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Bulk Water Pricing Framework to Foster Sustainable Water Management in Ontario

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Bulk Water Pricing Framework to Foster Sustainable Water Management in Ontario Bulk Water Pricing Framework to Foster Sustainable Water Management in Ontario by Guneet Sandhu A thesis presented to the University of Waterloo in fulfillment of the thesis requirement for the degree of Master of Environmental Studies in Sustainability Management (Water) Waterloo, Ontario, Canada, 2018 © Guneet Sandhu 2018 Author’s Declaration I hereby declare that I am the sole author of this thesis. This is a true copy of the thesis, including any required final revisions, as accepted by my examiners. I understand that my thesis may be made electronically available to the public. ii Abstract Amidst rising concerns for sustainability of water resources, the province of Ontario has placed a temporary moratorium expiring on January 1, 2019 on bulk groundwater extraction by new water bottlers while considering broader reforms in water management policies. Given the projected impacts of climate change, coupled with population and economic growth, episodes of water scarcity are expected to rise in Ontario. Even though measures for sustainable water management are slowly gaining momentum, Ontario’s economy is likely to remain water- intensive with a burgeoning water demand. Therefore, to assure sustainability of water resources, proactive policies need to be developed that can effectively communicate water scarcity and change the consumption behavior of all water-using sectors. Bulk water pricing is an effective economic instrument to manage demand, incentivize use-efficiency and conservation by signaling to users the economic value of water. However, current water extraction charges imposed on few industrial sectors are very small, and hence insufficient not only to foster sustainable water use but also to recover the costs of various resource management initiatives undertaken by the Province of Ontario. To overcome the deficiency in current charges, this research investigates global and provincial best practices in order to design efficient bulk water-pricing framework based on actual resource costs that can effectively signal water risks, improve water use-efficiency, and reduce water demand of self- supplied extractive water users. As an output of this research, a bulk water extraction charge calculator is designed starting from cost-recovery principles and based on public water resource management initiatives. Major federal and provincial investments in various quality and quantity management programs are considered along with volumetric data on water intake by different sectors to derive an average volumetric base price for Ontario. Moreover, to reflect spatial and temporal water source vulnerabilities along with sector specific risks, price multipliers have been integrated to provide price differentiation and policy flexibility within a unified framework. Given the moratorium placed and ongoing provincial review on water policies refueling the interest in economic instruments, this research provides a regionally tailored dynamic bulk water pricing framework that can fund future water management initiatives while triggering the transition of Ontario into a more water-efficient economy. iii Acknowledgment I would like to express sincere gratitude to my supervisor Dr. Michael O. Wood for his expertise and guidance that helped steer this thesis into its final form. His inputs and support have been instrumental throughout this research endeavor. I am also highly indebted to my committee member Dr. Horatiu A. Rus and reader Dr. Olaf Weber for their valuable insights and feedback. I would like to thank the Water Institute Seed Grant Program for funding the research undertaken in this thesis. I would also like to thank my family and friends for providing relentless support throughout this rather interesting learning experience where I decided to step out of the comfort of my disciplinary confines. I am especially grateful to Vasundhara Saravade for the much-needed philosophical discussions and for being an extraordinary friend amidst the range of emotions experienced in this academic tenure. I am deeply thankful for the support and encouragement received from my cohort that has been the prime impetus behind the completion of this program. iv Dedication This thesis is dedicated to my family and to the flowing River carrying wisdom in the depths of her waters inspiring me to continue this meandering yet introspective journey. v Table of Contents Author’s Declaration ..................................................................................................................... ii Abstract ............................................................................................................................................ iii Acknowledgment ........................................................................................................................... iv Dedication ......................................................................................................................................... v List of Figures .............................................................................................................................. viii List of Tables ................................................................................................................................... ix 1.0 Introduction ........................................................................................................................... 1 1.1 Challenging the Myth of Water Abundance within the Abundant Great Lakes ......... 1 1.2 Hydrological Context of Surface Water and Groundwater Resources in Ontario .... 3 1.3 Burgeoning Water Demand and Inefficient Water Use in Ontario ................................ 6 1.4 Water Use Trends by Various Sectors in Ontario ................................................................ 7 1.5 The Need for Sustainable and Efficient Water Use in Ontario ..................................... 12 2.0 Literature Review ............................................................................................................. 13 2.1 Policy Instruments for Efficient Water Resource Management .................................. 13 2.2 Economic Instruments for Sustainable Water Management ........................................ 15 2.3 Establishing the Efficacy of Bulk Water Pricing to Manage Water Demand in Ontario ....................................................................................................................................................... 16 2.4 Regulatory Framework for Water Resource Management in Ontario ...................... 18 2.4.1 Overview of the Ontario Permit to Take Water Program ..................................................... 18 2.4.2 Water Rental Charges for Hydroelectric Power Generating Stations ............................. 20 2.4.3 Water Resource Management Initiatives in Ontario .............................................................. 21 2.5 Addressing Gaps in Water Management and Water Extraction Charges ................. 28 2.6 Significance and Implications of Research ......................................................................... 30 3.0 Research Objective and Questions .............................................................................. 31 4.0 Best Practices for Pricing Bulk Water Extraction .................................................. 31 4.1 Costs under Consideration for Pricing Bulk Freshwater Extraction ......................... 32 4.2 Different Methodological Approaches for Pricing Water Resources ......................... 34 4.3 Volumetric Rate Structures for Cost Recovery and Demand Management ............. 37 4.4 Sustainability Considerations for Pricing Models ............................................................ 39 4.5 Best Practices for Designing Dynamic Bulk Water Extraction Charges .................... 41 4.5.1 Global Examples of Bulk Water Extraction Charges ............................................................... 41 4.5.2 Provincial Examples in Canada of Bulk Water Extraction Charges .................................. 45 4.6 Canadian Council of Ministers of the Environment (CCME) Recommendations for Water Pricing (2015) ............................................................................................................................ 47 4.7 Conceptual Framework for Bulk Water Pricing for Ontario ........................................ 48 5.0 Methods ................................................................................................................................ 49 5.1 Rationale for Proposed Bulk Water Pricing Framework for Ontario ........................ 49 5.2 Methods and Data Considerations: Designing the Bulk Water Extraction Charge Calculator .................................................................................................................................................. 50 5.2.1 Database 1: Water Resource Management Cost Accounting .............................................. 51 5.2.2 Database 2: Water Withdrawal Data by all Sectors in the Great Lakes Basin ............. 55 5.2.3 Database 3: Sub-watershed, Source, and Sector Specific Risk Multipliers .................... 59 6.0 Results .................................................................................................................................. 60 6.1 Results for Base (Average) Provincial Water Extraction Charge Calculation ......... 60 6.2 Sample Calculation of Full Bulk Water Charges for a Hypothetical Permit Applicant ..................................................................................................................................................
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