Water

Resources
Allocation
POLICY HIGHLIGHTS

Sharing risks and

opportunities
“ Growing pressures are making existing inefficiencies in water
allocation regimes increasingly costly: 19th century allocation
arrangements are poorly equipped to serve a 21st century society and
economy. Although reforming water allocation may appear daunting,
an improved regime can greatly increase the value that individuals and
society obtain from water resources today and in the future.
Angel Gurría, OECD Secretary-General
 POLICY HIGHLIGHTS
Water Resources Allocation:
Sharing risks and opportunities
KEY MESSAGES
• Competition to access water resources is intensifying due to
population growth, economic development, degraded water quality
and climate change. As a result, the issue of how water is allocated
among users is rising on the policy agenda. Growing pressures
on water resources increase the value of allocation regimes that
perform well across a range of conditions (both averages and
extremes) and can adapt to changing conditions at least cost.

• Allocation regimes determine who is able to use water resources,

how, when and where. They are strongly conditioned by historical
preferences and usage patterns, often tracing their roots to
previous decades or even centuries. They show a high degree of
path dependency, which manifests in laws and policies, and even
in the design and operational rules of long-lived infrastructures.
As a result, water use is often locked-in to uses that are no longer
as valuable today as they once were and the risk of shortage falls
disproportionately on certain users. The challenges for allocation
are aggravated by the entrenchment of weak water policies, such
as under-pricing water or unregulated use.

• Well-designed allocation regimes contribute to multiple policy

objectives: economic efficiency, by allocating resources to higher
value uses as well as contributing to innovation and investment
in water use efficiency; environmental performance by securing
adequate flows to support ecosystems services; and equity by
sharing the risks of shortage among water users fairly.

• The recent OECD Survey of Water Resources Allocation, a first

of its kind, reviewed 37 allocation regimes in 27 OECD and key
partner countries. It revealed that most allocation regimes have
elements that can encourage a robust system, but operate with
significant limitations. For example, many regimes suffer from legal
ambiguities and unsustainable abstraction levels. Adequate flows
to support ecosystem functioning are not secured in many basins.
Many countries still apply very low or no charges at all for water
abstraction, even as intensifying competition for the resources has
increased its value.

• Recognising the potential for improving allocation, 75% of

countries covered in the OECD survey have recently reformed
their allocation regimes and 62% have reforms ongoing. Managing
the transition from an existing regime to an improved one is often
very contentious and can be costly, but brings multiple benefits.
Lessons from reforms can help countries navigating this transition.

• A periodic “health check” of current allocation arrangements can

help to identify opportunities for improving performance. The
OECD Health Check for Water Resources Allocation is designed
to review current arrangements and identify areas for potential
improvement.

OECD POLICY HIGHLIGHTS Water Resources Allocation - 1

1 The OECD“Health Check” for
Water Resources Allocation
A periodic “health check” of current
allocation arrangements can help to identify
opportunities for improving performance.
The OECD “Health Check” for Water Resources
Allocation, presented here, can provide
useful guidance for such a review. The OECD
publication, Water Resources Allocation:
Sharing Risks and Opportunities also provides
examples of how various elements have been
designed and implemented in specific contexts.
?
Check 1. Are there accountability mechanisms in
place for the management of water allocation that are
effective at a catchment or basin scale?

Check 2. Is there a clear legal status in place for

all water resources (surface and ground water and
alternative sources of supply)?

Check 3. Is the availability of water resources (surface

water, groundwater and alternative sources of supply)
identified and possible scarcity well-understood?

Check 4. Is there an abstraction limit (“cap”) that

reflects in situ requirements and sustainable use?

Check 5. Is there an effective approach to enable

efficient and fair management of the risk of shortage
that ensures water for essential uses?

Check 6. Are adequate arrangements in place for

dealing with exceptional circumstances (such as
drought or severe pollution events)?

Check 7. Is there a process for dealing with new

entrants and for increasing or varying existing
entitlements?

Check 8. Are there effective mechanisms for

monitoring and enforcement, with clear and legally
robust sanctions?

Check 9. Are water infrastructures in place to store,

treat and deliver water in order to allow for the
allocation regime to function effectively?

