Workshop on Wealth Accounting January 14, 2009 Presenter: Erik Thomsen

1. Workshop on Wealth Accounting January 14, 2009 Presenter: Erik Thomsen Wealth Accounting for Water

2. Agenda • Introduction • New appreciation of water’s inherent value • Common assumptions for water valuation • Relevant assumptions for Abu Dhabi • Some water value questions • WA approaches for evaluating water’s contribution to Abu Dhabi’s wealth • Examples of water valuation elsewhere • Specific issues related to water valuation in Abu Dhabi • How better valuation helps AD management with investment/policy planning

3. Evolving appreciation of water • Many interested organizations • SEEA, SEEAW , UNESCO, FAO • European water framework directive • WISE • Arab Water Council • Arab Water Academy • Increased recognition of water services provided • Formal and informal • Defined in terms of quantities and qualities • Increased recognition of inherent value • Parity of treatment of subsoil assets

4. Toward integrated models & analysis Economic valuation of water resources in agriculture; FAO; Turner et al; 2004; page 27.

5. Call to action • Policy makers taking decisions on water need to be aware of the likely consequences for the economy. • Those determining the development of industries making extensive use of water resources either as inputs in the production process or sinks for the discharge of wastewater need to be aware of the long-term consequences on water resources and the environment at large.SEEAW

6. Common assumptions • Majority of water is surface water • Sustainable water consumption needs to remain below the natural recharge rate • Fresh water is not substitutable • River basins define accounting catchments • Major concerns • Impairment of surface water • Associated opportunity costs (lost recreation, drinking)

7. Relevant context for AD • Constant water stress • Water abstraction > natural recharge rate • Water abstraction (Quantities and Qualities) • Insignificant inland surface water • Heavy reliance on abstracted ground water • Significant percentage of abstracted water is brackish • Significant amount of abstracted water used in-situ • Aquifer (and well?) may be an appropriate unit of accounting • Growing reliance on desalinated abstracted sea water • Especially for human use • Virtual water trade • Imports (e.g. food, beverages) • Exports (e.g. dates)

8. Relevant context for AD • Water flow valuation • Significantly different supply costs • Groundwater abstraction • Desalination • Wastewater treatment • Water stock valuation • Role of seawater • Potential substitutability between water sources • And how this might change • Need to understand water value transfers between sectors

9. Sample water value questions • Macro scale questions • What combination of population and economic activity can the country’s natural water recharge support? • At current consumption how many years till fresh ground water is unabstractable? • What are the practical limits to scaling up desalination? • Which industries produce the greatest value add per unit of water? • What is the financial value of the subsidies being provided from the water sector to each other sector?

10. Sample water value questions • Micro scale questions • Which coastal habitats are most threatened by detrimental production from desalination plants • What is the value at risk? • Which specific wells are closest to running dry? • Which oases are in danger of disappearing? • Which aquifers are at risk of or are being polluted • By waste liquids from oil and gas production? • By abstractions elsewhere

11. WA approaches for evaluating water’s contribution to Abu Dhabi’s wealth • Examples of water valuation elsewhere • Specific issues related to water valuation in Abu Dhabi • How better valuation helps AD management with investment/policy planning

12. Table 2 Table 3 General water flow scheme (JQ Inland Waters)

13. Economic value of water STATE OF THE WORLD 2 0 0 8: Innovations for a Sustainable Economy; Worldwatch Institute; page 114

14. Report of the Ministerial Committee Examining the Export of Bulk Water; GOVERNMENT OFNEWFOUNDLAND AND LABRADOR; October 2001

15. Valuing US water use Economic valuation of water resources in agriculture; FAO; Turner et al; 2004; page 92.

16. Valuing water: US example

17. Specific issues related to water valuation in Abu Dhabi Source-specific valuations Domestic flows Trade Stocks Substitutability of water Lowering the cost and Increasing the potential Inherent water value

18. Domestic flow valuation • + Abstracted ground water • + Desalinated (abstracted sea water) • + Reused • + Rain • - Ground leakages • - Evaporation • - Transpiration

19. Abstracted • Sources • Government wells • Supported private wells • Unsupported private wells • Quantity and Quality estimations • Stratified sampling? • Inferencing? • Agg by aquifer?/water type? • Valuations • + Production cost • + Detrimental production • + Inherent value =replacement cost =desalination + transport + recharge

20. Desalinated • Sources • Individual desalination plants • Quantity and Quality estimations • Monitor • Agg by region and technology type • Valuations • Full cost accounting incl detrimental production • E.g. brine processing, impact on gulf… • Beneficial production – new tech

21. Reused water • Source • Water treatment facility • Quantity and Quality estimations • Monitor • Agg by region, facility type • Valuations • Full cost accounting • Detrimental and beneficial production

22. Rain water • Source • Obvious • Quantity and Quality estimations • Monitor individual drops • Valuations • Entertainment value

23. Returned within AD • Sources • Water distribution • Surface reservoirs • Irrigation • Vegetation • Quantity estimation • Sampled leakages in water distribution • Sampled evaporation from surface reservoirs • Sampled evaporation from irrigation (by type) • Sampled transpiration from vegetation (by type) • Aggregate by region, distribution system, irrigation type, vegetation type and reservoirs • Valuation • Marginal cost of replacement

24. Inter-sectoral transfers of water value • Water consumption can be inferred at a sector level but.. • Water value best calculated at the margin: water site and enterprise level • Policies need to reflect water’s heterogeneous commodity status

25. Use-based valuations • Revealed preferences • Willingness to pay • Residual value • Production function • Hedonic pricing • Use valuations may not equal production valuations • How big is the gap? • Who gets the surplus? • WA valuation should be no lower than the full cost of production

26. Valuation of trade flows in virtual water • Sources • Sampled trade data • Import (beverages…) • Export (dates) • Quantity • Inferencing • Impute virtual water quantities • Agg by Product category • Valuations • Use nearest substitute sector(s) cost per unit of product as basis

27. Stock valuations • Groundwater valuations • Quantity and quality estimations • Price at artificial recharge rate (desalination cost, detrimental production, transportation, recharge) • Sea valuations • Quantity and quality estimations • More quality than quantity concerns {salinity, temperature} • Inherent price for quality? • Artificial storage valuations • Dams • Strategic reserves

28. Sources Uses Fresh groundwater Agriculture Brackish groundwater Forestry Tourism Desalinated water manufacturing Treated wastewater Residential Brackish groundwater Sources Uses Agriculture Desalinated water Human uses Treated waste water manufacturing Fresh groundwater Residential Marginal substitution No substitution Yes substitution

29. How better valuation helps management investment/policy implications • Supply management • Boosting the aquifer recharge rate • Harvesting future rainfall? • Demand management • Impacting consumer preferences • Suggesting appropriate price signals • Efficiency management • Irrigation and distribution technology choices

30. شكراً Thank you

31. Value of water stocks