water grabbing has generated controversy and protests (Matthews 2012; Perreault 2006). Although grievances vary (and are highly context-specific), a set of common themes emerges in these protests: concerns over the impacts of privatization on consumers and workers (e.g., pricing and access to services, employment) as well as on the environment. In many instances a nascent “red–green” alliance has cohered around the anti-privatization agenda (as in Cochabamba, Toronto, Jakarta, and Vancouver). Unsurprisingly, anti-privatization protests are often articulated with, and amplified by more generalized political economic protest. Latin America (e.g., Argentina and Bolivia) experienced significant public protests on a range of water-related issues from the late 1990s onward; and southern Africa has also seen sustained protests, in some cases associated with high-profile court cases (e.g., Phiri/Soweto in South Africa) (Bond and Dugard 2008; Bustamente et al. 2005; Morgan 2005). This ongoing resistance indicates that privatization—in its varied forms—continues to be a contested and controversial topic.

Privatization remains an ongoing trend, albeit less comprehensive in geographical scope than originally envisioned by some proponents. A balanced assessment of the record of private water companies suggests that hopes that privatization would solve the world’s water crisis were overblown, but that privatization will continue to be pursued as an option for water supply access in communities and countries with sufficient ability to pay—and will thus continue to raise ethical concerns (as it has over the past decade) (Bayliss 2014; de Gouvello and Scott 2012; Harris 2015; Marin 2009; UNDP 2006). Given this, scholars and donors have increasingly been focusing attention on the potential for partnerships between public water providers, community organizations, and a variety of private providers (including informal water vendors) in filling gaps in water supply provision (Dellas 2011; Gopakumar 2014; Hukka and Vinnari 2007; Moretto 2007). Criticisms of this new emphasis on partnerships have included the claim that they endorse state inaction; exacerbate gender inequality with respect to household labor and livelihoods; and create “two tier” systems of water supply. Proponents (p. 412) argue, in response, that hybrid environmental governance strategies are the “new normal”: purely market-, government- or civil-society-based strategies will be rare, as the governance of water requires the articulation of organizations and actors in networks of distributed and multi-level governance (Bulkeley 2005; Gupta and Pahl-Wostl 2013; Lemos and Agrawal 2006; Newig et al. 2013; Pahl-Wostl 2009). Privatization will continue to be implicated in broader, evolving trends of distributed and delegated water governance.

The Contradictions of Commercialization

Commercialization entails the incorporation of market-derived business models and institutions (rules, norms, and customs) in organizations, with the goal of reforming their performance (and evaluation) in line with commercial principles. Corporatization is one example; New Public Management (NPM), in which market-based allocation and performance measures and incentive structures are introduced in government departments, is another. In many instances, commercialization is associated with alternative service delivery (ASD) models—including, for example, corporatization and outsourcing of activities previously provided directly by government agencies or departments.

In the water sector, commercialization often entails the involvement of private companies in management (and in some cases, although not necessarily ownership) of water supply infrastructure. Commercialization may also follow corporatization—the introduction of private sector business models and market principles into state-managed water supply networks (in other words, state-owned water entities that operate according to private sector legal and regulatory frameworks). Other forms of commercialization include the contracting out of other water-related responsibilities to nongovernmental actors or the introduction of market-based allocation and performance measures. Such reforms have been introduced around the world, in countries as diverse as Germany, India, and Zambia, often creating hybrid models that mix aspects of public and private sector governance and delivery (Citroni 2010; Dagdeviren 2008; Sangameswaran 2009; Wissen and Naumann 2006).

Frequently, advocates of such reforms argue that they will improve efficiency, lower costs, and (in some instances) improve other aspects of service delivery, such as innovation (Moss and Schlippenbach 2012). Proponents of reforms also argue that some forms of commercialization—such as corporatization—may, under the right circumstances, reduce political interference in water prices (Klien 2013). Critics, on the other hand, argue that NPM and ASD may attenuate accountability, reduce transparency, and devolve responsibility without a concomitant reallocation of resources (Terhorst et al. 2013).

Proponents of commercialization are usually well aware that—despite the growing trend of market environmentalism—many aspects of water management are likely to remain under state ownership and management. This is because there are several market failures usually identified with respect to water supply, including natural monopoly, (p. 413) externalities, and public goods (Bromley 2007; Meinzen-Dick 2007; Winpenny 1994). First, water supply is cited as an example of what economists term a “natural monopoly,” insofar as supply by one firm entails lower costs than supply by more than one firm. The incumbent firm will have an overwhelming cost advantage compared with any new entrant, and thus the market will tend to be characterized by only one seller, with all of the problems associated with monopoly power.