Check 10. Is there policy coherence across sectors that

affect water resources allocation?

Check 11. Is there a clear legal definition of water

entitlements?

Check 12. Are appropriate abstraction charges in place

for all users that reflect the impact of the abstraction
on resource availability for other users and the
environment?

Check 13. Are obligations related to return flows and

discharges properly specified and enforced?

Check 14. Does the system allow water users to

reallocate water among themselves to improve the
allocative efficiency of the regime?

2 - OECD POLICY HIGHLIGHTS Water Resources Allocation

?
POLICY HIGHLIGHTS
2 Re-allocating water in a water scarce world

Water resources provide value to individuals, ecosystems, Current and growing pressures on water resources are making
farms, firms, and society in various ways – from the existing inefficiencies in water allocation regimes increasingly
ecological value provided by supporting key species, to costly. Costs of poorly functioning allocation include degraded
the economic value derived from productive uses, to the environmental performance (where adequate flows required to
existence value of iconic lakes or rivers. How much water support ecosystem services are not secured), lost opportunities
is left in water bodies to support ecosystem functioning, for economic development (when water use is locked into
how much is diverted for various uses; who is able to use low value uses) and unbalanced management of the risk
these resources, how, when and where are questions that of shortage (when banning some types of uses in times of
directly affect the value obtained from water resources. shortage places the risk disproportionally on certain groups of
These questions are determined by allocation regimes. low priority users).

The OECD Environmental

Outlook projects that global
water demand will increase by
around 55% between 2000
and 2050.

electricity
Figure 1. Global water demand: Baseline scenario, 2000 and 2050

irrigation domestic livestock manufacturing electricity

6 000
Km3

manufacturing

5 000

4 000
livestock

3 000

2 000
domestic

1 000

0
irrigation
2000 2050 2000 2050 2000 2050 2000 2050
OECD BRIICS RoW World

Note: This graph only measures “blue water” demand and does not consider rainfed agriculture.
Source: OECD (2012), OECD Environmental Outlook to 2050; output from IMAGE.

OECD POLICY HIGHLIGHTS Water Resources Allocation - 3

 Effects of climate change
Climate change can provoke significant shifts in the have important consequences on water available for
timing, location, amount and form of precipitation consumptive use. Reductions in rainfall can produce an
(for instance from snowfall to rain). It also generates even more pronounced reduction in streamflow, which
increased uncertainty about future water availability in turn can have an even greater impact on the amount
and makes historical climate a less reliable guide to of water available for consumptive use. This is because
current and future planning. One of the most common sufficient base flows are still required before water can be
mistakes made when considering how best to manage extracted. So, a relatively small reduction in mean rainfall
water allocation is to assume that the impact of climate can ultimately have a large and disproportionate impact
change on water supply will be gradual. Experience has on the volume of water available for use.
shown that sudden climatic shifts can occur, which can

Figure 2. Effect of reduction of stream inflow on the amount of water available for
consumptive use

Reduction
Reduction
in amount
in amount
available
Consumptive use available
for use

Consumptive use

Environment
Environment

River Flow River Flow

4 - OECD POLICY HIGHLIGHTS Water Resources Allocation

 POLICY HIGHLIGHTS
3
OECD framework for water resources allocation
Water allocation regimes consist of a combination of
policies, laws and mechanisms to manage the risk of
“water entitlements”), rather than outright ownership,
with the exception of groundwater resources in certain
shortage and to help allocate resources among competing countries.
uses. The OECD framework for water resources allocation
details the various elements of an allocation regime and A well-designed allocation regime should have two key
explains how they can help achieve policy objectives. To characteristics: it should be robust by performing well
see how the various elements of an allocation regime fit under both average and extreme conditions and have the
together, the figure below provides an overview of the capacity to adjust to changing conditions at least cost
various elements. over time.

Water is a complex resource, with distinctive features as Nested allocation arrangements can allow for tailoring
an economic good and often with a unique legal status. the design of allocation arrangements to specific settings.
Access to the resource is often subject to usage rights (or

Figure 3. Key elements of a water allocation system

Legal and Institutional context

Identification of the available water resources

Definition of which users

Identification of available (“allocable”) are required to hold an
resource pool entitlement (or not) and
how new entitlements
can be obtained.

