Use of Economic Instruments in Water Policy

This first chapter sets the scene for the work presented in this book. Based on a review of the literature, the chapter introduces a definition of economic policy instruments (EPIs) and a classification of broad categories of EPIs relevant for water policy that will be used to present the following parts of the book (prices, trading and other instruments) and following chapters/case studies under each part. A literature review is presented to justify the relevance on the selection of the three broad categories of instruments selected. Further, this chapter introduces the state of the art in the application of water EPIs and their ex-post evaluation, which is followed by the presentation of the criteria that is used for the evaluation of economic policy instruments that has been applied to all the case studies in the book. In this context, criteria are grouped into three outcome criteria and three process criteria. Outcome-oriented criteria describe how the EPIs perform. They include intended and unintended economic and environmental outcomes and the distribution of benefits and costs among the affected parties. These steps consider the application of cost effectiveness and cost benefits analysis for example to assess ex-post performance of the EPI. Process criteria describe the institutional conditions (legislative, political, cultural, etc.) affecting the formation and operation of the studied EPI (particularly relevant if we are assessing the possible impacts from the use of economic instruments), the transaction costs from implementing and enforcing the instruments and the process of implementation.

Water pricing embraces a range of distinct policy instruments that affect the scale and/or the pattern of production and resource-exploitation costs. Ideally, water prices should reflect financial costs of service delivering water infrastructure, environmental costs arising from harm induced to ecosystems and ecosystem services, and resource costs attendant to social welfare losses from not using the water for the most socially beneficial purpose. What is straightforward and unchallenged in economic theory may not translate into clear and uncontested principles to be followed in practice. The information asymmetries, pre-existing water permits or entitlements adhering to different legal doctrines, and hostile reception of water policy reform may antagonise introduction of pricing policy instruments. This chapter provides an overview of the empirical studies from different European countries, supplemented by studies from California and Israel, comprised in the first book section. Although the collection is not meant to be exhaustive or thorough, it offers insightful overview of design principles and choices made to put in place a variety of instruments designed to cope with water pollution, water stress, and hydrological and morphological modifications of water bodies. The majority of the chapters in this section addresses residential and industrial water supply provision and wastewater discharge. The remaining chapters examine the application of EPIs in agriculture, for cost recovery of irrigation services and pollution control; and in hydroelectricity generation, for curbing the environmental impact of water impoundments. The common structure of all showcased studies is a result of meticulous efforts to highlight the scope of the analysed instruments, the embedding legislative and regulatory environment, and the evidence collected so as to substantiate the performance assessment.

The exceptionally high growth in pollution-intensive sectors (such as energy, chemicals, and construction) in the post-war period in Germany caused serious environmental problems as the construction of wastewater treatment facilities did not keep pace and posed a serious threat to future water supply. This chapter analyses the policy mix of economic and regulatory instruments, which was introduced in the Federal Republic of Germany to address this threat. The policy mix consists of discharge permits (Federal Water Act, 1957), discharge limits and technical standards (Waste Water Ordinance, 1997) and the effluent tax (Effluent Tax Act, 1976). The effluent charge, the focus of the chapter, was introduced in 1976 as a reaction to the insufficient implementation of direct regulation (Federal Water Act, Waste Water Ordinance) of effluent discharges by the water management administrations of the Federal States of Germany and the resultant non-compliance with prescribed discharge standards in the private and municipal sectors.

While the policy mix and the environment in which it acts makes it difficult to single out the impact of the effluent tax, it was found that the overall quantity and harmfulness of discharged effluents was decreased substantially since the introduction of the policy mix. Wastewater plants were upgraded to state of the art technologies, with 92.6 % of effluents receiving tertiary treatment today. As a result, the quality of water bodies increased substantially, with 85 % of all surface water bodies achieving a water quality II chemical status.