A second type of market failure characterizing water supply is “externalities,” costs or benefits arising from water production that are not accounted for in the price mechanism, which thus do not accrue to the producer or consumer. These externalities may be both negative (e.g., pollution) and positive (e.g., the social benefits gained from the widespread availability of safe and adequate water supply and sanitation) (Bromley 2007). Externalities pertain to both quantity and quality: lack of access to water has important (and potentially disastrous) consequences for hygiene and public health; pollution of water sources by one user can quickly affect others.

Given the fact that negative externalities are widespread in the water sector, proponents of the “market failure” argument typically characterize the public health outcomes associated with water supply infrastructure—and particularly with sanitation—as a “public good” (non-excludable and non-rivalrous).3 Markets typically fail to provide for public goods, as profit-making strategies are difficult or raise serious ethical concerns. This appears to be the case in the water sector, as private companies tend to focus on water supply, and are very rarely involved in solely sanitation-related operations (at least on a concession contract basis).

These market failures provide significant barriers to commercialization (and indeed to market environmentalism in the water sector more generally). Another important reason why commercialization in the water sector is likely to be limited pertains to the broader security concerns associated with water resources. Given population growth and forecasts of increasing per capita consumption, as well as the potential impacts of climate change, many scientists and policymakers are predicting increasing water insecurity; water stress is already a widespread and growing phenomenon (Gleick and Palaniappan 2010). This is unlikely to be offset by increased water efficiency, as many of the gains have been made in wealthy countries (such as the United Kingdom and United States, in which water withdrawals per capita began declining in the mid-1980s, dropping as low as 10 percent below their peak by 2000), and investments in infrastructure to increase efficiency are often extremely costly.

Water insecurity may be additionally exacerbated in some instances by threats to drinking water supply from a range of sources: human impacts on the aquatic environment, contamination, or even terrorist attacks (Nuzzo 2006). Concern over water availability has thus given rise to concern over threats to economic growth, human livelihoods, and the environment from water-related hazards (e.g., floods and droughts), as well as from growing water stress and scarcity (Bakker 2012; Vorosmarty et al. 2000; WHO 2005). In addition, a newer concern has emerged: the “water-energy-food nexus” highlights the challenges in meeting the energy and food demands of growing populations, given constraints on water availability (see also Keulertz et al. and Keulertz and (p. 414) Allan, this volume). Water security, from this perspective, is linked to food and energy security; commentators have focused on the trade-offs that are likely to arise in the twenty to thirty years (Bazilian et al. 2011).

This debate over the “global water crisis” is likely to imply intensified concern over water security on the part of national governments. For example, in 2012 then-Secretary of State Hillary Clinton launched the U.S. Water Partnership: a coalition of government agencies, public water suppliers, and private companies that links concerns over water security directly to American geopolitical and security interests. This is suggestive of another contradiction in the market environmentalism debate: as national security concerns over water (as a geopolitically strategic resource) continue to rise (despite the sustained disputation of the “water wars” hypothesis by experts), states may be less willing to cede control over water (particularly large-scale hydraulic infrastructure) to nonstate actors. There is thus a deep contradiction at the heart of contemporary market environmentalism initiatives. On the one hand, governments desire the putative efficiency increases that might come with the adoption of private sector-style incentives, management techniques, and organizational/business models. On the other hand, governments are increasingly concerned over water insecurity and associated potential threats to broader security interests; hence, there is a powerful impulse toward increasing government oversight and control. This contradiction is deep-seated, and not (at least in the short term) resolvable; there is likely to be a “push-pull” approach to commercialization on the part of governments, seeking to balance these competing interests and demands.

Challenges for Water Valuation

Water pricing is a third important dimension of market environmentalism. Diverse factors create pressure to “get the prices right,” particularly given cost recovery needs and the tendency of water to be underpriced historically in many jurisdictions (Elnaboulsi 2009; Massarutto 2007; Ruijs et al. 2008). Another justification for water pricing relates to increasing concern about the negative impacts of water use on ecosystem services. Rapidly rising water consumption by humans has led to significant impacts on the environment, including freshwater biodiversity and water-related ecosystem services (Millennium Ecosystem Assessment 2005). These impacts are likely to be exacerbated in the future, given population growth and increased hydrological variability, particularly in the context of climate change (WWAP 2012). The global water crisis is, in other words, a crisis for nonhumans as well as humans; water pricing is presented as a strategy for enhancing water conservation for the benefit of both humans and the environment.