Definition of
“exceptional
circumstances”
Abstraction limit (“cap”) and sequence of
priority uses

Definition of in-stream (or in situ) requirements

Monitoring and enforcement

Available (“allocable”) resource pool

Permitted uses not required Uses required to hold an

to hold an entitlement entitlement

Water entitlement
• Legal definition? (individual, collective
entitlement)
• Nature of entitlement (defined as volume,
Abstraction charge proportion, use of water)
• Basis for charge? Reflects scarcity?
• Period valid for, implications of non-use
• Return flow obligation?
• Level of security of supply?
• Possible to trade, transfer, lease?
• Use as a financial instrument?

OECD POLICY HIGHLIGHTS Water Resources Allocation - 5

4 The current allocation
landscape
Despite its importance for water management and for
reaping the benefits of water, a solid evidence base of
how water allocation works across a range of contexts
has been lacking. To fill this gap, the OECD Survey of Water
Resources Allocation documented 37 examples of allocation
regimes from 27 OECD and key partner countries. Some
of the findings are presented here. Further details can
be found in the country profiles associated with this
publication at www.oecd.org/environment/water-resources-
allocation-9789264229631-en.htm.

Table 1. Countries with recent or ongoing

water allocation reforms

The Netherlands

United Kingdom
New Zealand
Luxembourg

South Africa

Switzerland
Costa Rica
Colombia

Denmark
Australia

Slovenia
Portugal
Canada

Mexico
Austria

France
China

Spain
Brazil

Israel
Chile

Peru
Recent • • • • • • • • • • • • • • • • • • • •
reforms
On-going • • • • • • • • • • • • • • • • •
reforms

Note: For Canada: recent reforms were flagged by Manitoba while ongoing reforms were flagged by Alberta, Quebec and the Yukon Territory.

Figure 4. Drivers of recent and ongoing allocation reforms

Other

Environmental improvement or protection

Economic development

Climate change

Concerns about equity in access to water

Concerns about deteriorating water quality

Concerns about water shortages or scarcity

0 5 10 15 20 25 30 35
Number of responses (multiple responses were possible)

6 - OECD POLICY HIGHLIGHTS Water Resources Allocation

 POLICY HIGHLIGHTS
The definition of an explicit and enforceable limit (or “cap”) The “cap” can be used to ensure water for
on abstraction is a key element of a robust allocation regime. environmental needs, so it should be designed to
This “cap” may be defined in absolute, volumetric terms or as a reflect natural flow regime dynamics. The figure below
proportion of available resources. The figure below presents the shows the proportion of examples that indicated that
proportion of examples according to the type of “cap” in place, environmental flows are explicitly defined. A wide range
(if any). of methodologies, from simple rules of thumb to more
sophisticated approaches, was reported.

Figure 5. Proportion of examples according to Figure 6. Proportion of examples that define

type of limit on water abstraction (if any) minimum environmental flows

Limit on both
volume and
No
proportation
24%
14%
No explict
limit 8%
Limit on the
Restriction volume
on who can abstracted
abstract (but 57%
no limit on
how much)
Limit on the
14% Yes
proportion
abstracted 76%
11%

OECD POLICY HIGHLIGHTS Water Resources Allocation - 7

Figure 7. Sequence of priority uses in selected countries

High Priority Low Priority

Australia 2. Environment and Transfer 3. Agriculture, Domestic

1. Critical Human Water Needs
The Murray-Darling to the Sea or Another System and Industrial
Basin

Brazil 1. Human and Animal 2. Highly Efficient 3. Hydropower 4. Others

São Marcos Water Consumption Irrigation Production
River Basin

Canada 1. Human Health 2. Environment 3. Domestic 4. Agriculture 5. Industrial

Manitoba and Safety

Colombia 1. Human Community 2. Individual 3. Farming Community 4.Others ( Hydro power,

