Charting a Course – Chapter 9: Appendices

APPENDIX 2: Glossary

ADAPTIVE MANAGEMENT – The process of continually incorporating newly gained knowledge or information into decision making.⁶²

COLLABORATIVE WATER GOVERNANCE – The involvement of non-state actors in decision-making for water management.⁶³

RECIRCULATED WATER = WATER RECIRCULATION OR RECYCLING – Water that is used more than once, often for different processes. Recirculated water can also refer to water that leaves a particular process and then re-enters that same process, including water that is discharged to a cooling pond and is later reused. Water recirculation and total water intake form the gross water use of an establishment.

WATER AVAILABILITY – The volume of water in the rivers and water bodies that can be accessed for use.

WATER CONSERVATION – Any beneficial reduction in water use, loss, or waste. Often includes water-management practices that improve the use of water resources to benefit people or the environment.⁶⁴

WATER CONSUMPTION – The water lost in the production process. In other words, consumed water is not returned to its original source. Water is consumed via evaporation (escaped steam in industry or evapotranspiration in agriculture) or when it is incorporated into a product.

WATER DISCHARGE = WASTEWATER, EFFLUENT – The water returned to the environment in liquid form, usually close to the point of use. Total water intake is equal to the sum of its consumption and discharge.

WATER EFFICIENCY – The amount of water used per unit of any given activity.

WATER GOVERNANCE – The processes and institutions through which decisions are made about water.⁶⁵

WATER INTAKE – The total amount of water extracted for use in an establishment or industry. The water may come from natural systems or from municipal or other sources.

WATER MANAGEMENT – The operational, on-the-ground activity to regulate the water resource and the conditions of its use.⁶⁶

WATER-USE INTENSITY – Water intake per dollar of production.

Appendix 3: The Model and Assumptions

The Model: CIMS

The NRTEE uses a macroeconomic model of the Canadian economy to assess the potential of water pricing to improve efficiency and conservation and to estimate the impact of the pricing on industry. This model balances supply and demand for commodities and services in all markets, ensures that no sectors make excess profits, and balances incomes and expenditures of all “agents” in the economy by solving for a combination of prices and activity levels that are consistent with this equilibrium. The model contains the economies of British Columbia, Alberta, Saskatchewan, Manitoba, Ontario, Québec, Atlantic Canada, and the United States as separate regions, and each of these regions interact through trade of commodities and services.

Commodities can be sold to other producers (as intermediate inputs), to final consumers, or to other regions and the rest of the world as exports. Commodities can also be imported from other regions or the rest of the world. The water-use intensities discussed in Chapter 3 are also added to the model to develop the 2030 water use in each sector. Each of the sectors represented in the model uses different processes and technologies to combine a unique set of inputs into a unique set of outputs, contained in the integrated set of economic and physical (water, GHGs, etc.) accounts.

The cost imposed on a sector by a policy such as water pricing depends on the ability of the processes and technology to adapt to this policy. Economists represent the technology that a firm uses to transform inputs (like capital, labour, energy, and water) into output by a production function. A production function captures the relative amounts of all inputs that are required to make a unit of output, and also captures the substitutability (e.g., water intake for recirculation) or complementarity (energy and water intake) between pairs of inputs. Understanding these relationships in the case of water has proven challenging with relatively few studies that estimate production functions including water as a separate input. Still, workable estimates were acquired and used in the model to construct production functions for the sectors to assess the percentage change in water demand associated with water price increases.

FORECAST ASSUMPTIONS, CAVEATS, AND FUTURE RESEARCH

The NRTEE water forecasts and water pricing are firsts for Canada. Being on the forefront of water-policy analysis necessarily means there are caveats worth noting. While we have used high-quality data from Statistics Canada on both water use in the industrial sector and the structure of the Canadian economy, data limitations remain. Similarly, the economic model we used is based on sound economic theory and accepted in policy circles across Canada, but there are limitations.

Several limitations of this new field of research are noted here, mostly related to availability of data. Further study in the following areas would improve the state of knowledge in this relatively uncharted field of research:

• Water-use intensity growth rates were estimated based on historical trends. Historical trends may not necessarily hold in the future. Input from industry representatives or the linking of these trends to the factors causing them may make these forecasts more accurate.
• National water-use data were used in this study. Water-use and water-cost data for Canada’s natural resource sectors was only available at a national level. To produce regional water-use estimates, the national data was disaggregated using regional output. This disaggregation implies that the structure of water use in each sector is the same across Canada. Using water-use data for each sector and region would more accurately represent water use and the impact that placing a price on water would have on each region of Canada.
• Cost data was not available for all sectors. Statistic’s Canada’s Industrial Water Use Survey collects data for several sectors including mining, manufacturing, and oil and gas, which was used in this study. However, we were unable to obtain data on the cost of water in the agriculture and oil and gas sectors. Therefore, we assume that the average cost of operation and maintenance as well as intake, recirculation, and discharge treatment are similar in the agriculture and oil and gas sectors (where applicable) to the average of the mining and manufacturing sectors.
• Data on the elasticity of water demand was derived mainly from the manufacturing sector. Most of the data on the elasticity of water use was limited to the manufacturing sector. Based on this limited data set, we assumed an average demand elasticity of -0.45 for the manufacturing, mining, and oil and gas sectors. We also assumed a fixed coefficient for the animal production and thermal electric power generation. In particular, further research should be performed on the thermal electric power generation because, due to its high water use and low water, water-use reductions appear to be less expensive than they likely are.
• Cost data was disaggregated into capital, labour, energy, and materials costs. The cost information derived from Statistic’s Canada’s Industrial Water Use Survey did not break down the cost into labour, energy, or material costs and did not include the capital cost of equipment required to pump water. Therefore, a capital cost was added to Statistics Canada’s estimates and assumed the following breakdown of costs for water use (based on the average input structure of Canadian industrial sectors): capital is 25% of inputs, labour is 26%, energy in 5%, and material inputs make up 44% of the cost for pumping and treating water.
• In the model we assume that all revenues generated from a commodity price on water are returned to the government. Further modelling could be undertaken to assess the impact that different revenue recycling schemes may have on each sector’s gross domestic product and the Canadian economy.

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Footnote

62 Government of Northwest Territories 2010

63 Nowlan 2007

64 Alberta Water Council 2007

65 Nowlan 2007

66 Nowlan 2007