Water pricing is one example of the “economic valuation” of water: the process of placing monetary values on environmental goods and services, and incorporating these into policy and management. Economic valuation entails (often controversial) pricing of resources and associated ecosystem services, often using non-market valuation techniques (Vatn 2010). Closely associated with the subdisciplines of environmental and ecological economics, a range of techniques (e.g., contingent valuation) is used to (p. 415) determine prices, and to incorporate these prices into the costs passed on to consumers, with the goal of inducing more environmentally friendly behaviors such as reductions in resource consumption (Pearce and Turner 1990).

The environmental valuation of “in-stream benefits” or of water-related environmental functions (such as the ecosystem services provided by wetlands) are common examples (Birol et al. 2006). Proponents argue that environmental valuation is urgently required to provide the correct price signals necessary to incentivize changes in behavior—notably reducing both water consumption and pollution, and allocating water to its highest value uses. Others argue that economic valuation can also serve to engage stakeholders and address governance failures (such as lack of access to information) that negatively affect attempts to improve water resources allocation (Hermans et al. 2006). Valuation, in short, is advocated as a means of improving water security and potentially even water governance.

Environmental valuation is one component of full cost pricing models for water, according to which prices should reflect the full cost of infrastructure and maintenance, and consumers should pay for what they use; implementation requires the introduction of technologies (e.g., water meters) for measurement and billing (Gómez-Baggethun and Ruiz-Pérez 2011). Full cost water pricing may radically alter the relationship between consumers (users), water providers, and the environment. For example, full cost pricing may involve the introduction of economic equity (the “benefit” or “willingness-to-pay” principle), displacing a commitment to social equity (the “ability-to-pay” principle). Consumer access is legitimated not by a citizen’s entitlement to water as a service, but by a customer’s purchase of water as a quasi-commodity. This example suggests that market environmentalism implies a reconfiguration of the hydro-social contract between users and their environment; in response, accountability mechanisms and governance processes evolve, treating consumers as customers rather than citizens. Treating water as a business, in short, reconfigures not only water management but also our decision-making processes, and our views of our environment, our water suppliers, and one another.

Given large-scale inefficiencies and outright waste associated with the underpricing of water in key sectors (such as irrigated agriculture in many countries), these arguments for valuation have gained support. This is, however, sector-specific. For example, in developing countries, full cost water pricing has been more widely applied in urban water supply, and less widely applied in the irrigation sector. However, examples of implementation of pricing based on full market valuation are rare—in part because of the technical difficulty of pricing, uncertainties over future capital costs, imprecision of the estimation of environmental costs, and also because of the political consequences, given that valuation subverts the subsidized pricing and social equity principles that tend to be associated with public utility systems. Take, for example, the case of the European Union’s Water Framework Directive (WFD), which mandates full cost pricing, the devolution of governance (through creating local watershed councils), and cost-benefit analyses (Kaika and Page 2003; Page and Kaika 2003). The WFD cannot be neatly framed as an exercise in market environmentalism; despite the recommendation (p. 416) of pricing and valuation, it simultaneously asserts the non-marketized nature of water in its first clause: “Water is not a commercial product like any other but, rather, a heritage which must be protected, defended and treated as such.”4

As the case of the WFD illustrates, valuation raises complex political issues. The existence of a “non-commercial” clause in the WFD reflects the views of opponents of market environmentalism, who (incorrectly) view valuation as synonymous with privatization and/or commodification. From this perspective, valuation is undesirable because it opens the door to privatization; opponents argue that this enables profits to be made from water, which is unethical given that water is a substance essential for life and human dignity. These opponents of valuation often argue that environmental protection and water conservation should be fostered through an ethic of water use, whether based on solidarity, scientifically determined limits to water use, traditional (often indigenous) water-use practices, or various forms of eco-spirituality. This gives rise to some interesting contradictions: on the one hand, environmentalists often embrace water valuation when associated with ecosystem services protection; yet on the other, commercialization and privatization of water services are often rejected by environmental groups.