In this chapter it is illustrated that a policy mix consisting of regulatory and economic instruments can be very powerful in implementing and enforcing policies to address direct effluent emissions. However, it also shows the importance of setting the right incentive structure and discusses the factors preventing this from happening in the case of the German effluent tax. Further, enabling and disabling factor related to the implementation of the EPI are discussed, as well as the EPI’s economic, social and distributional effects on the German society. Germany’s role as pioneer in the field of environmental taxation as well as the implications of extending the policy mix to the former German Democratic Republic after Germany’s reunification in 1990 provide additional interesting angles of analysis.

The chapter reviews the operation of and experience with the Water load fee (WLF) introduced in Hungary in 2004. The WLF is an effluent charge imposed on industrial facilities and wastewater utilities that discharge their effluents directly into surface water. This instrument supplements a command and control regulation that sets pollution limits and imposes fines in case of non-compliance. The chapter inspects the interaction of the two instruments, while also assessing their institutional background. The latter is important in understanding how the evolving institutional structure within a transition economy puts limits to developing efficient EPIs, while the conflicting goals and priorities of the stakeholders can further distort the design and operation of the instrument. The allowance provision of the WLF offers an example of a ripple effect generating inefficient allocation of investment resources in the adjoining market of laboratory services. The case provides an example for the different roles an EPI can play in environmental policy as a regulatory instrument to influence behaviour or an instrument to raise revenue for further defined goals based on environmental principles.

This chapter analyzes the policy mix of economic and regulatory instruments introduced in the German state of Baden-Württemberg in order to address two key water management problems: excessive nitrate concentrations in groundwater and unsustainable water abstraction. Three different policy instruments have been applied: the Regulation on Protected Areas and Compensatory Payments (SchALVO) introduced in 1988 (a regulatory and economic instrument), water abstraction charges, and Market Relief and Cultural Landscape Compensation for farmers (MEKA), a voluntary instrument introduced in 1992.

The analysis of the policy mix shows the MEKA and SchALVO measures have been considerably successful in reducing groundwater nitrate concentrations. However, their success may have been higher if monitoring activities had been expanded and enforcement measures had been imposed. Water abstraction charges allow for the internalization of environmental and resource costs, but the compensation payments from the MEKA and SchALVO programs arguably contradict the “polluter pays principle”, going against Article 9 of the Water Framework Directive.

Positive outcomes include the fact that transaction costs can be reduced by introducing joint applications for compensatory measures (e.g., for MEKA and SchALVO) and by harmonizing administrative procedures to already existing economic or regulatory instruments (e.g., the water abstraction charge was linked to existing procedures of the effluent tax).

This chapter analyses the Danish pesticide tax (1996–2013) on agriculture which was introduced as an ad valorem tax in 1996, doubled in 1998, and redesigned in 2013 as a tax based on the toxicity of the pesticides. The Danish pesticide taxes probably represent the world’s highest pesticide taxes on agriculture, which makes it interesting to analyse how effective they have been. The analysis demonstrates the challenges of choosing an optimal tax design in a complex political setting where, additionally, individuals in the target group have different rationales when making decisions on pesticide use. It also demonstrates that a small first, green tax step over time might develop into a better tax design.

This study investigates four subsidies for drinking water conservation initiated in Cyprus in 1997, namely: the construction of domestic boreholes for garden irrigation, the connection of a borehole to toilet cisterns for flushing, the installation of domestic grey-water recycling systems, and hot water recirculators. The policy objective on launching these incentives, presented here as an Economic Policy Instrument (EPI), was to reduce drinking water demand in households, partly supplied by desalination, especially during drought periods. Thus, the focus of reducing drinking water consumption was not directly linked to an overall reduction of the domestic water consumption. From 1997 to 2010 a total of 13,172 subsidies have been granted, amounting to EUR 5.5 million, resulting in a cumulative saving of 12.42 mio m³ of water. The overall performance of this EPI is subject to uncertainty, while its overall usefulness as an EPI is questionable due to externalities, mainly related with its impact on the overall domestic water consumption and the exploitation of regional groundwater resources.

This chapter analyses the residential water pricing system in Italy and reviews the empirical outcomes of water tariffs in the Po-River Basin District (P-RBD), and especially in the Emilia Romagna administrative region (RER). The tariff system is imbedded in a composite regulatory framework governing the water supply and sanitation (WSS) services that was instituted in the 1990s. The scope of the review embraces both the outcomes of the WSS reform and the accomplishments of the per-capita and social water tariff variant introduced in RER, along with the service performance criteria meant to encourage better service provision and conservation of water resources. Starting from 2011 the regulation of the water tariffs has been progressively reorganized. As the reorganisation is not yet fully realised, and our analysis concentrates on the ex-post review and assessment, we concentrate on the water tariff system in place until 2012.

The chapter presents changes in the irrigation tariff system of the irrigation district Tarabina, in the Emilia Romagna Region, Italy. In order to improve the management of the irrigation water resources (distribution of water and related costs), in 2006 the users voluntarily replaced the area-based payment (a financial instrument) with a volumetric tariff (EPI) and introduced a set of formal rules. In the following years, a reduction in water use at district level has been observed. Such an outcome has aroused a particular interest in studying the contribution of the volumetric tariff, intended as an EPI, on the reduction of water use. The capability of such an EPI in reducing the amount of water used in agriculture would strengthen the policy intentions of the EU of implementing measures that induce a more efficient use of water resources. Based on a counterfactual analysis, it has been found that the introduction of the volumetric tariff induced a reduction, on average, of about 50 % of the water used for irrigation along with a reduction of about 70 % of the costs for the non-irrigators. Such findings suggest that EPIs, associated to other instruments, such as site-specific regulations, might improve their effectiveness and pursue multiple policy goals.

As in many European countries, all water sources in Israel are public property, and are centrally managed by the government. This is to facilitate correction of market failures associated with externalities, natural monopolies and equity considerations. The economic policy instrument (EPI) considered here comprises two aspects of the centralized approach: (1) an institutional reform: local services that were formerly provided by municipal water departments became the responsibility of corporations; (2) a price-scheme reform: urban water prices are set by the regulator subject to the constraint of overall cost-recovery at the national and municipal levels, combined with an egalitarian policy; the latter is realized in identical municipal end-users tariffs. We evaluate the environmental, economic and institutional aspects of these reforms, and point out two main conclusions. First, with respect to EPI implementation from the regulator perspective, the lesson learned can be summarized by the phrase “grasp all, lose all.” EPI reformation, in this case the establishment of regional corporations, should take account of unattainable objectives: “sanitizing” the political factors from involvement. The second lesson is associated with the challenge of designing a pricing mechanism that simultaneously achieves several potentially contradicting targets: costs recovery, creation of incentives for efficiency, and equality. Also here the mechanism was distorted by political pressures. According to the social norms as they are reflected by the resultant policy, equality overwhelms efficiency.

Being a semi-arid state, California faces frequent and prolonged droughts. In a typical policy intervention to deal with less water, state agencies and water utilities responded (in the urban sector) by either cutting water allocations to users or by dramatically increasing water tariffs, or both. Drought returned to California in 2007, and lasted, with various levels of severity until 2014. Starting 2008, with the slowdown in economic activity in the state, water rates that were adjusted, led to reduction in water consumption and decline in revenues of water utilities; customers that saved water have faced increased rates again and again, much to their dissatisfaction. The Water Budget Rate Structure (WBRS) (called also by some analysts sustainable rate design, since it seeks to stabilize revenues and drive conservation at the same time) has emerged as a practice that allows water utilities obtain a high level of conservation without jeopardizing the financial and political stability of the water utility. This chapter reviews the legal, economic and political aspects of the design and implementation of the WBRS in southern California in three water utilities, starting in 1990 until a recent implementation by the Western Municipal Water District. The chapter draws lessons and suggestions regarding the possible implementation of the WBRS by other utilities.