Ubaté – Suárez Basin Consumption Domestic Needs Uses (Aquaculture and industry,etc)
(Urban or Rural) Fisheries)
France
1. Domestic + National Security 2. Environment 3. Agriculture, Industrial, Energy
Single Collective
(drinking water, health-related ( balance between ecosystems Production and Transfer to
Management Bodies
issues, civil safety (including and economic uses) the Sea or Another System
for Irrigation (OUGC)
cooling of nuclear power plants))

Israel
Large scale
1. Domestic 2. Agriculture 3. Industrial 4. Environment
desalination and
municipal/ regional
water corporations

Korea 1. Domestic 2. Industrial 3. Agriculture

Surface Water
Systems under the
River Act

Mexico 1. Domestic 2. Agriculture 3. Environment 4. Energy 5. Industrial, 6. Transfer to

Production National the Sea or Other
Security System

The Netherlands
1. Safety and Preventing 2. Utilities 3. Small-Scale, High 4. Other (economic
Polder System (in
Irreversible Damage Quality Use uses and nature)
the western part)

Peru 1. Environment 2. National 3. Domestic 4. Agriculture 5. Energy 6. Industrial +

Parón River’s Security production Transfer to the
Sub-Basin Sea or Other
System

Portugal 1. Domestic 2. Agriculture 3. Industrial 4. Energy

Tejo River Basin Production

1. Urban Supply 2. Irrigation 3. Industrial 4. Other 5. Aquiculture,

Spain (incl. low levels and Uses for Recreational Uses
Industrial
for urban Agricultural Electrical Uses and Navigation and
industries) Uses Energy Aquatic Transport
Production

8 - OECD POLICY HIGHLIGHTS Water Resources Allocation

Table 2. Key findings from the OECD Survey of Water Resources Allocation

Element of the allocation regime Main findings

Clear legal definition of the owner- • The large majority of countries indicate that water resources are pub-
ship of water resources licly owned (or designated as “ownerless property”). Nearly all instanc-
es of privately owned water resources relate to ground water, which is
owned by the owner of the land on which it resides.
• There can be ambiguity between various legal regimes within a given
jurisdiction (e.g. customary rights versus rights designated in different
laws; see for example, Japan or Korea). This legal “pluralism” is a source
of conflict among water users and increases the likelihood of litigation.
Abstraction limit (“cap”) • While a significant majority of allocation regimes (92%) have a clear
definition on the limit on consumptive use, few rely on flexible limits
(defined in terms of the proportion of the resource that can abstracted,
instead of a fixed volume.

Adapting to climate change • Only 57% of allocation regimes report taking into account climate
change, in the definition of the available resource pool.
Mechanisms for monitoring and • Most allocation regimes (except Costa Rica) report that they monitor
enforcement water withdrawals and enforce allocation rules. Industrial users are the
most frequently monitored (91%) with agriculture and domestic users
monitored in 88% of cases.
• 2/3 of regimes report that sanctions are in place for non-compliance
with the rules and regulations of allocation regimes. Monetary fines are
the most common type.

Clear, legal definition of water enti- • Water users’ entitlements are legally defined in all allocation regimes,
tlements with the exception of the Netherlands. The majority (88%) allow for
private entitlements. Regimes that allow entitlements to be granted
to either an individual or a collective organisation (e.g. water users
association, municipality) were more common than those that allow
for only individual entitlements.

Abstraction charges • A majority of regimes charge for water abstraction. Industrial use is the
most common type of use to have an abstraction charge (nearly 70%
of regimes). Volumetric charges are the most common basis for the
charge.

Return flow obligations in water • Around half (52%) of allocation regimes do not specify return flow
entitlements obligations of water entitlements.

Duration of water entitlements with • In most cases, water entitlements are time bound, either with
expectations for renewal or without an expectation of renewal. In a few cases are water
entitlements granted in perpetuity (Australia, Chile, Israel, and Peru),
with or without requirements for beneficial use or continuity of use.
• Slightly more allocation regimes reported using a “use it or lose
it” system for un-used entitlements than regimes reporting that
entitlements remain in place for the period they are issued for, despite
going unused.

Possibility to trade, lease or transfer • 2/3 of allocation regimes allow for some sort of trade, lease or
water entitlements transfer of water entitlements. Specific conditions to trade, lease or
transfer usually apply and often require the review and approval of an
authority.