Here, it is important to inject some conceptual clarity into the debate. Valuation is not synonymous with privatization or commodification. The goal of economic valuation may be to incentivize water conservation and/or enable environmental protection, remediation, and restoration—through introducing environmental values into the cost-benefit analyses that guide water supply management decision-making. Economic valuation is intended to provide incentives for water conservation, and for the use of alternative supplies (gray water, reclaimed waste water, desalinated water, recycled water). The prices developed through valuation techniques may also be used as a tool for educating consumers in a new “ethic” of water use.

None of this, it should be emphasized, implies the full commodification of water—which only occurs when private property rights, full cost pricing, and marketization—the introduction of water markets as trading mechanisms—are in place (Liverman 2004; Prudham 2009). If we assume that commodification requires the conversion of a class of services or goods into discrete, interchangeable units that can be abstracted from socio-ecological context, priced, traded and sold, transported, and privately owned—then the commodification of water appears to be extremely difficult, for several reasons (Bakker 2004). First, as a flow resource, water plays an important ecological role—and equally serves as an ecological vector; mixing of waters from different sources (as in bulk transport, using waterways as conduits) poses significant ecological challenges, which may be a barrier to the large-scale transfer of water resources. Water is, in fact, a difficult resource to fully commodify, not least because it is difficult to exchange—given that it is expensive to transport relative to unit, and that it is relatively inefficient and expensive to transport in large quantities over long distances (e.g., due to evapotranspiration). Second, market failures (natural monopoly, externalities, public goods) pose significant challenges to full commodification. For this reason, water pricing often involves valuation (assigning a monetary value) but not full commodification (the creation of a standardized unit of exchange) of water.

(p. 417) One exception is the bottled water market. Reputedly one of the fastest-growing segments of the beverage industry, bottled water now represents an estimated $70 billion in sales worldwide (Gleick 2010). Traded globally, with a proliferation of brands and offerings (from vitamin-infused water to glacier water), bottled water is the best example of complete commodification of water. Academic studies of bottled water characterize it as a social phenomenon linked to heightened anxieties about health, decreased public trust of governments, and successful marketing linking bottled water consumption to consumer aspirations regarding physical appearance, exercise, and identity (Doria 2006; Wilk 2006). Despite significant consumer resistance and public campaigns opposing water as a commodity, the growth in the bottled water market seems to be significant and sustained (Lapham 2009). Bottled water aside, full commodification of water is relatively rare. Valuation, on the other hand, is much more widespread. As noted above, it is important not to confuse the two; valuation, in short, does not necessarily imply commodification. However, the water pricing debate has been complicated by this confusion; it remains to be seen whether the useful aspects of valuation can overcome these political (as well as technical) barriers to implementation.

The Marketization Debate

Ironically, although water markets are emblematic of market environmentalism, they are the most rare (at least numerically) of the trends discussed in this chapter. Formal water markets exist in countries as diverse as Australia, Canada (Alberta), Chile, South Africa, Spain (the Canary Islands), and the United States (specifically in some of the western states). Although practices vary significantly, water markets may be defined through three key elements: water rights; water trading mechanisms; and physical infrastructure for transferring water. Marketization entails the creation of markets as trading and exchange mechanisms for water rights, with the goal of improving the efficiency of resource allocation and reducing resource consumption or pollution emissions. (As noted earlier, this is distinct from privatization, which entails the private ownership of water and water-related infrastructure.)

Water rights are legally defined water access entitlements; simply put, a “water right” grants the user the right to use water from a specific source. The form of these rights may vary significantly; common forms include land-based water rights (e.g., giving the user the right to use groundwater under the land he or she owns); riparian rights (allowing a user to access water flowing through their property); and the “first in time, first in right” (FITFIR) system used in western United States and Canada.

Water rights, in isolation, do not constitute a market. Rather, a market exists when a trading system is set up, whereby rights may be bought and sold. These trades can be temporary or permanent, depending on the legal status of the water rights. Pricing techniques vary; some jurisdictions use environmental valuation, whereas others allow supply and demand to determine prices (within certain limits).

(p. 418) The third key element of a water market is a mechanism for transferring water between users. In water markets organized around a surface water body (e.g., river, stream, or lake), the water body serves as the mechanism for transferring water. In order to sell to downstream users, for example, upstream users simply refrain from abstracting the amount of water that they have traded. In other water markets, artificial transfer mechanisms (such as canals) are used.

Proponents of water markets argue that they are critically necessary as a means of allocating ever-increasingly scarce resources to their most efficient uses. In particular, proponents argue that water markets are useful in water scarce areas, allowing communities to respond to water shortages through purchasing water (e.g., urban communities purchasing water from farmers). This, proponents argue, may allow urban areas to avoid “supply-side solutions” (like dams), which are increasingly expensive and difficult, given the decreasing availability of cost-effective sites for dam construction, and increasing awareness of the negative environmental impacts of dams. Governments are often keenly interested, given that water markets may offer the opportunity to shift—often extremely expensive—operations and maintenance costs for water transfer infrastructure schemes (such as canals) to private users (Brown 2006; Hanak 2005). Proponents of Australia’s water market, for example, argue that the market has allowed Australians to increase the efficiency of water use, while avoiding expensive new infrastructure projects (Brennan 2006).

In response, opponents argue that water markets raise a series of concerns; taken together, they argue that these concerns require state oversight of resource allocation and sectoral trade-offs. One issue is the urban‒rural divide: rural users (often farmers) are vulnerable to political pressure from cities to transfer water, often threatening the sustainability of rural livelihoods. Underpricing of rural agricultural commodities may make trades seem economically efficient, but the broader economic impacts on rural communities are not included in water pricing models. Another critique focuses on environmental impacts; in many instances, the question of the ecological integrity of the receiving watershed has not received sufficient scrutiny. Moreover, “environmental needs” are often undervalued (or not valued at all); even where they are, the price paid by urban and industrial users may outweigh water pricing as determined by conventional environmental valuation methods. Budds, for example, raises these points with respect to water markets in Chile; rural farmers were disadvantaged, and environmental impacts poorly integrated into the Chilean water market, raising serious distributional justice and equity issues (Budds 2004).

For this reason, debates over water rights (and water markets) are often associated with broader debates over the human right to water. Similarly debates about privatization are also juxtaposed with the issue of a human right to water. As a non-substitutable resource essential for life, water is discursively framed by those campaigning against market environmentalism as a human right (although, in fact, it was not explicitly included as a human right in the original UN Declaration of Human Rights) (Morgan 2004). After more than a decade being hotly debated, the issue of the human right to water remains controversial. Some governments (including The Netherlands and the (p. 419) United Kingdom) express their public commitment for a human right to water, and a few (such as France, South Africa, and Uruguay) have taken the bold step of embedding the right in legislation (Smets 2006). But they are the exception, and some governments (such as Canada) have rejected calls for the creation of a human right to water (Sultana and Loftus 2013).

Nonetheless, the case for the existence of the human right to water appears to be gaining ground, notably through the work of the UN Special Rapporteur on the Human Right to Water (Sultana and Loftus 2013), as well as the 2010 UN General Assembly resolution on the human right to water and sanitation.5 International human rights law seems set, in the near future, to recognize the human right to water—although critical legal scholars and activists have noted that the fulfillment of this right, in practice, still faces significant difficulties (Dugard 2010).

The relevance to the debate over market environmentalism is threefold. First, the human right to water has been mobilized as an argument against water privatization (although with limited success, given that human rights law is compatible, at least in its current formulation, with private provision of basic services) (Bakker 2007). Second, human rights are a necessary, but not sufficient criteria for the fulfillment of universal, equitable access to water supply. Third, the human right to water implies that water may not be defined in narrowly economistic terms; while water has economic value, it cannot simply be defined as a commodity, for ethical as well as technical reasons.

Neoliberal Governance

The final theme to be discussed in this chapter is that of governance reform, where governance is defined as the “range of political, organizational, and administrative processes through which community interests are articulated, their input is incorporated, decisions are made and implemented, and decision makers are held accountable in the development and management of water resources and delivery of water services” (Bakker 2003: 2). The debate over “alternative governance architectures” (Gunawansa and Bhullar 2013) in the water sector has attracted significant scholarly attention. Much attention has been devoted, in particular, to the reform of institutions—defined as the laws, rules, norms, and customs that govern decision-making behavior.