In the economies striving for low-carbon footprint hydropower plays an important role, as one of few sources of renewable energy for which the technology is available, affordable, and reliable. Hydropower is an important source in the mix of renewable energy sources (RES) on the pathway to meet the ambitious targets set in the EU Directive 2009/28/EC and the Europe 2020 strategy. However, hydropower development may impair the integrity of water courses and river health, in contrast to the objectives of the Water Framework Directive (2000/60/EC). In this chapter we review a mix of economic policy instruments, designed separately and at least partly for different purposes, but all acting together in a way hydropower potential was exploited in Italy. Feed-in tariffs (FIT) and especially tradable green energy certificates (GEC) had been introduced to build supply-side competition among the RES and to curtail the costs of renewables. The actionable concession award or operating large hydropower plants are an opportunity to coerce environmental improvement. Yet these opportunities have not been used so far.

Whereas hydromorphological alterations represent one of the major ecological challenges for European river systems, very few economic instruments exist to mitigate their impacts. The German Renewable Energy Sources Act has established an innovative instrument for the hydropower sector. By guaranteeing higher remuneration for electricity produced by hydropower installations that comply with selected ecological requirements, it provides incentives for improving the morphological situation next to the plants.

The present case study describes the most important aspects of this economic policy instrument (EPI) and provides a critical evaluation, taking in particular environmental outcomes, economic effects and institutional aspects into account. It aims at being a useful source of information on this EPI which is so far not much discussed at international level but which constitutes nevertheless a very interesting example of how the promotion of renewable energy sources can be reconciled with nature conservation objectives as well as the requirements of the EU Water Framework Directive.

Rather than setting water prices and leaving quantities to economic agents, water authorities may rather choose to cap water quantity and set the necessary conditions for voluntary trades to happen. From a wider perspective of water use (one not only constrained to water withdrawal and consumption but also to the disposal of polluting substances), water rights or entitlements could also be defined as pollution credits and be traded in water quality trading (WQT) schemes. This chapter presents a wide array of experiences both on water quantity and water quality trading. A successful experience on nutrient credit trading in the Great Miami River (Ohio, USA) is presented along with a non-fully successful one in North Carolina, from which insightful lessons can be drawn in terms of optimising the incentive design. Furthermore, a salinity offsetting scheme in Australia is also analysed. In terms of water quantity trading, incipient experiences in central Spain (Tagus river basin district) are analysed together with mature and dynamic experiences of deep markets in Chile, the Murray-Darling Basin (Australia) and Colorado (USA).

The economic policy instrument (EPI) discussed in this case study involves nutrient credit trading between point source wastewater treatment plants (WWTPs) and non-point (diffuse) sources (agriculture) in the Great Miami River Watershed of Ohio (USA). Commonly referred to as water quality trading (WQT) in the USA, this EPI is a market-based approach to pollution control in which pollutant reductions are treated as commodities. This case study describes how a watershed-based flood control agency in southwest Ohio developed and managed a WQT program to provide a cost-effective alternative for WWTP compliance. WWTPs will soon face more stringent effluent limits as a result of impending numeric nutrient standards being assigned to rivers and streams receiving treated wastewater. Lessons learned from this case study have substantial merit as an EPI because this program provides an economic framework for applying and using WQT in a regulatory setting. This program is one of the largest and most successful WQT programs of its kind in the USA, negotiating nutrient credit trades between five point source buyers and hundreds of non-point source sellers. Of note is the use of a reverse auction for securing lowest-cost credit contracts for point source buyers.

This EPI case study analyzes Nitrogen trading in North Carolina’s Neuse River. Under the United States’ Clean Water Act, the Neuse River is a section 303(d) impaired water. Typical 303(d) regulation is command-and-control: wastewater treatment plants that emit Nitrogen are required to meet their own emission limits. In the EPI, however, a cap-and-trade program was put in place under which plants are given a permit to emit Nitrogen, and this permit may be sold or temporarily leased to another plant. The EPI met the environmental goal in that emissions were significantly reduced below baseline levels. But the EPI did not meet the economics goal of reducing emissions in the least cost way, because few permits were traded. The design could be improved by restricting trading to occur within zones, rather than having only one single zone. The practice could be improved by encouraging plants to make trades. This case study informs the regulation of water quality in the USA under the Clean Water Act. Moving from the traditional regulation of these point sources to a properly designed EPI with active trading could potentially generate hundreds of millions of dollars in benefits to society.

This chapter provides an ex-post policy evaluation of three offsetting programs designed to mitigate irrigation induced salinity in Australia. Environmental effects from salinity are substantial in Australia, with the estimated cost of environmental degradation due to salinity of some A$300 million per year. Offsetting, as an economic policy instrument, is cost-effective in comparison to the conventional regulatory approaches (e.g. engineering approaches or mandate based policies) as it allows environmental improvement to be achieved at reduced cost. Salinity offsets are designed to compensate for salinity impacts from a given agricultural activity by providing a commensurate reduction of salinity impact elsewhere. Policy evaluation of salinity offsetting programs was approached by collecting, collating and processing data pertinent to three Australian case studies. A key finding is that salinity offsets in Australia have been reasonably successful since their implementation. While it was not possible to precisely discern the environmental effectiveness of the offsetting programs, there is clear evidence that the salinity problem has subsided in Australia in the time since the introduction of the offsets, and that they can be at least partly credited for this outcome. At the same time, robust findings about the economic effectiveness of salinity offsetting programs emerged from the study.

Population and economic growth, coupled with rapid and extensive urban development, pushed to the limit the capacity of the upper and middle stretches of the Tagus River Basin to meet an increasing water demand, within the range of available resources and current water regulation infrastructures. In this context, voluntary agreements to transfer water use rights from agriculture to urban uses gained social support and political acceptance as an alternative to cope with the recurrent water supply deficit during dry periods. This was mainly because of their lower cost as compared to the best available alternatives already in place (efficiency improvements, use of strategic reserves, additional water works). Since the early 1990s pioneer voluntary agreements to formally transfer water between water utilities and irrigation districts sprung up for the first time in Spain. This chapter assesses two trades in the Madrid Region (including the capital city, Madrid’s metropolitan area and other towns). These trades can be arguably considered as ‘embryonic’ examples of formal water use right trades in Spain.

Chile is illustrative of a transition from command and control to market based water management policy, where economic policy incentives (EPI) play a significant role in water rights allocations. The enabling factor that allowed for the implementation of water rights markets in Chile was Chile’s tradition and culture, dating back to colonial times, of managing water resources with water rights. The Chilean Water Code of 1981 established that water rights are transferable in order to facilitate markets as an allocation mechanism. The framers of the 1981 Water Code sought to achieve efficient water allocations with this EPI. The existence of water markets has been documented. A key conclusion of these studies is that water markets are more prevalent in areas of water scarcity. They are driven by demand from relatively high-valued water uses and facilitated by low transactions costs in those valleys where Water User Associations and infrastructure present assist the transfer of water. In the absence of these conditions trading has been rare and water markets have not become institutionalized. A major challenge of water rights markets in Chile is how to ensure optimal water use without compromising the sustainability of rivers and aquifers. The implementation of this EPI did not establish new institutions; however, it significantly modified their existing powers. Nevertheless, in order for it to deliver its full potential as an efficient allocation mechanism, Chile requires an institutional reform in order to respond to the country’s actual water challenges.

Australia has defined its water entitlement and allocation arrangements in a manner that has made it possible to establish one of the world’s most sophisticated water marketing systems. Entitlements are defined in perpetuity as an entitlement to a proportion of any allocations assigned to a water resource pool. Entitlements and allocations are tradable and in the Southern Connected River Murray system a vibrant water market has emerged. The functioning of this market is reviewed in this chapter. Overall the assessment from an individual water use perspective is that the introduction of this EPI has succeeded. From a national perspective, most experts also describe it as a success. As a Nation however, Australia would have been better off if it had solved the water accounting and over-allocation problems before it introduced water trading. An important conclusion is that unbundling has made it easier to resolve issues step by step. It also makes it much easier for individuals to adjust and innovate. New business and new technology must be expected to emerge with each reform that is made. The chapter concludes by highlighting relevant policy lessons for the practical application of water markets.

An efficient water market has been established in a large water district in northern Colorado, USA. This is the most active water market in the USA in terms of number of transactions per year. The typical trade is from agriculture where marginal net values lie in the range of US$20– US$50 per acre-foot to towns where willingness-to-pay is closer to US$500 per acre-foot. The water being traded is imported from another basin, a feature that, under western US water law, allows the importer to consume the water completely without concern for downstream impacts. The ownership instruments are homogeneous shares that allow the owner to share proportionally in water available to the District. Transfers of the shares must be within the District and require approval only by the District Board (as opposed to typical State level administration of transfers). These two features result in low transaction costs that stimulate frequent small trades. Since irrigated agriculture consumes 85 % of Colorado’s total supply, typical transactions involve permanent share transfers from agricultural uses to industrial and urban uses but temporary leases for 1 year are frequent, especially among agricultural users. Environmental groups and some towns have increasingly contributed or loaned their shares to instream flow and riparian ecosystem maintenance. Prices of these shares have risen rapidly with high population and commercial growth of the region.

Over the last decades, Cooperative Agreements (CAs) (voluntary, payments for ecosystem services (PES) schemes etc.) have been introduced as supplements to existing command and control regulations, i.e. as part of policy mix, for promoting higher water and environmental efficiency levels than mandated by law. This chapter illustrates the effectiveness and efficiency of CAs among farmers, water companies, authorities and citizens to achieve water policy goals in Europe and beyond. These include voluntary agreements and PES schemes to improve water quality in Dorset (UK), in Evian (France) and in New York (USA) and river restoration in Ebro (Spain). A negotiation agreement to cope with increasing water scarcity by promoting the use of reclaimed water in Tordera and Llobregat (Spain) is also analysed. The economic, environmental and social outcomes from the implementation of these CAs along with their institutional set-up, transactions costs and policy implementability are highlighted. Overall conclusions from the findings of the representative case study areas are finally presented.

This case study, located in the English County of Dorset, is a classic example of a water company (Wessex Water in England) facing increasing nitrate groundwater contamination. The pollution is mainly the result of farming activities. Potential “cheap” solutions such as blending the water from different sources are increasingly difficult to undertake due to the extent and increase in contamination. As a result the water company has two options: the treatment option or a catchment management approach. In this case to avoid the high operational and maintenance and construction costs of the treatment option Wessex Water has approached the farmers in order to cooperate to improve the water quality by promoting better practices. The cooperation started in 2005 involves information and education support but also phased incentive payments. This chapter illustrates the effectiveness and the continuity of such cooperation and the findings are expected to be of great interest to highlight the pro and con of a cooperative agreement as experienced in England to improve the water quality.

The Evian bottled Natural Mineral Water Company in France initiated in the late 1980s a promising multisectorial water protection policy aiming at maintaining the Evian Natural Mineral Water (NMW) quality by promoting a sustainable development of its catchment area. The assessment illustrated in this chapter focuses on the payment for ecosystem services (PES) scheme developed by the association for the protection of the catchment area of Evian mineral water (APIEME) with local farmers. It demonstrates how the Evian Company can maintain a land use and traditional agricultural practices on the catchment area presumed to preserve the quality of the Evian Natural Mineral Water, without buying any land around the catchment area, by financing agricultural related projects. It also demonstrates that the financial dimension of PES schemes may not be the most important one to explain their success. Defining precisely what is the issue, gathering all stakeholders, sharing knowledge and building trust are all important components of a successful PES, even if they are creating a system defined by high transaction costs. Lessons learned from the Evian case study should help designing and implementing PES schemes in Europe and contribute to the development of preventive policies.

