In economic terms, water is characterized as a common good that has no substitutes. The fair distribution of this particular resource is governed by social equity and efficient allocation.
Policy and Practice Reviews ARTICLE
In the Mediterranean region, where freshwater resources are scarce and need to be allocated efficiently to supply the domestic, agricultural, energy and industrial sectors, the Nexus can provide ways forward through trade-offs and an understanding of the different stakes involved. Addressing productive sectors and related natural resources separately leads to high opportunity costs across different uses as well as increased transaction costs between the Nexus sectors. Hence, when implementing or developing a WEF Nexus approach, the minimization of high transaction costs should be at the core of the considered economic measures.
Furthermore, water provision and energy distribution have the characteristics of monopolies, which are highly regulated and produce both positive and negative externalities. Positive externalities may exist for water provision in terms of benefits to public health, while negative externalities may exist in energy and food production point and diffuse pollution.
With regard to water management, the pricing of water should include social, environmental and cultural values that are difficult to estimate or to translate into monetary terms. Water services are strongly subsidized in most regions of the Mediterranean, and water prices mostly reflect investment and maintenance costs but do not include the opportunity cost or scarcity of the resource. Although water pricing is a necessary instrument, it is not sufficient due to the inelastic nature of water demand increasing prices cannot substantially decrease consumption and the need to provide sufficient subsidies to lower the costs to households and farmers.
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In general, the WEF Nexus has the potential to create new employment opportunities in the Mediterranean. However, there is some skepticism that the new jobs that can be created in the medium term will only be for a limited number of skilled workers, while unemployment might be created in other competitive sectors e. A significant barrier to the technical implementation of the WEF Nexus is the absence of precise and uniform data for the whole Mediterranean region.
Several countries have only low levels of data availability and accuracy, while detailed socio-economic and climate data are necessary to conduct a sectoral and intersectoral WEF Nexus analysis. Furthermore, some countries may be unwilling to share certain types of required data, as they could be considered nationally strategic. Regarding the potential WEF trade-offs, as product systems are closely interrelated, actions at the local scale that aim to improve a certain area of the WEF Nexus may cause a shifting of burdens to other areas, ultimately leading to negative consequences for water, energy or food security.
To prevent this, a lifecycle perspective should be applied when assessing the different policy options. Lifecycle approaches and methods are, for instance, widely used by industry to manage water risks. Impacts on water security are not only limited to production sites, but extend over the entire supply chain, especially in the case of agricultural products that often require large amounts of water and energy for their management and harvesting.
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The virtual water content of traded products may be a suitable indicator for measuring the trade-offs related to the supply chain. The lack of available lifecycle-based data to complement local databases for the Mediterranean region is a challenging issue that would need to be extensively improved in national accounting systems. Similar considerations apply to the other elements of the WEF Nexus.
Regarding energy, for instance, activities along the product supply chain, such as manufacturing operations and product transportation, strongly contribute to the energy and carbon footprints of the whole system. Considerable institutional barriers also exist. The varying levels of engagement of, and trust in, some stakeholders in the Mediterranean region, including civil society, hampers the development of a Nexus approach that demands a high level of cooperation and mutual trust.
The responsibility for water, food and energy domains is often assigned to different ministries, which hampers the close communication and coordination that is needed to deal with the WEF Nexus. Innovative partnerships such as in Plan Blue need to be improved at the pan-Mediterranean level, although this may be a challenge due to geographical, political and social differences within the region.
Science and policy should cooperate to initiate and support the sound planning of solutions for addressing challenges through the WEF Nexus. However, there is traditionally a low level of cooperation between science and policy, which often express different goals, agendas and priorities. There is also some skepticism on the role of governments, which do not seem to be ready and fit to build a WEF Nexus approach. Furthermore, the WEF Nexus would require the close involvement of the private sector. The private sector has specific knowledge about production processes, their management and the markets they operate in.
As people in the private sector make use of natural resources or are in the business of producing or processing them, it imperative that they be included in the dialogue on the WEF Nexus.
As business depends on the availability of resources, such as water, it is also in their economic interest to be involved. Although many enterprises understand the need to innovate in order to maintain sustainable growth, they are slow to make the required connections with other relevant parties, such as the public sector and knowledge institutes.
Many barriers can be identified, such as the lack of communication, poor mutual understanding or differences in the dynamics between the different sectors. Special effort is required to overcome these barriers in order to start a constructive discussion on how the different interests can be aligned into a project or program that will simultaneously enhance the business model of the entrepreneur and help to significantly reduce the WEF Nexus challenge.
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The conditions, bottlenecks and opportunities for the effective engagement of the private sector in fostering the Nexus should be analyzed, and ways forward should be suggested. An example is provided by wastewater reuse. Different approaches and legislation can be found in the Mediterranean countries. The Italian legislation imposes very strict limits to the use of waste water in irrigation.
This makes very difficult such use as costs for treatments are too high to be afforded by farmers. As a result, two different phenomena occur: i waste water is releases to the sea without any use, ii waste water is used illegally by farmers without any control. Research can play an important role in better understanding the most appropriate limits to be respected, the types of irrigation systems that can be used and the types of crops that can be irrigated by wastewater without creating any health problems to the population.
Overall, research results should better orient policy makers. These include the complexities of setting and implementing different prices for different sectors that use the same resources; lack of cooperation between science, policy and the business sectors; lack of coherence and cooperation between various levels of government; limited number of success stories and guidelines to help promote innovative partnerships; and the level of public awareness and support for innovation.
Although there is evidence that the WEF Nexus approach brings added value in terms of sustainable development, and that it is generating emerging interest, or even demand, from a number of countries and institutions, the most crucial step to be taken currently is to analyze and debate the related conditions, bottlenecks, opportunities and ways forward through structured dialogues that lead to action plans, including the identification of investments and pilot demonstrations.