Market environmentalist-inspired calls for governance reform in the water sector are frequently justified by reference to the historically poor performance of state-managed water sector in many countries. Hence, they tend to stress the importance of delegation to nonstate actors, combined with devolution, sharing decision-making with lower (or higher) scales of governance. A frequent justification for these reforms is that they will enable better achievement of “good governance” principles, including accountability, equity, environmental and economic sustainability, participation and empowerment of stakeholders, and transparency (Rogers and Hall 2003). Hence, market environmentalism in the water sector reflects broader trends in environmental governance, which (p. 420) refers to “the set of regulatory processes, mechanisms and organizations through which political actors influence environmental actions and outcomes” (Lemos and Agrawal 2006: 3). In short, market environmentalism—if fully applied, which is by no means straightforward—entails a wide-ranging set of transformations in the ways in which we manage, allocate, and make decisions about resources and environmental management (Bakker 2010).

The limited amount of empirical evidence on governance reforms implies caution in drawing conclusions. However, it is clear that reforms have proceeded in numerous jurisdictions; the scope and nature of this trend is briefly worth discussing. First, governance reforms have generally tended to encourage polycentrism: a broader range of nongovernmental actors and stakeholders are playing a role in decision-making, justified by the argument that social learning is enabled and improved through the involvement of a greater diversity of actors in on-the-ground management and decision-making processes (Pahl-Wostl 2006).

This justification underpins, both rescaling of water governance and calls for greater public participation in water governance (and, indeed, in environmental governance more generally) (Norman et al. 2012; Pahl-Wostl et al. 2008). Polycentrism implies the involvement of multiple actors at multiple scales; hence, a second innovative aspect of water governance reforms is the emphasis on multilevel governance—such as multi-stakeholder watershed management platforms, which have been initiated in many jurisdictions for a variety of reasons, including increased emphasis on watershed-based and integrated management of environmental issues, awareness of the multilevel causes and impacts of water-related threats (particularly, although not uniquely, with regard to the water-energy-food nexus), and concern over the implications of climate change for water resources—the study and mitigation of which is necessarily multi-scalar (Norman et al. 2012; Warner 2007).

This provides an interesting challenge to the watershed-focused emphasis of traditional Integrated Water Resource Management (IWRM) governance models; in emphasizing multi-scalar linkages, the watershed loses its central place as the primary unit of analysis and water management (Cohen 2012). In other words, the liberalization of governance may, at times, challenge the notion that the watershed is the optimal scale from which to address complex water security challenges. For example, the focus on the watershed is potentially undermined by the growing importance of “virtual water” flows—notably those associated with global trade (Allan 2003). Given the multiple scales at which these trade-offs occur, reliance on watershed management alone may be insufficient. This is exacerbated by the fact that neither aquifer/groundwater boundaries (and subsurface hydrological gradients) nor ecological boundaries (e.g., biomes) coincide neatly with watersheds (Cohen 2012; Warner et al. 2008). The most important (and controversial) insight from the debate over water governance reforms, in short, may be the claim that a watershed-focused approach is insufficient for adequately addressing the water security challenge: balancing human and environmental water needs in order to safeguard essential ecosystem services and biodiversity across the global water system.

(p. 421) Recognizing these challenges, some scholars have recently begun promoting the concept of polycentrism in water governance, in which a broader range of nongovernmental actors and stakeholders play a role in decision-making. A key justification for polycentric governance is the argument that social learning is enabled and improved through the involvement of a greater diversity of actors in on-the-ground management and decision-making processes. This justification underpins, for example, calls for public participation in water governance, a trend that is increasing due to multiple factors, including awareness of the expertise available outside of government agencies, new approaches to citizen participation in environmental management more generally, and socioeconomic restructuring in the context of neoliberalism. From this perspective, water management processes that incorporate polycentric governance and social learning strategies—in turn facilitating the adaptation of management practices in response to changing socio-environmental conditions—are considered to be desirable.

Polycentrism implies the involvement of multiple actors at multiple scales; hence, in many instances calls for market environmentalism are allied with the promotion of multi-level (or multi-scalar) governance. Multi-stakeholder watershed management platforms) have been initiated in many jurisdictions for a variety of reasons, including increased emphasis on watershed-based and integrated management of environmental issues, awareness of the multi-level causes and impacts of water-related threats (particularly, although not uniquely, with regard to the water–energy–food nexus), and concern over the implications of climate change for water resources—the study and mitigation of which is necessarily multi-scalar. Debates over delegation to nonstate actors and rescaling (including devolution from higher to lower scales of governance) are thus characteristic of the broader context in which the market environmentalism is promoted.