OECD POLICY HIGHLIGHTS Water Resources Allocation - 9

 Reform of water
In France, areas suffering from a structural water deficit The curr
have been identified. These zones are the target of recent in Engla
reforms to restore sustainable abstractable volumes. was per
France has also recently created Single Collective intende

allocation regimes Management Bodies (Organismes Uniques de Gestion

Collective, OUGC) to provide an institutional arrangement
to allow irrigators to allocate a set volume of water among
Growing
damage
To make
themselves at catchment level. the shor

in selected underst
“The Ca
and pre

countries
impacts

In Alberta, Canada, there were already

conflicts between farmers and
environmentalists over low flows in the rivers
in the 1990s. Concerns about meeting future
water requirements arose with increasing
urban development (notably in the southern
half of the province) and a drought in
2001-02. At the time, there was little
experience of monitoring actual water use
and managing water shortages. The situation Chile faced challenges related to the
prompted a review and adjustment of over-allocation of water resources leaving
allocation arrangements. An evolution of the insufficient water for the environment.
system became inevitable as water demand Recent reforms in 2005 included
exceeded available resources. amendments to the prevailing allocation
regime that sought to address issues
related to social equity and environmental
sustainability that were not reflected in the
Water Code of 1981.

Even when a case for allocation reform

has long been recognised, a drought can
provide the needed trigger to spur action.
For example, in New Mexico, in the United
States, the need for reform had built up over
a period of several decades. The very severe
drought of 2002 was a catalytic event that
finally advanced reform. The entire state
was considered a drought disaster area and
all users suffered from shortage. Further,
the state had difficulty complying with
its obligation to deliver water to Texas, as
agreed under the Pecos River Compact.

Water alloc
political tra
need to tra
been exclu
water) or th
The water
Paper on a
ensuing Na
historical in
of increasin
from indus
need to pr

10 - OECD POLICY HIGHLIGHTS Water Resources Allocation

 rent system for managing water abstraction Even in a water abundant country like the Netherlands,

POLICY HIGHLIGHTS
and was set up in the 1960s when water periodic and localised scarcity can arise, resulting in costly
rceived to be abundant. It was not originally impacts. Managing shortage incidents currently takes the
ed to manage competing demands for water. form of priority regime banning, which means that there
g pressures have led to many rivers being are few incentives for water users to proactively manage
ed or threatened by unsustainable abstraction. the risk of shortage. Recognition that water shortages are
e a clear case for change and ensure that likely to become more frequent in the future is spurring
rtcomings of the current system are widely reconsideration of the prevailing approach to allocation.
tood, the UK’s Environment Agency developed
ase for Change” to spell out the future challenges
essures on water resources, including potential
s of climate change.

Over time, as the water market in Australia

developed and water trading expanded, it
became clear that not only was the system
over-allocated, and the cost of not dealing
with the issue would increase severely in
the future. As a response, the Australian
government introduced in 2007 the Buyback
programme to purchase water entitlements
for the Environmental Water Holder from
voluntary sellers in the market.

cation reform in South Africa was driven during the

ansition to democracy in 1994 propelled by the
ansform a society in which the black majority had
uded from access to natural resources (including
he benefits derived from such natural resources.
allocation reform proposed in the 1997 White
a National Water Policy for South Africa, and the
ational Water Act were aimed at addressing this
njustice. A second key driver was the recognition
ng water scarcity and pollution challenges arising
strial expansion and population growth, and the
rotect the aquatic ecological base.

OECD POLICY HIGHLIGHTS Water Resources Allocation - 11

5 Lessons from allocation
reform
Reforming water allocation arrangements can be a
very difficult political challenge. Reforms can lower the
volume of water some users will have access to, change
the distribution of the risk of shortage across water users,
and affect infrastructure and investment needs. Even
incremental changes to an existing allocation regime can
create opposition and require costly compensation to free
up water by buying out existing water users.

Although water allocation reform is inherently a political

process unique to its time and place, valuable insights
can be drawn from the experience of other countries. The
OECD report Water Resources Allocation: Sharing Risks and
Opportunities draws lessons from case studies of water
allocation reform of 10 OECD and key partner countries.