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In our analysis, we reviewed the economic, institutional and policy aspects of the implementation of the Nexus, particularly from a Water perspective, that could help promote the economic growth potential of the Mediterranean region. Currently often underestimated, water pricing is an important economic issue that affects the implementation of the Nexus, especially with regard to the agricultural sector, which is the main water user. Pricing is a necessary economic instrument whose efficiency depends on how it is conceived, designed and implemented, and which should be adapted within the WEF Nexus framework.
Different water valuation and pricing approaches are in use in the Mediterranean with varying levels of success, corresponding to policy choices based on to socio-economic perceptions and realities. Among others, the Water Framework Directive provides a range of water-pricing tools that are applied by law in the EU Member States and have been voluntarily adopted in south-east Europe; other countries may be interested in exploring and adapting such tools to their national needs.
Although the implementation of efficient water prices among sectors is a complicated affair, it also provides an opportunity for the WEF Nexus to incorporate externalities environmental, social, cultural costs, opportunity costs in a full-cost manner and apply a total economic value. In this context, we can go beyond abstraction costs, and include environmental costs, wastewater treatment, and the preservation of resources and ecosystems. Moreover, prices have to be connected to specific uses and levels of use, introducing block tariffs and supplementary fixed tariffs.
Additionally, water prices should reflect not only the cost of providing the service but also the opportunity costs, which will define the foregone benefits of those not using the water resources.
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In this context, water pricing based on economic principles can support political decisions and policy making, and at the same time provide crucial information and incentives for businesses to invest in the water supply. Additional appropriate economic instruments taxes, property rights, subsidies, etc. Prior to applying any instrument, it is first necessary to identify the market structures, technological dimensions and the involved stakeholders.
For example, although subsidies can lead to inefficient water management and use if applied to water consumption, they could prove useful in promoting WEF technology investments and could be combined with other mechanisms, such as lowering taxes on those investments. Economic efficiency or Pareto efficiency can be achieved when the marginal cost-pricing rule, which means the incremental cost of supplying an additional unit marginal cost equals the incremental amount that will be paid for a volume of water marginal willingness to pay.
In other words, Rogers et al. As an extra tool, awareness campaigns should be promoted since they can have very good results concerning water and energy savings by inducing advanced technologies. Regarding specific integrated methods for evaluating the economic effects of the WEF Nexus, in complement to the Cost Benefit Analysis, Cost Effectiveness with clearly defined objectives can be used as a tool to choose the optimal choices in the WEF Nexus.
Financing the WEF Nexus is another considerable component of economic growth. The public sector is the appropriate institutional body for providing a holistic orientation and long term perspective of the WEF Nexus, as well as for appropriating funds to support the initiation and establishment of a WEF Nexus approach. In this case the use of public funds should be justified with a specific investment plan that incorporates reduced opportunity costs to other public investments. Generally, Nexus investments can potentially be justified when they are profitable and low risk in terms of economic and social welfare, regulated by the state.
Overall, it is essential to encourage the involvement of the private sector from the beginning in the planning phase, because its knowledge is important for providing sustainable market solutions, innovations, and better operational arrangements. Public-Private Partnerships, although debatable, should be fostered in a consistent manner providing a factor for either further increasing welfare or achieving the same goal more efficiently and cost effectively.
If there are no obstacles and uncertainties and profitability emerges, then firms will invest without public involvement. However, when market conditions are not conducive to investments by private firms, government, universities and knowledge institutes should still invest for public welfare, and market-related shortcomings and share funding uncertainties should be corrected through the appropriate policies.
An example of financing Nexuses are the investments in multiple-use water supply systems that support different user needs water for Water, Sanitation and Hygiene WASH , water for irrigation, water for small-scale hydropower, water storage for climate change mitigation, healthy wetlands, and aquatic ecosystems , improving people's access to and effective use of water resources. However, this should also be accompanied by training sessions, capacity and trust building, and most importantly, in dialogue with the people eventually benefitting or losing from these investments.
Regarding the emergence of new employment opportunities, there is a need to accelerate the process of water management in that direction. Investing in new efficient technologies e.
To prevent purely academic exercises, research linked to viable business cases is needed and real life demonstrations, adopting a bottom-up approach before upscaling, can be considered. Further development of and innovation in the agricultural sector can play a central role in enhancing Nexuses, while in parallel mainstreaming and coordinating across sectorial policies.
Other sectors could be further developed, attracting additional investments and producing new jobs within a Nexus framework, such as monitoring and auditing. Furthermore, desalination technologies and the smart use of ecosystems wetlands to collect and store water and carbon could also provide positive economic opportunities.
The role of governments is of great importance for the Nexus implementation, since they can speed up the process by providing funding or subsidies for new technologies that contribute to the welfare of society which otherwise would not easily reach the markets. The creation of jobs depends on the sector to which water is allocated e.
However, there should be a balance between efficiency and equity in the employment opportunities created. Promoting a better policy for water resource allocation through the use of the Nexus approach could also have a negative impact on employment. Given that at present in the Mediterranean countries, especially those in the south, the water sector receives substantial public subsidies in order to maintain the well-being of users, any attempt toward rationalization, which requires a reduction in subsidies, will lead to a direct deterioration in the employment situation.
The implementation of the Nexus should explicitly take account of this and do everything possible to alleviate it. Concerning the data issue, which should be a priority for policy-makers, a WEF Nexus based on a holistic economic and environmental perspective should use consistent, reliable and comprehensive data as well as sound scientific references. It is also imperative that data across the nexus sectors are comparable in terms of accuracy and resolution.