To some extent, these trends are congruent with neoliberalism, insofar as emphasis is placed, for example, on: the promotion of community and private (versus state) actors; subsidiarity (devolution to local actors); and a preference for “light touch” regulation. It is important to note, however, that devolution and delegation of water management are not necessarily the result of neoliberal agendas; the broader context in which these reforms take place may, in fact, run counter to neoliberalization. Regardless, the trend of rescaling water governance is widespread and likely to continue, raising questions—regardless of political ideologies—of efficiency, efficacy, and equity when water management functions are delegated to local communities.

Conclusion

This review of the changing terrain of market environmentalism in the water sector has emphasized four points. First, market environmentalism entails a broad range of processes and is not synonymous with (or limited to) privatization. Rather, market environmentalism is a complex set of interrelated processes, which (in addition to privatization) may include commercialization, environmental valuation and pricing, the (p. 422) marketization of trading and exchange mechanisms, and the (neo)liberalization of governance.

Second, market environmentalism is relatively recent and is by no means hegemonic; in many countries, it has only partially displaced a “state hydraulic” paradigm of water management. Indeed, many aspects of the socio-hydrological cycle are still owned, managed, and regulated by governments. Debates over the “business of water” should bear this in mind—and avoid over-exaggerating the degree to which private, nongovernmental activity has displaced traditional statement involvement. Moreover, “market environmentalism” is in competition with other emergent visions for how to organize water governance and management; it is by no means dominant, even in countries (such as Chile and England) that have experimented extensively with market-based approaches to water management.

Third, market environmentalism is difficult to implement in practice, with tensions arising in attempts to privatize, commercialize, value, marketize, and liberalize water governance. This review has discussed some of these tensions; for example, the tension between the desire for less government control and drivers for greater governmental control (to some extent spurred by water security-related fears). Some of these tensions arise from contradictions, which are difficult to resolve in practice; notably the contradiction between monetary and non-monetary values of water, and the tension between framing water as an economic good versus incorporating non-economic uses. Moreover, the application of these different dimensions of market environmentalism is, at times, internally contradictory; for example, privatization usually requires heightened regulatory oversight, whereas the neoliberalization of environmental governance usually implies the contrary. These tensions and contradictions, which have acted as a brake on market environmentalism, are inherent to water management and unlikely to ever be effectively resolved. The question is whether—through institutional innovation, governance reforms, and political mediation—these tensions will be well or poorly handled.

What does the future hold? It seems likely that market environmentalism will have not become the globally hegemonic phenomenon predicted by some in the 1990s. Significant protest has arisen in many places; coordinated campaigns have been launched at a global scale (particularly regarding the human right to water). And the benefits of market environmentalism have, in many instances, been demonstrated to be relatively limited. This does not, as this review has emphasized, imply that water will return to public ownership and management. In specific instances, market environmentalist approaches will continue to be applied and perceived to succeed, at least to the extent that these approaches address the defaults of conventional state governance. In many instances, however, market failure will compound state failure; as a result, the search for new models for water governance will continue. The delicate balance of roles between public sector, private companies, and communities will continue to be renegotiated; ideally, one hopes, with less ideological extremism than observed in the privatization debate of the 1990s, and with greater emphasis on the key imperatives at (p. 423) stake: ensuring distributional justice, equity, and socio-ecological resilience for water resources at multiple scales and for present and future generations.

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                                                                                                                                                                                                                                                                    Notes:

                                                                                                                                                                                                                                                                    (1.) Synonyms include “free market environmentalism,” “liberal environmentalism,” and “green neoliberalism.”

                                                                                                                                                                                                                                                                    (2.) Of course, Jamie Linton rightly points out that the concept of a “global” water crisis is an abstraction, given the fact that water availability is highly temporally and spatially varied. Rather than a singular global water crisis, Linton argues that we should speak of a set of interrelated water crises at multiple scales (Linton 2010).

                                                                                                                                                                                                                                                                    (3.) Water supply itself is technically not a “public good,” because it is rivalrous; one person’s consumption may diminish another person’s ability to consume.

                                                                                                                                                                                                                                                                    (4.) Directive 2000/60/EC of the European Parliament and of the Council of 23 October 2000 Establishing a Framework for Community Action in the Field of Water Policy. OJ L327, 22 December, p. 1.

                                                                                                                                                                                                                                                                    (5.) UNGA Resolution 64/292: “The Human Right to Water and Sanitation.” A/RES/64/292; 64th session.