For over a century, New York City’s unfiltered drinking water was characterized as the “champagne of tap water.” In the 1980s, the quality of New York City’s water was declining and the Environmental Protection Agency considered mandating filtration. The city looked for a way around this expense and began watershed management as an alternative. This chapter explores one component of the city’s management approach, the Watershed Agricultural Program. A farmer-run, non-profit institution was established to develop and implement best management practices (BMPs) on farms whose owners voluntarily participate. The city finances the operating costs of the WAC and covers the costs to farmers of adopting BMPs. This case study demonstrates the viability of watershed management to protect source water quality and the potential of voluntary agreements to produce meaningful changes in agricultural practices. It also demonstrates the challenges of a city trying to influence land use outside its jurisdiction, the challenges of avoiding filtration in developed watersheds, and the role of regulations as forcing functions.

The construction of the Mequinenza and Ribarroja dams back in the 1960s modified the hydrology and changed the physical and environmental conditions of the Lower Ebro River in northeastern Spain. These conditions have stirred the uncontrolled proliferation of macrophytes, which have become a relevant concern in the area since 2000. Among other environmental and economic impacts, macrophytes threaten hydroelectric power infrastructures, increasing operating costs and reducing the productivity of power-generating plants. Macrophyte blooms thus became the catalyser for collaboration between the hydropower operator and the Ebro River Basin Authority, within a larger consortium with academic experts on floods and sediment flows, to deliver controlled water floods (flushing flows). The economic instrument assessed in this chapter consists of the voluntary acceptance, based upon public and private incentives, to deliver a set of pulses or artificial floods designed ad hoc for the partial restoration of the river regime in the Lower Ebro. Since 2003 and with the exception of 2004 and 2005 (dry years) and also 2008 and the spring of 2009 (natural floods), flushing flows have been regularly performed twice a year (at the end of spring and autumn) and have resulted in macrophyte removal rates as high as 95 % in areas close to the dam.

The voluntary agreement to promote the use of reclaimed water is an economic policy instrument (EPI) which focuses on improving water management by using reclaimed water. Following a win-win strategy, this EPI was implemented in the Tordera river basin (Spain), an area with endemic water scarcity problems and high competition among users for water resources. The assessment of the EPI suggests that significant positive outcomes have achieved from an environmental and economic point of view. Thus, the demand of freshwater has decreased and the availability of water is guaranteed even during summer period allowing therefore for the maintenance of economic activities (agriculture and golf course) and for reducing overexploitation of aquifers. The social acceptance of the use of reclaimed water and the institutional framework (regulation and previous experiences) were two key factors for the success of this EPI.

This final chapter presents the overall balance of collection of cases presented in the whole book. In line with the structure of the book, rather than assessing the EPIs themselves, this analysis focuses on their potential and actual contribution to the goals of water policy as the main criterion to discuss the screening, design and implementation of the EPIs. Furthermore, the discussion focuses on two critical aspects that may determine EPIs’ success or failure: the first one is the need to deal with the multiple goals that are distinctive of water policy; in the water policy arena any instrument is expected to serve to development, financial, environmental and other social goals at the same time and any instrument must consider the trade-offs implied. The second relates with how the EPIs chosen match within the institutional set up which, at least, is essential to define property rights and to reduce transaction costs, and then to make a given EPIs a viable option to improve water governance. Through the revision of the cases presented in the book this chapter stresses the difficulties as well as the importance of building fact based evidence about the virtues of EPIs. In the absence of that, EPIs selection and design is mostly guided by its presumed rather than its actual contribution to water policy. The chapter also contains a balance of the contribution of EPIs to help improving water quality, reduce scarcity and manage drought risks and to protect and restore river ecosystems and concludes with the main lessons learnt from the wide set of experiences covered all along the book.