Key messages
• Engaging in an appropriate policy dialogue to support
a water allocation reform can help to avoid adopting
an overly technical and technocratic approach to
reform. The OECD “Health Check” for Water Resources
Allocation can provide useful guidance for such a
dialogue.

• Concerns about water scarcity and insufficient water

for ecosystems are often cited drivers of allocation
reform, along with broader political or structural
reforms. Droughts can provide a salient, visible event
to trigger action.

• Water allocation reform is not a discrete, time bound

process. It tends to be an iterative process, which
extends over many years or even decades. Sequencing
matters, to avoid lock-in suboptimal options and
potentially expensive compensation measures.
Institutional path dependency can raise the cost of
improving the flexibility of allocation to respond to
changing or novel conditions.

• Before introducing changes to an allocation regime,

it is essential to determine a sustainable baseline
(how much water is available for allocation once in
situ requirements, including for the environment,
have been satisfied) and consider possible unintended
consequences.

• The reform process allows for ample opportunities for

participation and negotiation. Willingness to engage
stakeholders and appropriately compensate potential
“losers” facilitates the process. Compensation can
take various forms, such as financial transfers or
permission to build storage structures.

12 - OECD POLICY HIGHLIGHTS Water Resources Allocation

 POLICY HIGHLIGHTS
Further reading
OECD (2015), Water Resources Allocation:
Sharing Risks and Opportunities, OECD Studies
on Water, OECD Publishing, Paris, DOI: http://dx.doi.
org/10.1787/9789264229631-en.

OECD (2015), Groundwater Use in Agriculture in

OECD Countries: From Economic Challenges to
Policy Solutions, OECD Studies on Water, OECD
Publishing, Paris, forthcoming.

OECD (2015), Policy Approaches to Droughts and

Floods in Agriculture, OECD Studies on Water, OECD
Publishing, Paris, forthcoming.

Sadoff et al. (2015), Securing Water, Sustaining

Growth, Report of the OECD/GWP Task Force on Water
Security and Sustainable Growth.

Water: Fit to Finance? Report of the OECD/WWC High-

level Panel on Financing for a Water Secure World, 2015.

OECD (2014), Climate Change, Water and

Agriculture: Towards Resilient Systems, OECD
Studies on Water, OECD Publishing, Paris, http://dx.doi.
org/10.1787/9789264209138-en.

OECD (2013), Water and Climate Change Adaptation:

Policies to Navigate Uncharted Waters, OECD
Studies on Water, OECD Publishing, Paris, http://dx.doi.
org/10.1787/9789264200449-en.

OECD (2013), Water Security for Better Lives, OECD

Studies on Water, OECD Publishing, Paris, http://dx.doi.
org/10.1787/9789264202405-en.

OECD (2012), OECD Environmental Outlook to 2050:

The Consequences of Inaction, OECD Publishing,
Paris, http://dx.doi.org/10.1787/9789264122246-en.

__________________________________________________

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OECD POLICY HIGHLIGHTS Water Resources Allocation - 13

 This Policy Highlights is based on the OECD publication,
Water Resources Allocation: Sharing Risks and Opportunities.

The OECD is working to help developed and developing countries

meet the water challenge. With a multi-disciplinary team drawn
from across the organisation, the OECD contributes analyses to
improve the information base, identify good practice, and provide
a forum for exchanging country experiences. Recent work has
addressed issues of financing, governance, policy coherence,
private sector participation, and water and agriculture. Ongoing
work also covers the issues of water security, water and green
growth, climate change adaptation, water allocation and urban
water management.

In addition to analytical work, the OECD works with selected

countries to facilitate the reform of water policies. This confirms
our aspiration to make reform happen. The OECD has recently
enhanced its convening power and capacity to structure
discussion among stakeholders on water issues, by setting up
the Water Governance Initiative.

FOR MORE INFORMATION

The publication and 27 country profiles are available at:
www.oecd.org/fr/publications/water-resources-allocation-9789264229631-en.htm
www.oecd.org/env/resources/water.htm

CONTACT
[email protected]
[email protected]