The TRANSCEND project aims to explore transformative pathways towards water resilience through locally tailored analyses and co-creation exercises conducted in seven pilot laboratories. This report supports the co-development of these pathways by digesting insights and lessons learned on financial mechanisms for sustainable water resources management. It explores equitable and sustainable financing mechanisms to facilitate the transition to sustainable water pricing policies and cost recovery strategies aligned with environmental sustainability and resilience objectives.
Throughout the report, we confront the notion of water as an economic good, as suggested by the 1977 Mar del Plata Action Plan, with the concept of the human right to water and sanitation recognized in the 2010 UN General Assembly Resolution. We argue that it is essential to value water in its multiple dimensions—social, cultural, economic, and environmental—and integrate these values into policy and governance frameworks. The review of economic and financial mechanisms includes pricing instruments (tariffs and taxes), tradable instruments, and risk transfer mechanisms. We explore the economic rationale behind water pricing and the need for full cost recovery to ensure financial sustainability and efficient resource allocation.
We also discuss how environmental costs should be internalized in water pricing to address market failures and present experiences and lessons learned from water trading. Risk financing is explored, including insurance and other risk management instruments, such as catastrophe bonds and resilience bonds, which provide financial protection and incentivize risk reduction.
These tools are crucial for managing residual risks and ensuring rapid recovery from water-related disasters. Innovative approaches, like insuring ecosystem services, provide financial incentives for the conservation and restoration of natural ecosystems, enhancing resilience and sustainability. In conclusion, the report underscores the necessity of integrating economic, social, cultural, and environmental values in water management. It advocates for a combination of compatible instruments tailored to regional contexts to address water management challenges.
The private sector’s involvement, alongside public administration, is crucial for fostering change and ensuring the longterm viability of water services and risk management. By providing a comprehensive analysis, this report aims to inform the design of transformative adaptation pathways, serving as a foundational document for developing locally tailored solutions and advancing sustainable water management practices.