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10 May 2013
Kevin Counsell, et. al.
Faced with increased risk of drought, increased climate volatility, and demand pressures due to population growth, the Environment Agency (EA) has been working with other government bodies and regulators to reform the framework in England and Wales for how water is taken from different sources ("water abstraction"). Although the current system allows trading of the right to abstract water, trading is difficult and rarely occurs. The EA has been exploring more market-based approaches to water abstraction management, but some stakeholders (including water users and license holders) have raised concerns about the impacts of possible reforms designed to make trading easier. Concerns expressed by stakeholders include the potential for the water abstraction market to be dominated by large users, and the potential role of non-users (i.e., those that do not abstract themselves) and their effects on users.
Within this context, the EA commissioned NERA to review the experience of transitions to market-based approaches in selected other sectors and countries. The review took the form of case studies, covering a wide range of experiences, such as tradable quotas in fisheries, airport slots trading, emissions trading, trading of gas transport capacity rights, and measures to improve liquidity in markets. NERA’s analysis identifies key factors affecting the success of newly created markets in other sectors. Our review also shows that the concerns expressed by water abstraction stakeholders are not unique, and that mitigating provisions have been used in other sectors to address these. Some lessons for water abstraction include: