Governance and Economics of Desalination and Reuse VOLUME 1 Adjusting Policy and Regulatory Frameworks to Go Mainstream About the Global Department for Water The World Bank Group’s Global Department for Water brings together financing, knowledge, and implementation in one platform. By combining the Bank’s global knowledge with country investments, this model generates more firepower for transformational solutions to help countries grow sustainably. Please visit us at www.worldbank.org/water or follow us on X: @WorldBankWater. About GWSP This publication received the support of the Global Water Security & Sanitation Partnership (GWSP). GWSP is a multidonor trust fund administered by the World Bank’s Global Department for Water and supported by Australia’s Department of Foreign Affairs and Trade; Austria’s Federal Ministry of Finance; Denmark’s Ministry of Foreign Affairs; the Netherlands’ Ministry of Foreign Affairs, the Gates Foundation; Spain’s Ministry of Economic Affairs and Digital Transformation; the Swedish International Development Cooperation Agency, Switzerland’s State Secretariat for Economic Affairs; the Swiss Agency for Development and Cooperation; and the United Kingdom Foreign, Commonwealth and Development Office. Please visit us at www.worldbank.org/gwsp or follow us on X: @TheGwsp. About PPIAF The Public–Private Infrastructure Advisory Facility (PPIAF) helps developing-country governments strengthen policies, regulations, and institutions that enable sustainable infrastructure with private-sector participation. As part of these efforts, PPIAF promotes knowledge-transfer by capturing lessons while funding research and tools available on its knowledge platform—the Global Infrastructure Hub; builds capacity to scale infrastructure delivery; and assists sub-national entities in accessing financing without sovereign guarantees. Supported by donors and administered by the World Bank, our work helps generate hundreds of millions in infrastructure investment. Please visit us at https://www.ppiaf.org/ or follow us on X: @PPIAF_PPP. About PROBLUE PROBLUE is a multidonor trust fund housed at the World Bank that supports the development of integrated, sustainable and healthy marine and coastal resources. PROBLUE contributes to the implementation of Sustainable Development Goal 14 and is fully aligned with the World Bank’s vision to create a world free of poverty on a livable planet. Please visit us at https://www.worldbank.org/en/programs/problue. Governance and Economics of Desalination and Reuse VOLUME 1 Adjusting Policy and Regulatory Frameworks to Go Mainstream June 2025 © 2025 International Bank for Reconstruction and Development / The World Bank 1818 H Street NW, Washington, DC 20433 Telephone: 202-473-1000; Internet: www.worldbank.org This work is a product of the staff of The World Bank with external contributions. The findings, interpretations, and conclusions expressed in this work do not necessarily reflect the views of The World Bank, its Board of Executive Directors, or the governments they represent. The World Bank does not guarantee the accuracy, completeness, or currency of the data included in this work and does not assume responsibility for any errors, omissions, or discrepancies in the information, or liability with respect to the use of or failure to use the information, methods, processes, or conclusions set forth. 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Adjusting Policy and Regulatory Frameworks to Go Mainstream.” World Bank, Washington, DC. Any queries on rights and licenses, including subsidiary rights, should be addressed to World Bank Publications, The World Bank Group, 1818 H Street NW, Washington, DC 20433, USA; fax: 202-522-2625; e-mail: pubrights@worldbank.org. Cover design: Circle Graphics. Cover photos: © Adobe Stock. Used with permission of Adobe Stock. Further permission required for reuse. Contents Acknowledgments vi Executive Summary viii Abbreviations xvi 1. Why Adjust Sector Governance and Investment Appraisal Frameworks When Mainstreaming Desalination and Reuse in the Water Mix? 1 1.1. The Increasing Weight of Unconventional Sources in the Water Supply Mix 1 1.2. The Particularities of Desalination and Reuse and Their Governance Implications 6 1.3. Tools and Guidelines Proposed by the World Bank to Navigate Governance Choices 10 2. Adapting Water Rights Regimes in Place 13 2.1. Overview of Traditional Water Rights Doctrines and Water Allocation Regimes 13 2.2. The Fit of Seawater, Brackish, and Desalinated Water in Traditional Regimes 16 2.3. The Fit of Reclaimed Water in Traditional Regimes 18 3. Developing Desalination and Reuse-Specific Environmental, Health, and Safety Regulations 21 3.1. Regulatory Approaches to Environmental Regulation and Pollution Control 21 3.2. The Environmental Regulation of Seawater and Brackish Water Desalination in Different Jurisdictions 22 3.3. Different Approaches for the Regulation of Environmental and Health and Safety Aspects of Water Reuse 26 3.4. Different Approaches for the Regulation of Environmental Aspects of the Sludge Generated as a By-Product of the Wastewater Treatment and Reclamation Processes 31 GOVERNANCE AND ECONOMICS OF DESALINATION AND REUSE: VOLUME 1 iii 4. Adapting Water Sector Financial Policies and Economic Regulations 33 4.1. Costs, Fiscal Impact of Desalination Activities, and Financial Policy Implications 33 4.2. Barriers to Desalination Created by Retail Tariff Setting Mechanisms and the Economic Regulation of Drinking Water Supply Services 36 4.3. Water Abstraction and Pollution Taxes as Incentives for the Uptake of Reclaimed Water 38 5. The Influence of the Functioning and Regulation of Other Related Sectors 41 5.1. Energy Sector Regulation and Its Influence on the Viability and Sustainability of Desalination Initiatives 41 5.2. Energy Sector Regulation and Its Influence on the Sustainability of Wastewater Treatment and Reclamation 43 5.3. Urban Planning Regulations, Sewage Discharges Quality, and Wastewater Reuse 43 6. Guidelines for the Identification of Priority Policy and Regulatory Reforms and Approaches to Mainstream Desalination and Reuse 46 6.1. Adapting Water Rights Regimes in Place to the Greater Weight of Desalination 46 6.2. Adapting Water Rights Regimes in Place to the Greater Weight of Reuse 47 6.3. Developing Desalination and Reuse Environmental and Health Policies and Regulations 48 6.4. Adaptation of Water Sector Financial Policies and Economic Regulation 50 6.5. Factoring in Energy Sector Regulations’ Considerations in the Design of Desalination and Reuse Programs 51 6.6. Improving the Quality of Wastewater Effluents to Reduce Costs and Improve Performance of the Reclamation Process 51 References 53 GOVERNANCE AND ECONOMICS OF DESALINATION AND REUSE: VOLUME 1 iv FIGURES 1.1. Installed Desalination Capacity by Region 2 1.2. Wastewater Reuse at the Country Level (%) 2 1.3. The Price of Desalinated Water from Independent Water Plants 2000–20 3 1.4. Installed Desalination Capacity by Region 4 1.5. Cumulative Installed Reuse Capacity by Region 5 1.6. Main Institutional Structures in Use for Mainstreaming Desalination and Reuse 8 1.7. Development Questions that World Bank’s Desalination and Reuse Governance Guidelines and Tools Are Trying to Answer 11 4.1. Drinking Water Tariff per m3 Considering a Monthly Consumption of 16 m3 vs. Desalinated Water Tariff 34 4.2. Phases of the Saudi Arabia Water Sector Reform Strategy 35 5.1. 2017 OMIE and OMIP Electricity Prices 42 5.2. Boron in the Effluent of the Shafdan Wastewater Treatment Plant, 1991–2019 44 TABLES 2.1. Main Types of Water Rights 15 3.1. WHO Guidelines for the Safe Use of Wastewater in Agriculture 27 3.2. Reclaimed Water Quality Requirements for Agricultural Irrigation, EU Regulation 2020/741 29 4.1. Irrigation Water Tariffs in Israel, 2021 40 GOVERNANCE AND ECONOMICS OF DESALINATION AND REUSE: VOLUME 1 v Acknowledgments This series of reports was led by Zael G. Sanz Uriarte (senior water supply and sanitation specialist) at the World Bank, working with a core team including Edoardo Borgomeo (water resources management specialist), Sven Schlumpberger (water supply and sanitation specialist), Jihoon Lee (water specialist), Lara Loske-Garcia (junior professional officer) Carolina Dominguez Torres (senior water supply and sanitation specialist), Lauren Nicole Core (consultant), and Hila Cohen Mizrav (extended term consultant), drawing exhaustively on previous work on desalination and reuse commissioned by the World Bank and others.  Significant contributions were made by consulting teams including Castalia Ltd. (led by John Ikeda) Global Water Intelligence (led by Christopher Gasson), Cambridge Resources International Inc. (led by Mikhail Miklyaev), ICEA and Espelia (led by Clément Fourchy with Nicolas Martinez, Luigi De Pierris, Noemie Guigue, and Pierre-Louis Francon) and Alan Wyatt (water management consultant). This publication received support from the Global Water Security and Sanitation Partnership (GWSP), the Public–Private Infrastructure Advisory Facility (PPIAF), and PROBLUE, three multi-donor trust funds administered by the World Bank.   The task team received valuable guidance from Saroj Kumar Jha (global director for Global Department for Water), Yogita Mumssen (practice manager, Global Unit, Global Department for Water), Yitbarek Tessema (global lead for Water Supply, Sanitation and Reuse), Gustavo Saltiel (global lead for Water Supply and Sanitation), and Jemima T. Sy (lead public-private partnerships specialist). We extend our gratitude to our peer reviewers across all volumes of this series. Their consistent support throughout the development of this work confirms the value and interest confirms that desalination and water reuse have become viable water supply options for many World Bank client countries.  Peer reviewers of the different volumes were: for volume 1, Hector Alexander Serrano (senior water resources specialist), Safaa Bahije (senior water resources management specialist), Christina Leb (senior counsel), Carlo Amadei (sanitation specialist), and Eduardo Orteu Berrocal (of counsel, Gomez-Acebo & Pombo); for volume 2, Adnan Ghosheh (senior water supply and sanitation, Nicola R. Saporiti (senior investment officer, International Finance Corporation), Clémentine Stip (senior water specialist), and GOVERNANCE AND ECONOMICS OF DESALINATION AND REUSE: VOLUME 1 vi Rochi Khemka (senior private sector specialist); for volume 3, Fan Zhang (lead economist), Aleix Serrat Capdevila (senior water resources specialist), and Stephane Hallegatte (chief climate economist); for volume 4, Patricia Lopez (senior water specialist), Dan Vardi (principal investment officer, International Finance Corporation), Wenhe Zhang (senior underwriter, Multilateral Investment Guarantee Agency), William Davies (senior infrastructure specialist water, PPIAF); and for volume 5, N. Awa Diagne (senior water supply and sanitation specialist), Jaime Palalane (senior water supply and sanitation specialist), and Shona Fitzgerald (senior water supply and sanitation specialist). GOVERNANCE AND ECONOMICS OF DESALINATION AND REUSE: VOLUME 1 vii Executive Summary Why Adjust Sector Governance and Investment Appraisal Frameworks When Mainstreaming Desalination and Reuse in the Water Mix? Although one independent project may be accommodated anywhere, countries that are mainstreaming unconventional sources in their water mix must rethink their legal and regulatory frameworks. In fact, in most jurisdictions, unconventional water resources do not have a clear fit in the water rights regimes in place. Also, desalination and reuse come along with climate, environmental, and health risks that may require the development of specific regulations to manage them appropriately. Additionally, because tapping into desalination and reuse is often more expensive than mobilizing conventional resources, water sector financial policies and economic regulation must be adjusted to the greater weight of unconventional resources in the water mix to avoid creating an unsustainable fiscal burden to the sovereign. Likewise, the regulation of other related sectors may also influence the viability of desalination and reuse initiatives. For example, given its energy intensity, the cost of desalination and its carbon footprint is highly dependent on the functioning and regulation of the energy sector. Also, because seawater was traditionally not considered to have an economic value, littoral laws are usually silent on the right to use seawater for a beneficial use. Finally, to reduce the cost of wastewater treatment and ensure a reliable quality of the reclaimed water effluent, it is essential to effectively regulate economic and domestic activities having an impact on the quality of wastewater discharges into the sewer system. Similarly, when a country mainstreams unconventional water resources, institutional structures and management models in place may also have to be adapted. This may result in the vertical integration of desalination and water reclamation with distribution responsibilities under a single utility, the adoption of these responsibilities by existing or newly created bulk water suppliers, the establishment of specialized agencies, or the creation of a single buyer purchasing the water from private developers in charge of production and then on-selling it to distribution utilities. Benefiting communities may also have a role to play in the management of desalination and reuse facilities in remote arid regions where state utilities do not reach. The decision to assign desalination and reuse responsibilities to one player or another, and to manage these services internally or delegate them to a private partner, should be taken based on a thorough appraisal of risks inherent to the concerned desalination and reuse initiative and considering the historical roles, legal mandate, technical and managerial capacity, financing, and GOVERNANCE AND ECONOMICS OF DESALINATION AND REUSE: VOLUME 1 viii contracting power of the different sector stakeholders. However, this is commonly not the case. The World Bank has developed case studies, guidelines, and tools to help sector authorities navigate the governance options at their disposal for mainstreaming new water sources in a sustainable manner. These instruments aim at helping decision- makers at two levels, that is, the creation of the enabling environment and the project or program appraisal level. This document aims at helping sector authorities identify necessary policy and regulatory reforms for mainstreaming desalination and reuse in their water mix. Adapting Water Rights Regimes in Place Most jurisdictions consider seawater a public trust resource, but the question in some federal countries could be which level of government holds that trust. Because seawater is not considered a resource under water resources law, water rights regimes set forth in associated regulations do not usually apply for the rights to abstract seawater. Moreover, because historically seawater was not considered to have an economic value associated to any beneficial use, there is little case law base in common law jurisdictions related to seawater abstraction and use rights, and the legal framework set for coastal management often does not explicitly cover seawater abstraction rights or permits among contemplated littoral rights. Moreover, even when the permitting process to abstract seawater might be clarified, there still might be doubts about the claims of the developer over desalinated water. In the US, the “developed water” doctrine refers to the right of an appropriator to use a water source that would not be available for supply without its work or investment. Spanish authorities have reduced uncertainties about the claims of the developer over desalinated water, explicitly considering it part of the public water domain. With the promising evolution of brine mining technologies, it is becoming increasingly important to clarify not just the right to use the desalinated flow for a beneficial use but also the brine effluent. If freshwater resources are considered part of a public trust, there should be little doubt about the public ownership of reclaimed water. However, in most jurisdictions, the holder of the original water right or the holder of the treated wastewater discharge permit has first rights to use the reclaimed water. For example, in Peru and Morocco, the holder of the original right does not have to request an authorization for reuse if it is for the same use for which the freshwater right was issued, while an authorization is required if the user of the reclaimed water is a third party. In the case of Spain, the permitting procedure is simplified if the holder of the wastewater discharge permit is the entity seeking authorization to reuse. The holder of such a permit has priority over the holder of the original freshwater right and over any third party requesting the right. In the case of California, as in most states in the US, reclaimed water is considered GOVERNANCE AND ECONOMICS OF DESALINATION AND REUSE: VOLUME 1 ix “developed water,” and, as such, the owner of the water reclamation facility can claim rights over it, provided that this does not entail any harm to the environment or any other downstream user. While some countries manage access and use of reclaimed water through their water rights permitting system, others do not issue a differentiated right for reuse. This might entail uncertainties about rights over reclaimed water used for managed aquifer recharge. In most jurisdictions, the recuperation of stored water is subject to the same water rights regime as conventional groundwater, which might give rise to disputes when the prior appropriation, the reasonable use, or the correlative rights doctrines apply. Developing Desalination and Reuse-Specific Environmental, Health, and Safety Regulations Desalination’s environmental concerns relate to brine discharge, impingement, and entrainment of fisheries in intake structures and greenhouse gas (GHG) emissions. Environmental management requirements for desalination initiatives are generally determined by the findings of an environmental review process, rather than by prescriptive regulations. This means that measures to protect marine life are often site- specific. Nonetheless, there are some general trends: most notably, a 0.15 meters per second through-screen velocity limit to mitigate the impingement impact of intakes. California authorities embraced the best available technology (BAT) approach to minimize impingement and entrainment of fisheries, encouraging developers to consider for the construction of desalination plants sites allowing for the adoption of “subsurface intakes” and sharing intake and outflow facilities with thermal power stations and wastewater treatment plants. Regarding brine discharges, in the US, the Clean Water Act adopts the BAT approach for regulating pollution discharges to water bodies. However, additionally, California’s Ocean Plan includes a performance standard for brine discharges, according to which salinity shall not “exceed 2.0 parts per thousand above natural background salinity,” in the brine mixing zone, with a 100-meter radius. Saudi authorities set similar requirements. Tunisia just established in the regulations of its water code performance standards that apply to any type of wastewater discharges into the ocean and that, among other things, limit conductivity of the effluent. Other countries, such as Saudi Arabia, Egypt, and Western Australia, also establish other performance standards (like pH and temperature of the discharge) or design standards establishing the minimum length of the outflow and the depth of the point of discharge. California authorities also establish the obligation for the developer to compensate for the estimated fisheries mortality in the brine dilution area. This could be through the implementation of restoration projects implying the creation of habitats or through a contribution to a fee-based mitigation program to be established by a public agency, that is, a market-based approach. GOVERNANCE AND ECONOMICS OF DESALINATION AND REUSE: VOLUME 1 x Although there are no specific regulations related to GHG emissions, some jurisdictions have information disclosure requirements as part of the environmental impact assessments review process or environmental, social, and governance (ESG) corporate regulations and have established voluntary mechanisms incentivizing the purchasing of certified green energy to feed desalination. Additionally, besides national environmental regulations, international treaties on GHG emissions and for the protection of the seas create a system of accountability beyond the limits of a single jurisdiction. The Barcelona Convention for the Protection of the Mediterranean was amended in December 2021 to include a specific mention to brine discharges from desalination plants and calls for the adoption of BAT approaches to manage these. Wastewater reuse regulations originally adopted a “zero risk” approach. This was the case of the first regulations in California and guidelines proposed by the World Health Organization (WHO) in 1973 with very low levels of pathogens and other pollutants in the treated effluent, which proved difficult to attain in developing contexts. Many developed states still abide by these restrictive approaches. Less demanding guidelines were developed in the early 1990s by WHO and the Food and Agriculture Organization (FAO), considering not just health but also agronomic considerations and differentiating between alternative uses. The 1989 WHO guidelines propose three different levels of pathogen concentration thresholds, indicating the treatment technology that would likely have to be adopted to meet them. Each of these maximum pathogen concentrations are recommended for different types of crops and irrigation techniques to keep both costs and health risks relatively low. FAO’s 1992 guidelines on the other hand include thresholds for certain reclaimed water quality parameters to reduce the risk of soil degradation, crop quality deterioration, and decrease of productivity. In 2006, WHO developed the “multibarrier approach” that has had limited uptake to date. Instead of focusing exclusively on setting technical or performance standards for wastewater treatment that are often difficult to attain in low institutional capacity contexts, these guidelines propose a focus on “health-based targets” set for the different steps of the process, that is, irrigation, harvest, and consumption. However, this approach is considered complicated to understand and apply without specialized support. The European Union (EU) regulation 2020/741 establishes minimum quality standards for reclaimed water for different types of crops and irrigation techniques, sets indicative treatment technologies, and instructs parties involved in the treatment and reuse process to develop and implement risk management plans, including a description of the system, the parties involved, the identification of potential hazards, and the potential for hazardous events and of the environments and populations at risk and the exposure routes; an assessment of risks to the environment and to human and animal health; and identification of preventive measures that are already in place or that should be taken to limit risks so that all identified risks can be adequately managed. Specific preventive measures are recommended for different uses (classes) of reclaimed water and include: GOVERNANCE AND ECONOMICS OF DESALINATION AND REUSE: VOLUME 1 xi (i) prohibition of harvesting of wet irrigated or dropped produce; (ii) the exclusion of lactating dairy cattle from pasture until the pasture is dry; (iii) drying or ensiling fodder before packaging; and (iv) preventing pigs’ exposure to fodder irrigated with reclaimed water. Technological developments and exacerbated water stress are pushing countries to increasingly consider indirect and direct potable reuse as an option. Californian regulations for indirect potable reuse require using advance treatment technologies, including reverse osmosis and oxidation treatment processes. For direct potable reuse, the regulations call for adopting four-step treatment process for pathogen control, including a membrane separation process, a chemical inactivation mechanism, and ultraviolet inactivation, and at least three treatment processes for chemical control, comprising ozonation and activated carbon, reverse osmosis, and advance oxidation. Both regulations call for the operator of the reclaiming facility and the user of the reclaimed water or operator of the surface water reservoir to obtain a permit requiring the preparation and submittal for approval of an engineering report; a joint plan; a demonstration of technical, managerial, and financial capacity; and an operation and a monitoring plan. Adapting Water Sector Financial Policies and Economic Regulations Taxes charged for the abstraction and use of conventional water sources are low or nonexistent in most countries. In this context, there are limited economic incentives for the efficient use of water and the uptake of reclaimed water for irrigation. Nonetheless, even if these taxes and tariffs are low, in water-stressed jurisdictions that allow trading of water rights, the markets may increase the value of water, facilitating the creation of these incentives. Similarly, although desalination costs are decreasing steadily, they are still higher than retail water tariffs in most of the countries and regions where desalination is mainstreamed in the water mix. Therefore, desalination programs often require support from the sovereign in the form of subsidies and could come with a significant fiscal impact. Moreover, most medium and large size desalination plants are procured using build, operate, and transfer (BOT) schemes. In these cases, low retail tariffs normally bring concerns about the ability of the utility to pay the desalinated water tariff to the developer, requiring the sovereign to provide direct support and assume certain contingent liabilities to make the desalination project viable. Also, desalination often benefits significantly from both explicit and implicit electricity subsidies. Desalination subsidies could eventually make sense to make water supply affordable for vulnerable groups, to create incentives to reduce pressure on overexploited aquifers, or to free up surface water resources to keep environmental flows at adequate levels. However, fiscal support to desalination should be channeled through distribution utilities to prevent the misalignment of the incentives perceived by different stakeholders. GOVERNANCE AND ECONOMICS OF DESALINATION AND REUSE: VOLUME 1 xii Also, because energy represents a significant share of the costs associated with the production of desalinated water, the cost of desalination might fluctuate significantly due to the volatility of global energy prices. This may create financial distress to desalination utilities and to the off taker of desalinated water unless on- sale and retail water tariffs are appropriately indexed. Moreover, even if they are indexed, retail tariff adjustments might not be performed with the frequency of the bulk water tariff reviews. This situation can create liquidity issues to the utility. Also, countries with a drinking water supply and sanitation service regulator and that are new to desalination may have to adjust their economic regulatory model for the uptake of these new sources of water because most regulatory models are focused on efficiency and may create barriers when desalination is considered to deal with precipitation variability and not exclusively as a water augmentation strategy. The Influence of the Functioning and Regulation of the Electricity of Other Related Sectors Desalination utilities operating in countries with liberalized and sophisticated energy and financial markets may partially offset electricity prices volatility risk by purchasing energy derivatives. Similarly, the volatility of electricity prices also creates incentives for the project sponsor to develop captive renewable energy generation facilities, contributing to the reduction of the carbon footprint of desalination. However, certain countries impose limitations to self-supply energy systems to companies that are not energy utilities, which may impair the effectiveness of efforts aimed at greening desalinated water production. On the other hand, in liberalized markets allowing large consumers to enter into direct agreements with generating companies, desalination utilities may be able to purchase certified green energy. Heavy metals and exceptionally high concentrations of organic content or of other pollutants can inhibit the treatment process in wastewater treatment plants designed for domestic sewage. To ensure proper treatment and allow for safe wastewater reuse, utilities set quality standards for sewage discharges and require a certain level of pretreatment by industrial and commercial clients. However, utilities often lack the capacity to monitor and enforce the application of these regulations. In this context, well-designed and enforceable city zoning regulations are essential to ensure good performance of the water reclamation process. Besides regulating industrial discharges, Israel has regulated the boron and sodium content in detergents to prevent soil degradation when irrigating with reclaimed water. For the same reason, quality standards set for desalinated water go beyond the boron concentration allowed by drinking water standards when desalinated water is used to feed a system in which wastewater effluents are reused for irrigation. GOVERNANCE AND ECONOMICS OF DESALINATION AND REUSE: VOLUME 1 xiii Guidelines and Recommendations for the Identification of Priority Policy and Regulatory Reforms and Approaches to Mainstream Desalination and Reuse Adapt water rights regimes in place: • In federal countries, clarify which part of the sovereign holds proprietary authority over seawater. • Establish in the littoral laws a clear mechanism to grant rights or permits for abstraction. • Alternatively, define claims over desalinated water in water law and establish a licensing system for brine mining. • Delimit the entitlement of the holders of freshwater rights to reuse treated effluents with the application of the no injury rule. • Grant senior groundwater abstraction rights for reclaimed-water-managed aquifer recharge activities. • If private investment is to be mobilized for desalination or reclamation facilities, grant seawater abstraction and reclaimed water rights or concessions, rather than permits or authorizations. Develop desalination and reuse environmental and health policies and regulations: • Define the weight and use that desalination and reuse should have in the water security strategy considering social and environmental risks and benefits and institutional and financial capacity. • Define environmental and health policies and pollution control approaches (prescriptive regulations with performance or technology standards, BAT approaches, or market-based approaches) considering cost effectiveness and the institutional capacity of the enforcing authority. • Consider relevant international treaties when developing environmental regulations for desalination. • Define performance or technology standards considering expected water use and technical, managerial, and financial capacity of institutions responsible for facilities’ construction and operation. • When setting permitting requirements, look beyond treatment performance, facility design, and quality control and consider risk management and quality assurance as well. • When considering remediation and compensation for environmental damage caused by pollution below permitted values, assess the possibility of adopting market-based approaches. • Convey to decision-makers the benefits of regulation and compliance to mobilize support and funding for required institutional development investments of regulatory and enforcing agencies. GOVERNANCE AND ECONOMICS OF DESALINATION AND REUSE: VOLUME 1 xiv Adapt water sector financial policies and economic regulations: • Tax water resources closer to their marginal cost to improve the financial sustainability of desalination and reuse. • If desalination and reuse are to be subsidized, channel fiscal support through the end of the service delivery chain to ensure that incentives perceived by all stakeholders are aligned. • Adopt mechanisms for the indexation of on-sale and retail water tariffs and other mechanisms to mitigate utility liquidity risks associated to the volatility of desalination prices. • Adjust the economic regulatory framework of drinking water supply services to broaden the focus beyond service efficiency to account for the need of ensuring climate resilience. Factor in energy sector regulations’ considerations in the design of desalination and reuse programs: • Account for implicit and explicit energy subsidies when performing the economic appraisal of desalination initiatives. • If not permitted, lobby for required regulatory reforms to allow for self-generation of renewables to reduce volatility of water production costs. • Take advantage of instruments offered by the financial and electricity markets to hedge electricity costs and reduce GHG emissions of desalination and reclamation activities. Improve wastewater quality to reduce costs and improve performance of the reclamation process: • Characterize wastewater effluents identifying industrial, commercial, and domestic discharges to the sewer network that might impair or increase the costs of the water reclamation process. • Set and enforce industrial wastewater sewer discharge standards, requiring industries to pretreat. • Develop and enforce urban planning and zoning regulations segregating industrial activities and facilitating the implementation of shared treatment industrial wastewater treatment facilities. • Assess the need and the possibility of regulating the production of household products contributing to increasing salt and emerging pollutants concentrations and taxing the manufacturers for the additional treatment costs under the extended producer responsibility principle. • Set boron concentration limits for desalinated water used in municipal networks intended for wastewater reclamation and reuse. GOVERNANCE AND ECONOMICS OF DESALINATION AND REUSE: VOLUME 1 xv Abbreviations Acronyms Abbreviations BAT Best available technology BOT Build, operate, and transfer ESG Environmental, social, and governance EU European Union FAO Food and Agriculture Organization GHG Greenhouse gas GWI Global Water Intelligence MBR Membrane bioreactors MF Microfiltration NDC National Determined Contributions NPDES National Pollutant Discharge Elimination System OECD Organisation for Economic Co-operation and Development PPP Public-private partnership RFP Request for proposals RO Reverse osmosis RSC Regional Sea Convention RSCAP Regional Sea Convention Action Plan SWA Saudi Water Authority SWCC Saline Water Conversion Company SWPC Saudi Water Partnership Company SWRO Seawater Reverse Osmosis UF Ultrafiltration UNEP United Nations Environment Programme USEPA United States Environmental Protection Agency WHO World Health Organization All dollar amounts are US dollars unless otherwise noted. GOVERNANCE AND ECONOMICS OF DESALINATION AND REUSE: VOLUME 1 xvi 1. Why Adjust Sector Governance and Investment Appraisal Frameworks When Mainstreaming Desalination and Reuse in the Water Mix? 1.1. The Increasing Weight of Unconventional Sources in the Water Supply Mix Rising populations, rainfall variability, and water stress set up a global challenge. The impacts of climate change are significant and primarily channeled through the water cycle, with consequences that could be large and uneven across the globe. Water- related climate risks cascade through food, energy, urban, and environmental systems. Growing populations, rising incomes, and expanding cities will converge upon a world in which the demand for water rises exponentially, while supply becomes more erratic and uncertain. If current water management policies persist and the prediction of climate models prove correct, water scarcity will proliferate to regions where it currently does not exist and will greatly worsen in regions where water is already scarce. Climate change will increase water-related shocks on top of already demanding trends in water use. According to World Bank analyses, reduced freshwater availability and competition from other uses—such as energy and agriculture—could reduce water availability in cities by as much as two-thirds by 2050, compared with 2015 levels (World Bank 2016). Moreover, “countries that fail to achieve water security forgo potential growth, increase vulnerabilities to hydrological shocks, and may potentially compound social and political fragility” (World Bank 2017). Desalination and water reuse have historically been considered almost exclusively as part of water augmentation strategies in areas suffering from absolute water scarcity. Because of their technical and operational complexity and higher production costs compared with conventional sources of water, as well as health concerns and social acceptability issues, desalination and regulated wastewater reuse were historically considered last resort options, suitable only for sophisticated utilities and clients in higher income countries suffering from absolute water scarcity. This is why in 2020 approximately 58 percent of GOVERNANCE AND ECONOMICS OF DESALINATION AND REUSE: VOLUME 1 1 the global installed desalination capacity was in the Middle East and North Africa region (GWI 2023, see figure 1.1), and approximately 37 percent of the collected wastewater in Middle East and North Africa countries was reused, compared with the 11 percent global average (Jones et al. 2021, see figure 1.2). Figure 1.1. Installed Desalination Capacity by Region Western Europe Latin America/Caribbean 5,840,000 m3/d 4,220,000 m3/d Sub-Saharan Africa 1,350,000 m3/d North America 7,210,000 m3/d Americas 16.2% Total 70,600,000 Asia m3/d Pacific EMEA East Asia/Pacific 25.3% 58.6% 15,100,000 m3/d Middle East/North Africa 32,600,000 m3/d South Asia 2,760,000 m3/d Eastern Europe/Central Asia 1,610,000 m3/d Source: GWI 2023. Figure 1.2. Wastewater Reuse at the Country Level (%) Reuse (%) 0 5 10 25 50 No data IBRD 48814 | April 2025 Source: Jones et al. 2021. GOVERNANCE AND ECONOMICS OF DESALINATION AND REUSE: VOLUME 1 2 Incorporating weather-proofed sources to the water mix, while working on improving use efficiency, could be instrumental to deal with climate uncertainty in an economically efficient manner. Even countries not suffering yet from structural water scarcity are expected to experience increased precipitation variability because of climate change. Indeed, according to scientific projections, the global land area and population facing extreme droughts could more than double from 3 percent during 1976–2005 to 7–8 percent by the late twenty-first century (Pokhrel et al. 2021). Consequently, the yields of conventional surface water sources are becoming increasingly erratic and difficult to predict in many basins. Similarly, the change of precipitation patterns is resulting in lower aquifer recharge rates. Therefore, the economic returns of investments made to mobilize conventional water resources are decreasing and becoming more volatile. On the other hand, the yields of desalination and water reclamation facilities are predictable and uncorrelated with pluviometry. Thus, in a context where climate change is increasing precipitation variability and unpredictability, adding the right amount of desalination and reuse to the water mix could be instrumental to optimize the risk-adjusted returns of the portfolio of water mobilization investments, despite the higher costs associated to these two unconventional water sources. Also, because renewable energy can be generated as a by-product of the wastewater treatment and water reclamation process, reuse can be instrumental not just for adaptation but also for the mitigation of the effects of climate change. The steady decrease of desalination costs during the last decades are making this technology affordable for a broader range of contexts and uses. Figure 1.3 captures water tariffs at the award date of major desalination facilities procured globally under build, operate, and transfer (BOT) schemes, in nominal prices. As we can see, nominal tariffs of projects awarded in 2020 are below those of projects procured in 2000, despite inflation. Among other factors, this decrease of desalination tariffs in real terms has been caused by: (i) the shift toward reverse osmosis (RO) desalination globally, which is more efficient than alternative thermal desalination technologies; (ii) RO-related technological developments, particularly in the field of energy recovery and in the manufacturing of higher recovery RO membranes; (iii) lower energy costs associated to the development of renewable energies; and (iv) lower financing costs. Figure 1.3. The Price of Desalinated Water from Independent Water Plants 2000–20 Price ($/m3) 2.5 2.0 1.5 1.0 0.5 0 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16 17 18 19 20 21 22 23 20 20 20 20 20 20 20 20 20 20 20 20 20 20 20 20 20 20 20 20 20 20 20 20 Source: GWI 2023 GOVERNANCE AND ECONOMICS OF DESALINATION AND REUSE: VOLUME 1 3 Technological developments are also allowing for the safe reuse of treated wastewater effluents for a broader range of applications. Not just RO, but in general membrane- based water treatment technologies, such as membrane bioreactors (MBR), micro- and ultra-filtration (MF/UF) experienced great developments in terms of efficiency and cost during this period, allowing for increasing the reliability and quality of the reclaimed water effluent and, therefore, the consideration of this source of water for unrestricted irrigation, industrial applications, and potable reuse. As shown in figure 1.4, although tertiary treatment accounts for the largest share of the water reclamation market in terms of technology, triple barrier reuse is also growing fast. According to Global Water Intelligence (GWI 2023) in 2023, about 47 percent of the flows treated in water reclamation facilities globally were used for agricultural or landscaping irrigation and 29  percent for industrial applications. Yet, according to the same source, industrial installed capacity is expected to grow significantly faster in the coming years (35 versus 19 percent, respectively, between 2023 and 2028). Figure 1.4. Installed Desalination Capacity by Region Million m3/d 90 80 70 60 50 40 30 20 10 0 2019 2020 2021 2022 2023 2024 2025 2026 2027 2028 East Asia/Pacific Eastern Europe/Central Asia Latin America/Caribbean Middle East/North Africa North America Southern Asia Sub-Saharan Africa Western Europe Source: GWI 2023. GOVERNANCE AND ECONOMICS OF DESALINATION AND REUSE: VOLUME 1 4 In this context, investments in desalination and water reclamation infrastructure are growing globally. According to GWI (2023), the global installed desalination capacity has increased by 10 percent just between 2019 and 2023, and the annual incremental contracted reuse capacity has systematically exceeded desalination incremental contracted capacity. Global installed desalination capacity reached 70.6 million cubic meters per day in 2023 (equivalent to 5 percent of global domestic water withdrawals), and an additional capacity of 19.51 million cubic meters per day (equivalent to 28 percent of the current capacity) are expected to come online between 2023 and 2028 (GWI 2023). Desalination growth is expected to happen at a high pace, with the fastest growth anticipated in the Gulf countries, followed by other countries from the North Africa and Middle East region, Asia and Latin America. As for reclaimed water, although Middle East and North Africa is the region with the largest share of collected wastewater that is reused, East Asia and North America are the regions with the largest installed capacity in absolute terms and, along with Middle East and North Africa, where water reclamation capacity is growing faster (see figure 1.5). Figure 1.5. Cumulative Installed Reuse Capacity by Region East Asia and Pacific Eastern Europe and Central Asia Latin America and the Caribbean Middle East and North Africa North America Southern Asia Sub-Saharan Africa Western Europe 0 10 20 30 40 50 60 70 80 90 100 110 120 130 140 Million m3/d 2023 2028 Source: GWI 2023. The flourishing of the green hydrogen industry is expected to give an additional boost to the demand for desalinated and reclaimed water. Green hydrogen is sourced from water through electrodialysis using a renewable energy source. Clean deionized water must be used for this process to prevent damage to electrolytic cells. This means that, regardless of the source of water, it will have to be desalinated using RO or other desalination technologies. Global hydrogen production is predicted to reach 530 mega GOVERNANCE AND ECONOMICS OF DESALINATION AND REUSE: VOLUME 1 5 tons per year by 2050. Predictions have also been made that the fully mature hydrogen economy would need about 2.3 Giga-tons per year (Woods, Bustamante, and Aguey- Zinsou 2022). Eight billion cubic meters of freshwater and 26,500 Terawatt-hour of renewable electricity would be required to satisfy the projected 2050 hydrogen demand from green sources. This is equivalent to 31 percent of the current global desalinated water production capacity and to the aggregated electrical energy demand of the Latin America and the Caribbean, Middle East and North Africa, and Africa regions. Countries with the highest renewable energy potential are precisely the most arid. For this reason, desalination and water reclamation are currently the preferred source of water for green hydrogen production. 1.2. The Particularities of Desalination and Reuse and Their Governance Implications Although one independent project may be accommodated anywhere, countries that are mainstreaming unconventional sources in their water mix must rethink their legal and regulatory frameworks. This does not entail exclusively developing or improving regulations specifically developed for desalination and reuse activities, usually related to environmental, health, and safety issues. It may also require adjusting laws and regulations related to water resources management, water rights and water allocation, public maritime domain and coastal management, reconsidering the economic regime and financial policies of the water sector, and revisiting the regulation of up and down stream services, that is, drinking water supply, sanitation, and irrigation. Moreover, ensuring the technical, financial, and environmental viability of desalination and reuse may even call for legal and regulatory reforms beyond the water sector in domains such as the electricity sector, zoning and urban planning, and even product manufacturing. In most jurisdictions, unconventional water resources do not have a clear fit in the water rights and water allocation regimes in place. Water rights and water allocation regimes determine who is allowed to use water resources, how, when, and where. They are strongly conditioned by historical preferences and usage patterns, often tracing their roots to previous centuries. They show a high degree of path dependency, which manifests in laws, policies, and regulations, and even in the design and operational rules of long-lived infrastructures. Because of this rigidity, they are often not adjusted considering the particularities of desalination and reuse. When this happens, questions may rise on aspects such as rights to abstract seawater and property and use rights over desalinated and reclaimed water. Also, without the appropriate water allocation regime in place, the introduction of desalination and reuse in the water mix may eventually result in an unsustainable increase of water demand, failing to benefit from the improvements in climate resilience and service reliability that these new sources of water can potentially bring to the mix. Desalination and reuse come along with climate, environmental, and health and safety risks that may require the development of specific regulations to manage them appropriately. The main environmental concerns associated to desalination relate to GOVERNANCE AND ECONOMICS OF DESALINATION AND REUSE: VOLUME 1 6 its energy intensity and its potential carbon footprint, brine management issues,1 and the potential impingement and entrainment of juvenile fisheries. When desalination is considered as a source of water for irrigation, there could also be concerns about potential soil degradation. As for wastewater reuse, the main concerns relate to the potential impact on downstream users, the reduction of environmental flows, soil degradation, and health and safety issues associated to the consumption or contact with water with harmful pollutant concentrations. Water sector financial policies and economic regimes and, in particular, the regulation of up- and downstream services may hinder the viability of desalination and reuse. Tapping into desalination and reuse is often more expensive—at least in financial terms—than mobilizing conventional resources. Therefore, unless the economic regulation of water services provides for the necessary tariff adjustments, the diversification of the water mix could come along with a significant burden to the sovereign in the form of explicit and implicit subsidies and contingent liabilities. On the other hand, although there could be a strong economic rationale for mainstreaming unconventional water sources in several contexts, even if this requires subsidizing desalination and reuse, if these subsidies are not channeled appropriately, they may create disincentives for the efficient use of water. Similarly, when the mobilization of conventional resources is subsidized and water rights are not priced at the opportunity cost of water, there are few incentives for farmers and industries to trade their existing rights over freshwater resources in exchange for rights over reclaimed water, unless these are also heavily subsidized. The functioning and regulation of other related sectors, such as energy, coastal management, zoning, and urban development, may also influence the viability of desalination and reuse initiatives. Given its energy intensity, the cost of desalination is highly dependent on the cost of energy and, therefore, on the functioning and regulation of the energy sector. Similarly, the carbon footprint of desalination activities depends on the emission factor2 of the grid, or on the legal ability of the operator of the desalination plant to purchase certified green energy, or to develop and run a captive renewable energy generation facility. Because seawater was traditionally not considered to have an economic value, coastal management laws, which are aimed at striking a balance between development activities and the need to protect coastal areas, are usually silent on the right to use seawater as an input for any production process. However, now that desalination is increasingly being considered for productive uses such as irrigation, mining, and green hydrogen production, seawater abstraction rights might have to be regulated to provide the required legal certainty for private investment. Finally, to reduce the cost of wastewater treatment and ensure a reliable quality of the reclaimed water effluent, it is essential to effectively regulate and enforce the regulations having an impact on the quality of wastewater discharges into the sewer system, such as urban development and zoning regulations. Similarly, the regulation of the energy sector might affect the possibility of tapping the full potential of renewable energy cogeneration of the wastewater treatment and water reclamation processes, just as the regulations related to hazardous waste management could hinder the viability of efforts aiming at recovering resources from the sludge generated in said processes. GOVERNANCE AND ECONOMICS OF DESALINATION AND REUSE: VOLUME 1 7 When a country mainstreams unconventional water resources, institutional structures, and management models in place may also have to be adapted. One of the first steps should be the assignment of roles and responsibilities for the production, dispatching, and wholesale and retail distribution of desalinated and reclaimed water. This may result in the vertical integration of desalination and reuse production with distribution responsibilities under a single utility (like in the case of Singapore, Tunisia, or Western Australia), the adoption of these responsibilities by existing or newly created bulk water suppliers (like Acuamed in Spain and Mekorot in Israel, which manage both freshwater mobilization infrastructure and desalination and water reclamation facilities), or the establishment of specialized agencies (like Saline Water Conversion Company, SWCC in Saudi Arabia, now known as the Saudi Water Authority, SWA). Figure 1.6 includes a graphic representation of the main institutional structures in use for mainstreaming desalination and reuse. Case studies covering international best practices in the application of these different models are presented in volume 2 of this knowledge series, which is focused on institutional frameworks. Figure 1.6. Main Institutional Structures in Use for Mainstreaming Desalination and Reuse a. Municipal and regional-vertically integrated model b. Bulk water supplier model Acuamed SPV Reuse Reuse (reclamation) Production (reclamation) Production (desal) (desal) Off-take Off-take Treatment and Treatment and dispatch dispatch Collection Transfer Collection Transfer Distribution Distribution Municipal utility Municipalities Typical for large metropolitan areas in Typical in water scarce regions with interconnected countries where service provision is a municipal systems where water and sanitation service delivery responsibility with strong municipal utilities is a municipal responsibility SEDAPAL (Peru); Capetown (South Africa) Production and transfer are horizontally integrated and distribution and wastewater collection and Often desalination activities are delegated to the treatment are horizontally disaggregated private sector through O&M or build, operate, and transfer (BOT) arrangements because the Spanish Mediterranean coast (Aquamed) concerned utilities are usually responsible for just one plant, and this requires some The bulk water supplier serves both expertise that may not be available inhouse drinking water and irrigation clients (that is, horizontal integration across sectors) (figure continues next page) GOVERNANCE AND ECONOMICS OF DESALINATION AND REUSE: VOLUME 1 8 Figure 1.6. Main Institutional Structures in Use for Mainstreaming Desalination and Reuse (Continued) c. National water utilities-vertically and d. PPP-single buyer model horizontally integrated model SPVs Reuse Reuse (reclamation) Production (reclamation) Production (desal) (desal) SWPC ONAS Off-take Off-take Treatment and Treatment and dispatch dispatch Sonede Collection Transfer Collection Transfer Distribution NWC Distribution SWCC Typical in northern Africa and other old French colonies Typical in gulf countries where desalinated water is with national utilties for drinking water and sanitation produced to a large extent in cogeneration facilities and where the latter were procured under IWPP arrangements Tunisia national drinking water supply and wastewater collection and treatment utilities (SONEDE and ONAS), In Saudi Arabia, SWPC (Saudi Water Partnerships Western Australia Company) is the single buyer set for all desalinated water, which is produced by private partners under BOT agreements or by SWCC (now SWA). SWCC was also responsible for bulk water transfer, to the National Water Company (NWC), that is in charge of drinking water distribution and wastewater collection and treatment. Note: PPP = public-private partnership; SPV = special purpose vehicle. These institutions may have to develop new capacities to take over these roles or may decide to delegate desalination and reuse development and operational activities to a private partner. Often, countries deciding to free up their electricity markets, started by transferring electricity generation responsibilities to the private sector while -at least transitionally—maintaining national monopolies on wholesale and dispatching of electricity. For this, energy sector authorities set up a single buyer that is the off-taker off all generating companies and that on-sales electricity to distribution companies or directly to retail consumers in countries where transmission and distribution responsibilities are vertically integrated. Because the steam generated as a by-product in thermal power stations is often used as an input to produce desalinated water using thermal desalination technologies, in Middle Eastern countries, the private partner is often responsible for energy generation and water production, and the single buyer off-takes both the energy and water output. The single-buyer model is also very popular for reverse osmosis (RO) desalination, a process that does not use steam as an input, because it makes it possible to shield investors and financiers of desalination projects from distribution risks that would otherwise make the transactions commercially unviable when the distribution utility is not creditworthy. This model is also adopted in some gulf countries for water reclamation. GOVERNANCE AND ECONOMICS OF DESALINATION AND REUSE: VOLUME 1 9 Each of these institutional structures and management models have different associated legal or contractual relationships between the different links of the service delivery chain. The decision to assign desalination and reuse responsibilities to one player or another and to manage these services internally or delegating them to a private partner should be taken based on a thorough appraisal of risks inherent to the concerned desalination and reuse initiative and considering the historical roles, legal mandate, technical and managerial capacity, financing, and contracting power of the different sector stakeholders. However, this is commonly not the case, particularly when it comes to the decision of pursuing the initiative adopting public-private partnership (PPP) schemes or through traditional public procurement methods. Faced with this question, a decision is often taken at the executive level, sometimes based on prejudices or misconceived accounting and fiscal benefits. Benefiting communities may have a role to play in the management of desalination and reuse facilities in remote arid regions. As relatively costly and technology intense solutions, desalination and reuse are usually considered viable just for utility managed urban drinking water distribution and wastewater collection and treatment systems or for self-supply systems feeding high value-added industrial and commercial activities. However, often brackish, seawater and the reuse of used desalinated water are the only sources of water available to serve small island communities and rural populations located in remote arid regions where the state system does not reach. In these contexts, desalination and reuse technologies and management models may have to be adapted to allow for local communities to play a role in the operation of the facilities to bring down costs and ensure their sustainability. The role of communities in the management of desalination and reuse may be even more critical in a context of fragility. 1.3. Tools and Guidelines Proposed by the World Bank to Navigate Governance Choices The World Bank has developed case studies, guidelines, and tools to help sector authorities navigate the policy options at their disposal for mainstreaming new water sources in a sustainable manner. These instruments aim at helping decision-makers at two levels, that is, the creation of the enabling environment and the project and program appraisal level. In particular, they are meant to: (i) support reforms required to adapt water sector policies, institutions, and regulations to the greater weight of desalination and reuse in the water mix; (ii) help water authorities and utilities determine how much desalinated and reclaimed water should be incorporated in the water mix of a basin or to feed a particular interconnected system or utility distribution network to optimize the risk-adjusted economic returns of bulk water supply activities; and (iii) to identify the best project delivery and management model to maximize value for money and ensure sustainability of desalination and water reclamation infrastructure. Figure 1.7 illustrates the articulation between the different instruments developed and the questions each of them is trying to answer. GOVERNANCE AND ECONOMICS OF DESALINATION AND REUSE: VOLUME 1 10 Figure 1.7. Development Questions that World Bank’s Desalination and Reuse Governance Guidelines and Tools Are Trying to Answer How to adapt water sector policies and regulations to the greater Policies and weight of desalination and reuse? regulations environment Enabling Which institutional arrangement is best suited for mainstreaming Institutional desalination and reuse in our water mix? arrangements How much desalinated and reclaimed water should be added to Economic the mix to optimize the risk-adjusted economic returns of bulk water rationale of specific supply activities? interventions appraisal Program Which program or project delivery model is likely to maximize value Program delivery and for money of my desalination and reuse initiative? management models How should management models be adapted for providing desalination services in remote and poor areas? This document aims at helping sector authorities identify necessary policy and regulatory reforms for mainstreaming desalination and reuse in their water mix. For this, it first looks at how different jurisdictions have incorporated desalinated and reclaimed water into their water rights and water allocation regimes, analyzing shortcomings and advantages. Then, the document reviews the alternative approaches that can be adopted for environmental regulation and pollution control, explaining how they have been adopted in different countries to manage environmental, health, and safety risks associated with desalination and reuse. Subsequently, this document analyzes how the financial policy and economic regime of the water sector may hinder the uptake and the fiscal and commercial viability of desalination and reuse initiatives, illustrating how these challenges could be overcome with examples of the solutions adopted by different water authorities. The following section investigates the influence that the functioning and regulation of the electricity sector has on the costs and climate change impact of desalination and reuse activities and how urban planning, zoning, and other regulations affecting the quality of wastewater discharges into the sewer network have an influence on the viability of wastewater reuse. This paper does not intend to compare desalination and reuse against each other, nor does it aim to advocate for mainstreaming unconventional water resources in the water mix. The goal of this document is to support sector authorities to identify necessary policy and regulatory reforms when they are planning on deploying desalination or reuse at scale to ensure that this is done in a sustainable manner. Based on the analysis included in the preceding sections, the last chapter of this document proposes guidelines for authorities to consider in these circumstances. It should be noted, however, that to ensure their success and sustainability of their efforts, authorities aiming to mobilize unconventional GOVERNANCE AND ECONOMICS OF DESALINATION AND REUSE: VOLUME 1 11 water resources or to adopt any other type of water augmentation strategy should do so having previously embraced integrated water resources management principles and basin-level planning and management practices. Also, these efforts should go along with the implementation of credible demand management and programs to improve efficiency, reduce water losses, and improve water allocation. NOTES 1. Brine is a by-product of the desalination process, which retains all the removed salts from the desalinated water. 2. Emission factor is a coefficient that describes the rate at which a given activity releases greenhouse gases into the atmosphere. GOVERNANCE AND ECONOMICS OF DESALINATION AND REUSE: VOLUME 1 12 2. Adapting Water Rights Regimes in Place 2.1. Overview of Traditional Water Rights Doctrines and Water Allocation Regimes Every claim a person has over water is a water right. For the sake of simplicity, a water right might be of ownership or use. The latter entails utilization but does not provide ownership. This distinction is important because ownership gives exclusive rights of use, possession, and severance (disposal) over water, whereas use only allows for the utilization or enjoyment of water (Caponera and Nanni 2019). Ownership over water can be public, private, common, community, or undefined. In comparative law, different legal systems or families are recognized around the world. There are various classifications, one of which suggests the existence of eight different legal systems: (i) Romanist, (ii) Germanic, (iii) Nordic, (iv) common law, (v)  China, (vi)  Japanese law, (vii) Islamic law, and (viii) Hindu law (Husa 2012). In  countries with a common law system, the question of ownership is not central because water comes under the powers of the state (Caponera and Nanni 2019). In other legal families, this is not necessarily the case because private rights might be recognized in their legislations (Hendry 2015). The public trust doctrine, rooted in Roman law and applicable under many different legal systems, holds that certain natural resources, including water, are held in trust by the sovereign for the benefit of the public. It means that the government has a duty to protect and manage these resources for the present and future generations. When it comes to water, the public trust doctrine entails that the government has a responsibility to ensure the availability and sustainable use of water resources for the benefit of the public. This includes protecting water quality, preserving aquatic ecosystems, and ensuring equitable access to water for various uses such as drinking water, agriculture, industry, and the environment. The public trust doctrine also implies that the government should prioritize the public interest over private interests when making decisions related to water allocation and management. It means that water rights, concessions, leases, permits, authorizations, license, or any other form under which a third party can get access to water for a beneficial use shall be granted by the sovereign in a manner that serves the best interests of the public and considers the long-term sustainability of water resources. GOVERNANCE AND ECONOMICS OF DESALINATION AND REUSE: VOLUME 1 13 Administrative permits, concessions, and rights have dissimilar features. An administrative permit, such as a license, is issued by an authority and is governed by administrative law. Meanwhile, in the case of a concession, the relationship between the authority and the entity is defined in a contract (Caponera and Nanni 2019). By contrast, private waters (owned privately) and water rights do not require administrative permissions. Administrative permits impose obligations, limitations, and restrictions on the permit holder. For example, they may require technical conditions, quality requirements, and environmental limitations. They usually consider the amount of water to be abstracted, timing, modalities (for example, permanent or eventual), mechanism for abstraction, location of water catchment, environmental provisions, and particular use of the water (irrigation, human consumption, energy, industry, recreation, landscaping), among several other requirements depending on local practices. These regulations are sometimes extended to water rights, but not necessarily in all jurisdictions and to all types of rights. A common distinction in administrative permits is made between consumptive and nonconsumptive uses. The former refers to the ability of the licensee to consume water completely in any activity, thus transforming the water right of use into a version of temporary property, whereas a nonconsumptive use imposes the obligation of restitution of the abstracted water into the water source once used but not consumed. Permits are usually bestowed upon a particular person, and its transfer must be allowed by the administration, have a limited duration, and can be revoked. This is not the case with concession contracts that can be assigned with the consent of the contracting authority. In the case of water rights owned privately, the right holder can transfer the title freely or with some limitations. Permits have a limited duration that depends on the type of permit, use, and other local considerations, whereas water rights owned privately are perpetual. Permits may be suspended or revoked depending on the type of noncompliance by the holder or depending on the needs of the state, while water rights owned privately can only be subjected to expropriation. There are three main ways in which the right to use surface water may be acquired: (i) Riparian rights: Landowners have a right to make reasonable use of the water flowing through their property on the condition that such use does not impinge on the rights of other users. Stricto sensu riparian rights are not property because the right to abstract water comes from the fact that a property is adjacent to a water stream and is hence tied to the land and not to the person who owns the land. (ii) Appropriative rights: Typically, rights established through prior appropriation are based on the principle that the first beneficial user of water from a particular source has a continued right to that use and that subsequent users may enjoy similar rights if they do not impinge on the usage by the senior rights holder. These rights are typically held in ownership. (iii) Permitting system: The state allows its use through an administrative permit (for example, license, lease, permit, authorization, or concession). In the case of groundwater, there are two additional doctrines: absolute dominion and correlative rights. Under the absolute dominion doctrine, the landowner may abstract GOVERNANCE AND ECONOMICS OF DESALINATION AND REUSE: VOLUME 1 14 as much water as needed from wells in its property without incurring any liability, whereas the correlative rights doctrine establishes a principle of proportionality in the yields of the wells exploited by landowners whose properties are located within the boundaries of the same aquifer. Table 2.1 summarizes the main characteristics of water rights instruments. Table 2.1. Main Types of Water Rights Ownership Right acquisition Types of rights Conditions and characteristics Private Appropriation Prior appropriation Often subject to the reasonable use or trade (surface and principle groundwater) Tradable Sometimes could be reduced if the full volume is not used Public With land Absolute dominion No limitation to volumes withdrawn (groundwater) Correlative rights Withdrawal proportionally distributed (groundwater) among users of the aquifer Riparian (surface) Often subject to the reasonable use principle Administrative Permits, licenses, Quantity (fixed or proportional to available instrument concessions (surface flows) and groundwater) Temporality (temporal or perpetual) Geographical (point of withdrawal and discharge) Authorized uses (consumptive or not consumptive) Alienation conditions (tradability, appurtenant to land or activity) Rights to use water can be traded between users in some jurisdictions, but mechanisms differ. For example, in California (US), buyers and sellers can trade water through short- and long-term leases or through permanent sales of their water rights in private transactions registered with the local courthouse. Also, a futures market has been developed in the state over the past decade to enable business users to cover financial risks related to water availability (Hanak, Sencan, and Ayres 2021). The State of Western Australia grants groundwater abstraction licenses either temporarily or in perpetuity, subject to meeting the conditions of the license. These licenses can be traded between users within the same basin. The state maintains a registry of license ownership and has promoted exchanges to facilitate trades. Perpetual licenses cannot be unilaterally extinguished by the state unless the licensee fails to meet the original conditions of the license. For example, if the holder of the license is no longer a resident on the land and has not sold or transferred their license to another person (WADWER 2020). In Spain, the 1985 Water Law provides for two forms of water trading. First, public waters can GOVERNANCE AND ECONOMICS OF DESALINATION AND REUSE: VOLUME 1 15 be traded by the holder of a right of use for consumptive water through assignment or cession. Nonconsumptive water uses can only be traded among nonconsumptive users. Second, the law provides for the creation of Water Use Rights Exchange Centers in certain circumstances, such as drought. In this case, the administration acts as an intermediary by buying water use rights and assigning them to other users. Water use rights, concessions, authorizations and permits should be granted, renewed or revoked by the sovereign considering applicable laws and regulations, and based on a comprehensive water resource planning exercise. This exercise should be based on the principles of integrated water resources management (IWRM), ideally at the basin level, reconciliating available supply and demand from different uses, including environmental ones, through a participatory and coordinated process for the development of water, land and other related resources to foster economic and social welfare while protecting the health of critical ecosystems. This planning process shall consider the particularities of different supply sources -in terms of quality, availability, reliability and mobilization and treatment costs-, along with the requirements of the demand for different uses in terms of volume, reliability, quality and ability and willingness to pay. These considerations are particularly important for desalinated and reclaimed water, given their high level of reliability compared to freshwater resources, higher costs and ability to adopt a fit-for- purpose treatment approach, particularly in the case of reuse. 2.2. The Fit of Seawater, Brackish, and Desalinated Water in Traditional Regimes Rights in water usually rely on a concept of chain of title (either water or land titles), and therefore, they can be traced back to the sovereign through title exchanges (Papas 2011). In other words, the sovereign grants a right via a permitting scheme that subsequently, for certain types of permits and uses, could be transferred to a third party via contract and so forth. However, in the case of desalinated water, this might not be so evident because, in most jurisdictions, seawater is not covered by the water resources legislation and the associated regulations related to the permitting system. In certain jurisdictions, there might be uncertainty about which part of the sovereign has proprietary authority over seawater. The 1982, United Nations Convention on the Law of the Sea recognized the sovereignty of a coastal state to the “adjacent belt of sea” or territorial sea, subject to international law obligations. Consistently, most jurisdictions consider seawater a public trust resource, but the question in some federal countries could be which level of government holds that trust. Papas (2011) claims that this is the case in the US, where existing legislation is ambiguous on this and there is no case law on it. According to Papas, the Submerged Lands Act, which grants costal states title to submerged lands and certain resources such as minerals and fisheries resources, seems to explicitly exclude from the resources under the administration of the states “waterpower and the use of water for the production of  power.” Nonetheless, in the US, desalination projects are being developed nationwide under the authority of the GOVERNANCE AND ECONOMICS OF DESALINATION AND REUSE: VOLUME 1 16 state, with virtually all permits related to desalination activities been issued by state authorities, except for the National Pollutant Discharge Elimination System (NPDES) permit required for brine discharges, which is issued by the US Environmental Protection Agency (USEPA). Likewise, there is no clear permitting system for the use of seawater for a beneficial use. Because, in most jurisdictions, seawater is not considered a resource under water resources law (which is normally focused on the governance of freshwater sources), water rights allocation regimes set forth in associated regulations do not usually apply to the rights to abstract seawater. On the other hand, because, historically, seawater was not considered to have an economic value associated to any beneficial use, there is little case law base in common law jurisdictions related to seawater abstraction and use rights, and the legal framework set for coastal management often does not explicitly cover seawater abstraction rights among contemplated littoral rights, that is, the rights of the owners of a property abutting a lake or a seashore. Indeed, regulated littoral rights usually focus on the right to access and navigate the water or to build structures (a building, a dock, or other kind of structure) on the coastline. On some occasions, littoral laws also set forth provisions for the authorizations to mine other coastal resources, such as sand and gravel, but it is not common to see a similar provision related to rights to abstract seawater. Florida has established in its statute specific provisions for the permitting of seawater and brackish water abstraction within its water resources code.1 Water resources covered by the statutes specifically include in the definitions “coastal waters” (art. 373.019). Salt water is also considered as a type of “alternative water” (ibid.), and art. 373.236 even sets the duration of such permits, ranging between 20 and 50 years, depending on the date of the issuance and the source of financing, provided that there is “sufficient data to provide reasonable assurance that the conditions for permit issuance will be met for the duration of the permit.” Even when the permitting process to abstract seawater might be clarified, there still might be doubts about the claims of the developer over desalinated water. In particular in the US, there might be an apparent conflict between the “developed water” and the “public trust” doctrines. The former refers to the right of an appropriator to use (and reuse) a water source that would not be available for supply without the work or investment of the appropriator. This refers, for example, to imported water and reclaimed water, and it could be claimed that it is also applicable to desalinated water. However, seawater is considered public trust and as such its property cannot be alienated. For this reason, some authors (e.g., Papas 2011) argue the desalter should not be considered to have any vested right over desalinated water. Spanish authorities have reduced uncertainties about the claims of the developer over desalinated water, explicitly considering desalinated water in their water law as part of the public water domain. As such, the right to use desalinated water is subject to the same permitting scheme as the right to use any other source of water and is subject to the same conditions and limitations.2 GOVERNANCE AND ECONOMICS OF DESALINATION AND REUSE: VOLUME 1 17 With the promising evolution of brine mining technologies, it is becoming increasingly important to clarify not only the right to use the desalinated flow for a beneficial use but also the brine effluent. Brine mining consists of obtaining valuable minerals and chemical products that are dissolved in brine. Brine is a by-product of the desalination process that is usually returned to the sea. As explained above, this creates environmental concerns because the brine has a higher salinity than the receiving water body and, in the case of thermal desalination, because of the potential thermal pollution. However, the industry is making significant research efforts to develop commercially viable seawater desalination brine mining technologies, to obtain minerals such as lithium and other chemicals such as sodium hypochlorite. In this context, it will be important to clarify the claims of the desalination developer over the brine effluent. This may entail considering also the legal and regulatory framework of the mining sector and not just the water sector. Although water laws do not distinguish between brackish and fresh groundwater in most jurisdictions, natural brackish aquifers fall largely outside of groundwater management regimes. There is an important practical distinction between brackish groundwater basins and freshwater basins that have become salinized because of saltwater intrusion. The former basins fall largely outside of groundwater management regimes because brackish water has not historically been considered a desirable resource. Therefore, for example, brackish groundwater basins are not considered high or medium priority basins under California’s Sustainable Groundwater Management Act (SGMA) of 2014, and brackish groundwater basins have not been identified as Groundwater Proclamation Areas in Western Australia. California’s SGMA requires local agencies to establish groundwater sustainability agencies for medium and high priority basins, which shall prepare groundwater sustainability plans to mitigate overdraft within 20 years. Groundwater Proclamation Areas are areas that are proclaimed to protect, manage, and regulate water under the rights in Western Australia 1914 Water and Irrigation Act. 2.3. The Fit of Reclaimed Water in Traditional Regimes If freshwater resources are considered part of a public trust, there should be little doubt about the ownership of reclaimed water. For example, in the case of Tunisia, the water code does not explicitly mention reclaimed water as part of the public water domain. However, it does mention natural freshwater sources as part of this public trust, highlighting its inalienable nature. Therefore, holding a water right does not entail real property of water but rather a right to use, and therefore, once used it remains part of the trust. However, if desalinated water is not mentioned as part of the public water domain (as in the case of Tunisia) and there is not clarity on the conditions on which the right to abstract seawater was granted, there could eventually be doubts on the entitlement the developer of the desalination plant might have over the reclaimed desalinated water. GOVERNANCE AND ECONOMICS OF DESALINATION AND REUSE: VOLUME 1 18 Whereas some countries manage access and use of reclaimed water through their water rights permitting system, others do not issue a differentiated right for reuse. Spain is an example of a jurisdiction where reuse, when performed by an entity other than the holder of the wastewater discharge permit, requires a water right (an administrative concession), which is to be obtained following a similar process as for other water sources, with the addition that the reclaimed water shall comply with the quality standards stablished for the authorized uses. Other countries like Tunisia and Morocco do not issue rights under administrative concession agreements but, rather, authorizations to use reclaimed water (administrative concessions constitute a real right to use the water, while authorizations can be revoked). It should be noted, however, that Morocco does not issue rights (that is, does not grant concessions) except for the use of water for drinking water supply or for hydropower generation. In most jurisdictions, the holder of the original water right or the holder of treated wastewater discharge permit has first rights to use the reclaimed water. For example, in Peru and Morocco the holder of the original right does not have to request an authorization for reuse, provided that it is for the same use for which the freshwater right was issued,3 while an authorization is required if the user of the reclaimed water is a third party. In the case of Spain, the permitting procedure is simplified if the holder of the wastewater discharge permit is the entity seeking authorization to reuse (an authorization instead of a concession must be requested). The holder of such a permit has priority over the holder of the original freshwater right and over any third party requesting the right.4 In the case of California, as in most of the states in the US, reclaimed water is considered “developed water,” and as such, the owner of the water reclamation facility can claim rights over it, provided that this does not entail any harm to the environment or any other downstream users (that is, the no injury rule). For this, a “water rights change petition” must be filed for the reuse of water, which rights are subject to State Water Board regulatory jurisdiction (that is, not to appropriative or riparian rights), and downstream users must be given the opportunity to object. Certain authorities allow trading reclaimed water rights. The Spanish legislation allows the transfer of wastewater reuse rights through contract to a third party if they are for the same type of use (that is, if reuse was authorized for a nonconsumptive use, it cannot be transferred to a third party for a consumptive use), and as long as applicable water quality standards are met, and the use is within the same basin. This transfer is nonetheless to be formally authorized by the corresponding basin authority. However, as for the transfer of any other water right, this authorization could not take place if it entails a harm to downstream users or to the environment. In the case of California, developed water can be considered subject to prior appropriation by the owner of the reclamation facility, and as such, it can be traded with. There might also be uncertainties about rights over reclaimed water used for managed aquifer recharge. The main purpose of managed aquifer recharge activities is to ensure reliable access to the stored water in times of shortage of other sources of supply or GOVERNANCE AND ECONOMICS OF DESALINATION AND REUSE: VOLUME 1 19 of increased demand. However, when reclaimed water is stored in an overexploited aquifer subject to water abstraction restrictions, there might be controversy over the rights to abstract stored water because it is mixed with existing “native” groundwater. In fact, in most jurisdictions the recuperation of stored water is subject to the same water rights regime as conventional groundwater, which might give rise to disputes when the prior appropriation, the reasonable use, or the correlative rights doctrines apply. Ideally, the holders of a permit to perform managed recharge activities should have priority abstraction rights, and the permit should ideally establish the permitted injection volume, the maximum withdrawal volume (perhaps as a percentage of the recharged volume), the time period over which the recharged volume might be recovered, and the maximum authorized annual withdrawal (Ward and Dillon 2011). NOTES 1. Chapter 373 of the Florida Statutes. 2. Law 11/2005 modifying the Water Resources Law 10/2001. 3. Water Resources Law #29338 dated March 31, 2009, article 82. 4. Royal Decree 1620/2007, article 3. GOVERNANCE AND ECONOMICS OF DESALINATION AND REUSE: VOLUME 1 20 3. Developing Desalination and Reuse-Specific Environmental, Health, and Safety Regulations 3.1. Regulatory Approaches to Environmental Regulation and Pollution Control There are three main approaches toward pollution control policy making: (i) prescriptive regulations, (ii) market-based incentives, and (iii) voluntary incentives. Prescriptive regulations could set performance-based standards, that is, establish pollution thresholds that should be met by individual sources or plants, and technology or design standards that should be used by those individual sources for production or to control pollution to meet tolerable pollution rates. On the other hand, setting market-based incentives gives more flexibility to polluters because they typically do not set standards for individual facilities. Examples of market-based approaches include marketable permits systems and cap-and-trade systems, emission taxes, environmental subsidies, and information disclosure obligations. Voluntary incentives could eventually take the form of industry certification programs. Performance-based standards encourage innovation, but technology and design standards simplify and reduce compliance monitoring costs. Performance standards encourage polluters to innovate to develop and adopt cheaper technologies to comply with the regulation; however, it fails to create incentives to reduce pollution beyond established thresholds. Plus, performance-based standards favor the adoption of end-of-pipe rather than process-integrated pollution reduction approaches. Similarly, monitoring systems to be set by environmental and health authorities to verify compliance might be complex and expensive. On the other hand, verifying the adoption of a particular technology or design might be relatively easy but would fail to create incentives for innovation and cost effectiveness. Often, environmental authorities prescribe a combination of performance and technology and design standards. “Best available technology (BAT) approaches” address the shortcoming of traditional technology standards by creating incentives for continuous improvements of performance beyond the permitting date. BAT approaches set a moving target for pollution reduction, overcoming the shortcomings of traditional prescriptive regulatory approaches. BAT regulation could eventually prescribe a particular technology or group of technologies, but most commonly it translates into updated emission-level values set by environmental GOVERNANCE AND ECONOMICS OF DESALINATION AND REUSE: VOLUME 1 21 authorities, considering BATs. Most legislation that has embraced BAT approaches usually requires existing facilities to be retrofitted within a given time frame to meet updated emission-level thresholds. BAT approaches entail methodological complexities because they usually require setting a technical committee and a comprehensive and periodic consultation process with environmental and sector authorities, industry associations, and civil society organizations: a process that might be too lengthy for rapid evolving sectors. How to factor in cost effectiveness might also be a concern in the definition of BAT approaches. When, because of their complexity, country-level authorities lack the capacity to define BATs, they might rely on recommendations issued by multilateral or supranational authorities, like the European Union (EU). BAT has, for example, been adopted by the US Environmental Protection Agency (USEPA) for the regulation of wastewater discharges under the National Pollutant Discharge Elimination System (NPDES) permitting system. Compared with traditional prescriptive methods, market-based incentives may allow to improve the cost effectiveness and cost efficiency of environmental impact abatement investments. For example, in cap-and-trade systems in which a maximum aggregated level of pollution is set for the “market” in a given jurisdiction, owners of polluting facilities get certain pollution allowances and can trade with them so “that those with opportunities to reduce emissions at lower costs have an incentive to do so” (USEPA 2010). Emission taxes are a way to internalize the externalities of pollution if correctly set, creating incentives for the polluter to reduce emissions to reduce costs. On the other hand, environmental subsidy programs to reduce emissions have the same effect as emission taxes because they create incentives for polluters to reduce emissions. Mechanisms adopted to manage pollution and environmental concerns associated with the exploitation of conventional water resources might create incentives for the uptake of desalination and reuse. For example, freshwater rights allocation systems allowing for right trading are basically cap-and-trade environmental policies that, if appropriately implemented, could create incentives for improving water use efficiency and to reuse water when the trading value of water is higher than the cost of reclaiming water. Similarly, where water authorities charge a fee for freshwater abstraction, if this is close to the marginal cost of water, it creates incentives for the uptake of unconventional water resources. Similar incentives for reuse could be created when water or environmental authorities charge pollutant discharge fees or when water reclamation is subsidized to facilitate uptake. 3.2. The Environmental Regulation of Seawater and Brackish Water Desalination in Different Jurisdictions The main environmental concerns associated with desalination relate to brine discharge, impingement and entrainment of fisheries in intake structures, and greenhouse gas (GHG) emissions. Commercially available desalination technologies, both thermal and membrane based, have recovery rates (that is, the share of the feed water that is GOVERNANCE AND ECONOMICS OF DESALINATION AND REUSE: VOLUME 1 22 desalinated) lower than one, with the actual rate depending mainly on the salinity of the feed water and the desalination technology used. Efficient recovery rates for seawater reverse osmosis (SWRO) desalination plants range between 50 and 60 percent. The remaining water that is not desalinated, that is, the brine, must be disposed with a higher concentration of salts because it retains those removed from the product water. In thermal desalination plants, the brine is also at a higher temperature than receiving waters. Even though increased salinity dilutes rapidly and within a relatively small distance from the discharge point, brine discharge could be a concern when the discharge is in the vicinity of a habitat sensitive to salinity or temperature variations. Brine discharge, and particularly its cumulative impact, is of special concern in the case of inland brackish water desalination facilities. In the case of seawater desalination, two other important concerns are impingement, that is, fish making physical contact or getting stuck in seawater intake structures due to high intake velocities, and entrainment, that is, the unwanted passage of fish through the intake structure. GHG emissions are also a concern for seawater desalination, given the energy intensity of the desalination process. Although most jurisdictions do not set prescriptive environmental regulations for desalination activities across the board, some set performance standards limiting seawater intake velocity. Environmental and social management requirements are generally determined by the findings of an environmental review process, rather than prescriptive regulation. This means that measures to protect marine life and ecosystems are often site-specific. Nonetheless, there are some general trends: most notably, a 0.15 meters per second through-screen velocity limit to mitigate the impingement impact of intakes. This was recommended by Electric Power Research Institute in 2000, after it was originally proposed by the USEPA, and is now often adopted for many seawater desalination projects, not necessarily through regulation but, rather, through the requirements established in request for proposals (RFP) documents. California authorities embraced the BAT approach to minimize impingement and entrainment of fisheries. According to California Ocean Plan (2019), developers of seawater desalination projects shall analyze “feasible alternatives for the best available site, the best available design, best available technologies, and best available mitigation measures to minimize intake and mortality of all forms of marine life.” Among these alternatives, the plan encourages to the extent possible consider sites allowing for the adoption of “subsurface intakes” (that is, beach wells) and for sharing intake and outflow facilities with the ones currently in use for thermal power stations and wastewater treatment plants. California, Saudi Arabia, and Tunisia also set performance standards limiting the salinity of brine discharges. California authorities can regulate brine discharges into the ocean or any other water body through the NPDES permit scheme, which is under the auspices of the federal government administered by the USEPA but that, in some cases, like in California, it is delegated to the state. On the other hand, as mentioned above, the Clean GOVERNANCE AND ECONOMICS OF DESALINATION AND REUSE: VOLUME 1 23 Water Act adopts the BAT approach for regulating pollution discharges to water bodies. However, California’s Ocean Plan includes a performance standard for brine discharges, according to which salinity shall not “exceed 2.0 parts per thousand above natural background salinity,” “or the concentration of salinity approved as part of an alternative receiving water limitation” in the brine mixing zone. “The standard brine mixing zone shall not exceed 100 meters laterally from the points of discharge and throughout the water column.” Saudi authorities set similar performance requirements related to salinity concentrations in a predetermined mixing zone. California also encourages the collocation of seawater desalination facilities with thermal energy plants and wastewater treatment plants to share intake and outflow facilities and reduce impact to use, to the extent possible, injection beach wells or, if not possible, to use diffusers to facilitate dilution as close as possible to the discharge point. Tunisia establishes in the regulations of its water code performance standards that apply to any type of wastewater discharges into the ocean and that, among requirements, limits conductivity of the effluent. Other countries, such as Saudi Arabia, Egypt, and Western Australia, also establish other performance standards (like pH and temperature of the discharge) or design standards establishing the minimum length of the outflow and the depth of the point of discharge. All jurisdictions, however, call for the development and implementation of environmental impact assessments and environmental management plans in compliance with national environmental regulations. California authorities also establish the obligation for the developer to compensate for the estimated fish mortality in the brine dilution area. This could be through the implementation of restoration projects or creation of habitats such as kelp beds, estuaries, wetlands, reefs, or others or through the contribution to a fee-based mitigation program to be established by a public agency, that is, a market-based approach. Although there are no specific regulations related to GHG emissions, many jurisdictions have information disclosure requirements and count with voluntary mechanisms incentivizing the purchasing of certified green energy to feed desalination. Information disclosure requirements could be introduced through the environmental impact assessment (EIA) and environmental management plan (EMP) development, review, and consultation processes or as part of the regulations related to environmental, social, and governance (ESG) of corporations—in this case, of private developers and financiers of reclaimed water and desalination projects—which can establish compulsory information disclosure requirements on environmental and social impacts of operational activities. In countries with sophisticated energy markets, this could create incentives for the inclusion of renewable energy generation components in the scope of desalination and water reclamation projects or for the purchase of green energy certificates in markets in which they exist (see the section below on the influence of the regulation of the energy sector on the viability of desalination projects). Besides national environmental regulations, international treaties on GHG emissions and for the protection of the seas create a system of accountability beyond the limits of GOVERNANCE AND ECONOMICS OF DESALINATION AND REUSE: VOLUME 1 24 a single jurisdiction. The United Nations Convention of the Law of the Seas established a “comprehensive law regime for governing all uses of the oceans and conventions” (UN 2023), setting the stage for the creation of the Regional Seas Convention (RSC) and the associated action plans (RSCAP). There are 18 RSCs and RSCPs globally, which “provide inter-governmental frameworks to address the degradation of the oceans and seas at a regional level” (UNEP 2023), focusing both on pollution at sea and land-based sources of pollution, for example, wastewater and brine. RSCAPs have both a normative and implementation mandate. The three RSCAPs that have a greater relevance for desalination are the Barcelona Convention for the Protection of the Mediterranean Sea (1976), the Regional Convention for the Conservation of the Red Sea and the Gulf of Aden Environment (1982), and the Kuwait convention for the Co-operation on the Protection of the Marine Environment from Pollution (1978). The Barcelona Convention’s protocol for the protection against pollution for land- based sources was amended in December 2021 to include a specific mention to brine discharges from desalination plants. The United Nations Environment Programme (UNEP) is currently looking “to develop environmental standards on desalination, including but not limited to, Effluent Limit Values including best available technologies and best environmental practices; brine treatment and pretreatment technologies and propose regional regulatory measures based on regulations applied by the Contracting Parties of the Barcelona Convention in the regions” (UNEP 2022). In the case of the Red Sea and the Kuwait Regional conventions, though seawater desalination brine is never explicitly mentioned in the protocols, seawater desalination is listed as a category of “land-based activity” to which the dispensations of the corresponding protocols apply. However, there are no specific measures outlined regarding the intake or outfalls of desalination plants, which are therefore presumed to simply fall under the general obligations of this protocol (for example, the carrying out of environmental impact assessments, the issuing of licenses for discharge into the marine environment, the development of relevant technical expertise, and the regular monitoring of coastal pollution). In certain countries, agreed National Determined Contributions (NDCs) could create incentives to reduce GHG by greening the electricity market, the water sector, and desalination activities. The Paris Agreement is a legally binding treaty on climate change, which was adopted in 2015, by which the 196 signatory countries commit to take the required measures to hold “the increase in the global average temperature to well below 2°C above pre-industrial levels,” and make efforts to reduce this benchmark to 1.5 degrees Celsius. For this, emissions should peak before 2024 and be reduced by 43 percent by 2030. Since 2020, signatory countries must prepare and submit every five years and with an increased level of ambition their national climate action plans— known as NDCs—in which they must outline the actions their governments will take to reduce GHGs emissions and adapt to and mitigate the effects of climate change. Saudi Arabia, for example, established in their 2021 submission the commitment to move away from thermal desalination toward the more energy efficient SWRO, to start coupling renewable energies and desalination projects, and to increase wastewater reuse, among other measures foreseen in the water sector. GOVERNANCE AND ECONOMICS OF DESALINATION AND REUSE: VOLUME 1 25 The principal challenge for brackish water desalination is the disposal of brine reject. Typically, the available brine management options are: (i) deep well injection, that is, disposal in a deeper aquifer that is not used as a source of drinking water; (ii) blending, that is, mixing with a lower salinity water, such as treated sewage effluent, to dilute the brine; (iii) ocean outfall, that is, transporting inland brines to the coast for offshore discharge—this may require additional treatment to ensure compliance with ocean discharge limits—and (iv) evaporation ponds. Regulations related to pollutants discharges and to the protection of surface and groundwater are relevant for the evaporation, discharge, and injection of brine in the aquifer. Many countries do not have a specific regulation related to the management of brackish water brine discharges, and they are, rather, covered under general regulations related to environmental management, surface waters, groundwater and wastewater management. However, some countries have specific regulations related to underground waste injections, like the US, where the USEPA has developed regulations that cover the injection of municipal wastewaters, including brine from the brackish water desalination process, even though, to date, only one state in the country uses this method of disposal. Municipal wastewaters fall below the Class I injection wells type for hazardous and nonhazardous wells. Class I wells allow injection far below aquifers used for drinking water supply (injection zones typically range from 600 to more than 3,000 meters in depth) and should be separated from the drinking water aquifer by an impermeable geological formation. Every Class I well requires a permit, valid for up to 10 years. These permits establish conditions on geological studies to be performed, the construction of the well (requires a multilayered impermeable casing), operation, monitoring, testing, and reporting. 3.3. Different Approaches for the Regulation of Environmental and Health and Safety Aspects of Water Reuse The first regulations for reclaimed water irrigation were developed by the State of California in 1918 and influenced policy agendas and research programs worldwide. This first regulation adopted a “zero risk” approach because it established authorized pathogen levels for the irrigation of produce eaten raw equivalent to the ones set in drinking water standards. Subsequent regulations and guidelines relaxed these standards but still accepted only very limited risks. This was the case of revised regulations issued in California and the guidelines proposed by World Health Organization (WHO) in 1973 with very low levels of pathogens (100 coliforms per 100 milliliters) and other pollutants in the treated effluent, which proved quite difficult to attain in developing contexts. Many developed states, however, still abide by these more restrictive approaches. Less demanding guidelines were developed in the early 1990s by WHO and the Food and Agriculture Organization (FAO), considering not just health but also agronomic GOVERNANCE AND ECONOMICS OF DESALINATION AND REUSE: VOLUME 1 26 considerations and differentiating between alternative uses. As shown in table 3.1, the 1989 WHO guidelines propose three different levels of pathogen concentration thresholds, indicating the treatment technology that would likely have to be adopted to meet them. Each of these maximum pathogen concentrations are recommended for different types of crops and irrigation techniques to keep both costs and health risks relatively low. FAO’s 1992 guidelines on the other hand (their second proposal; a first set of guidelines was issued in 1970) includes thresholds for certain reclaimed water quality parameters to reduce the risk of soil degradation and risks to crop quality and productivity. Proposed agronomic parameters to monitor include, among others, salinity, rate of water infiltration into the soil, and specific ion toxicity. For each level of restriction and parameter, the guidelines provide management alternatives to deal with associated potential problems (FAO 1992). Table 3.1. WHO Guidelines for the Safe Use of Wastewater in Agriculture Intestinal nematodesb Wastewater (arithmetic treatment expected mean Fecal coliforms to achieve Exposed no. of eggs (geometric mean the required Category Use condition group per literc) no. per 100 mLc) microbiological quality A Irrigation of crops Workers, ≤1 ≤1,000d A series of likely to be eaten consumers, stabilization uncooked, sports public ponds designed fields, public to achieve the parksa microbiological quality indicated or equivalent treatment B Irrigation of cereal Workers ≤1 No standard Retention in crops, industrial recommended stabilization ponds crops, fodder for 8–10 days or crops, pasture, equivalent helminth and treese and fecal coliform removal C Localized None Not Not applicable Pretreatment irrigation of crops applicable as required by in category B the irrigation if exposure of technology, but no workers and the less than primary public does not sedimentation occur Source: WHO 1989. a In specific cases, local epidemiological, sociocultural, and environmental factors should be taken into account and the guidelines modified accordingly; b Ascaris and Trichuris species and hookworms; c during the irrigation period; d a more stringent guideline (< 200 fecal coliforms per 100 mL) is appropriate for public lawns, such as hotel lawns, with which public may come into direct contact. e In the case of fruit trees, irrigation should cease two weeks before fruit is picked, and no fruit should be picked off the ground. Sprinkler should not be used. GOVERNANCE AND ECONOMICS OF DESALINATION AND REUSE: VOLUME 1 27 In 2006, the WHO developed the “multibarrier approach” that has had limited uptake to date. Instead of focusing exclusively on setting technical or performance standards for wastewater treatment that are often difficult to attain in low institutional capacity contexts, these guidelines propose a focus on “health-based targets” measured in disability-adjusted life years and set for the different steps of the process, that is, irrigation, harvest, and consumption. To attain these targets, the guidelines consider wastewater treatment (both conventional and unconventional processes); the adoption of safer irrigation methods, like drip irrigation; the use of protection equipment like boots and gloves; and the interruption of irrigation before harvesting and produce washing. However, the WHO multibarrier approach is widely considered as complicated to understand and apply by authorities without specialized support. Indeed, as per WHO recommendations, health targets and pathogen reduction control points are to be set undertaking context-specific quantitative microbiological risk assessments or epidemiological studies. This, in turn, requires a strong research capacity and country- or region-specific data. The EU regulation 2020/741 on wastewater reuse for irrigation introduces the obligation for the parties involved in the treatment and reuse process to develop and implement risk management plans. This regulation limits the responsibility of the water reclamation facility operator to the environmental and health safeness of the processes under its control and for the quality of water at the point of compliance, that is, the point of delivery to the next actor in the service delivery chain (that is, the final consumer, the storage operator, or the distribution operator). Nonetheless, it also requires for a risk management plan covering the entire service delivery chain to be prepared by the relevant stakeholders and approved by the competent authority. The regulation also establishes the need for a permit to operate reclamation facilities and leaves open the possibility for the competent authority to request the permit of distributors and storage operators. EU regulation 2020/741 establishes minimum quality standards for reclaimed water for different types of crops and irrigation techniques and sets indicative associated treatment technologies. Table 3.2 captures the main quality requirements of the regulation. Finally, the regulation also establishes minimum monitoring requirements, the need to undertake awareness-raising campaigns, and to disclose data on permits and on compliance. The regulation also requires performing validation monitoring before reclamation facilities are put into operation to assess performance and establishes minimum performance targets for the treatment chain of class A facilities, in terms of reduction of Escherichia coli, total coliphages, and spore-forming sulfate- reducing bacteria. The regulation also establishes the main elements to be included in a risk management plan to be prepared, including a description of the system; the parties involved; the identification of potential hazards and the potential for hazardous events; of the environments and populations at risk and the exposure routes; an assessment of risks GOVERNANCE AND ECONOMICS OF DESALINATION AND REUSE: VOLUME 1 28 to the environment and to human and animal health; and identification of preventive measures that are already in place or that should be taken to limit risks so that all identified risks can be adequately managed. Specific preventive measures are recommended for different uses (classes) of reclaimed water including: (i) prohibition of harvesting of wet irrigated or dropped produce; (ii) the exclusion of lactating dairy cattle from pasture until pasture is dry; (iii) drying or ensiling fodder before packaging; and (iv) preventing pigs’ exposure to fodder irrigated with reclaimed water. Table 3.2. Reclaimed Water Quality Requirements for Agricultural Irrigation, EU Regulation 2020/741 E. coli (#/100 BOD5 TSS Turbidity Other Crop and Indicative mL and (mg/L and (mg/L and NTU and (concentration irrigation treatment monitoring monitoring monitoring monitoring and monitoring Class method technology frequency) frequency) frequency) frequency) frequency) A Root crops Secondary ≤10, one a ≤10, one a ≤10, one a ≤5, Legionella and foods treatment, week week week continuous spp.: <1,000 crops filtration, cfu/L when consumed disinfection there is risk of raw with aerosolization. edible parts Twice a month in contact Helminth eggs: with water, ≤ 1 egg/L for all irrigation irrigation of methods pastures or forage B Other crops, Secondary ≤100, one In accordance with the Not all irrigation treatment, a week wastewater directive applicable methods. disinfection (91/271/EEC) C Other crops, Secondary ≤1,000, Not dripped treatment, twice a applicable irrigation disinfection month D Industrial, Secondary ≤10,000, Not energy and treatment, twice a applicable seeded crops disinfection month Source: Adapted from EU 2020/741. Technological developments and exacerbated water stress are pushing countries to increasingly consider indirect and direct potable reuse as an option. This has been facilitated to a great extent by development of membrane-based treatment technologies and the continuous cost decline of these technologies. Indirect potable reuse consists of the use of an environmental buffer such as a river, a lake, or an aquifer to discharge the reclaimed water and from where water is withdrawn for further potabilization. Direct potable reuse consists in the injection of the reclaimed water into a drinking water supply system, usually upstream of the drinking water treatment facility. GOVERNANCE AND ECONOMICS OF DESALINATION AND REUSE: VOLUME 1 29 Western Australia and California have specific regulations for indirect potable reuse. California set differentiated regulations for indirect potable reuse using reservoirs as an environmental buffer, called surface water augmentation projects, and for managed aquifer recharge with reclaimed water. Both regulations call for the operator of the reclaiming facility and the user of the reclaimed water or operator of the surface water reservoir to obtain a permit requiring the preparation and submittal for approval of an engineering report; a joint plan; a demonstration of technical, managerial, and financial capacity; and an operation and monitoring plan. The joint plan shall identify the roles and responsibilities of different stakeholders, procedures in place to ensure appropriate operations, knowledge of the status of the treatment process at all times (with a SCADA1 system), corrective actions if quality requirements are not met, procedures to ensure appropriate monitoring and reporting, and mechanisms to mobilize alternative water sources in case of failure. The performance of the treatment process to achieve the required level of pollutant removal shall be demonstrated during a validation and testing period. The regulations require to use advance treatment technologies, including reverse osmosis and oxidation treatment processes, and establish required minimum rejection of sodium chloride, total organic carbon, and nitrates (in the case of groundwater replenishment); pathogenic microorganisms, and regulated contaminants. For groundwater replenishment, the regulation requires determining the required minimum retention time to allow for proper risk management and allows to credit pathogen concentration reduction because of said retention. Other countries such as Spain have regulations related to the use of reclaimed water for managed aquifer recharge but not for human consumption. Spain establishes maximum concentrations for microbiological pathogens (E. coli and nematodes), nitrogen, total suspended solids (TSS), and turbidity. Countries with no specific regulations for managed aquifer recharge still might recharge practices, relying on regulations related to drinking or irrigation water quality standards, pollutants discharges, and the protection of surface and groundwater bodies. California recently issued direct potable reuse regulations. Similar to California’s indirect reuse regulations, direct reuse regulations require the obtention of a permit requiring the preparation of an engineering report; a joint plan; a demonstration of technical, managerial, and financial capacity; and an operation and monitoring plan. The content of the joint plan is similar to the one required for indirect reuse plus cross-connection and corrosion control plans. Operators shall be duly certified. The regulations also establish obligations to the reclaimed facility operator regarding wastewater resource control and pathogen and chemical control. It requires a four-step treatment process for pathogen control, including a membrane separation process, a chemical inactivation mechanism, and ultraviolet inactivation, and at least three treatment processes for chemical control, comprising ozonation and activated carbon, reverse osmosis, and advance oxidation. The required treatment performance could be eventually adjusted if the effluent is mixed with groundwater or surface water. GOVERNANCE AND ECONOMICS OF DESALINATION AND REUSE: VOLUME 1 30 3.4. Different Approaches for the Regulation of Environmental Aspects of the Sludge Generated as a By-Product of the Wastewater Treatment and Reclamation Processes With the right regulatory incentives, the sewage sludge that is produced as a by- product of the wastewater treatment and reclamation process could be converted from a waste to be disposed into valuable biosolids. The sludge generated in the different steps of some types of wastewater treatment and reclamation processes contains both inorganic and organic materials, plant nutrients, trace elements of inorganic pollutants, and pathogens. There are several types and levels of treatment that can be adopted for sludge, including thickening and dewatering, anaerobic and aerobic digestion, alkaline stabilization, and composting. Depending on the level of treatment, the system could reduce the liquid phase or volume of the sludge, reduce the content of pathogens, decrease volatile solids, reduce odor, or stabilize organic matter while reducing plant nutrient value. Although the easier way to dispose of sludge would be discharging it into a landfill or incinerating it, if appropriately treated, the sludge could be transformed into valuable biosolids with high stabilized organic content and nutrients that could be used for soil improvement and agricultural applications. Moreover, although landfill discharge and incineration would require a lower and cheaper level of treatment, they come with GHG in the form of methane in landfills because the organic content gets further decomposed or carbon dioxide in incinerators. Landfill discharge also constitutes a risk of contamination of aquifers and the local environment should the liner of the landfill fail. Different approaches could be adopted to mitigate environmental and health risks associated to the use of sewage sludge as biosolids for land applications. Risks are related to the concentration of pathogens, heavy metals (if industrial wastewaters are not segregated and treated appropriately), and organic content that, if not properly managed, could be harmful for the environment, water bodies, and animal and human health. As with the alternative inorganic fertilizers, excessive application could result in nutrients runoff and leaching. To deal with these risks, different regulatory approaches could be adopted for the use of biosolids, similar to the ones described above for the use of reclaimed water, that is: (i) prescriptive “no-contamination” regulations; (ii) best available technology (BAT) approaches; and (iii) risk-based regulations. The US Environmental Protection Agency (USEPA) set risk-based regulations for the use of biosolids. These regulations classify biosolids based on the pathogen concentrations, vector attraction, and content of trace elements. The use of low-quality biosolids is forbidden, while the use of high-quality ones is encouraged, and the use of average- quality biosolids is limited. In all cases, their use is subject to the application of certain risk management measures, like limitations to biosolids use near to protected areas and in zones where the water table is close to the surface, establishment of minimum set-back distances for their application in the vicinity of houses and water bodies, GOVERNANCE AND ECONOMICS OF DESALINATION AND REUSE: VOLUME 1 31 mandatory training and development, and application of soil conservation plans, training programs, and measures to keep away vectors such as insects and rodents. These risk- based approaches can be developed and adapted to different local contexts and are less restrictive—and therefore less technology and investment intense—than prescriptive no-contamination approaches and BAT approaches, which limit concentrations of pollutants to the level that can be attained with BAT in the market. Therefore, it creates fewer barriers for the uptake of sludge biosolids for productive purposes. Regulatory disincentives could also be adopted for landfill discharge and incineration of sludge, such as the enforcement of higher tipping fees and taxes reflective of the cost of environmental externalities and the opportunity costs of the nutrients lost. NOTE 1. A supervisory control and data acquisition system (SCADA) is a system of software and hardware instruments allowing to monitor and control industrial processes in real time. GOVERNANCE AND ECONOMICS OF DESALINATION AND REUSE: VOLUME 1 32 4. Adapting Water Sector Financial Policies and Economic Regulations 4.1. Costs, Fiscal Impact of Desalination Activities, and Financial Policy Implications Although desalination costs are decreasing steadily, they are still higher than retail water tariffs in most of the countries and regions where desalination is mainstreamed in the water mix. In 2016, the average cost of desalinated water production using reverse osmosis seawater desalination technologies was $0.98, $1.35, and $1.38 per cubic meter in the Mediterranean Sea, the Arabian Gulf, and the Red Sea, respectively, including both capital and operational expenditures (World Bank 2019a). These cost variations across regions are mainly caused by the different salinity and temperature of the raw water used for production. As shown in figure 1.3, this cost kept constantly dropping, getting below the $0.50 per cubic meter benchmark in several build, operate, and transfer (BOT) desalination projects in the Middle East and North Africa region in recent years, including in Israel, Saudi Arabia, Qatar, United Arab Emirates (UAE), and Morocco. However, as shown in figure 4.1, even these record-breaking production costs are too high considering the low retail drinking water supply tariffs charged by many utilities operating in extreme water scarce areas that rely heavily on desalination. Indeed, as can be seen in figure 4.1, desalinated water production costs, that is, not accounting for water distribution and wastewater collection and treatment, are higher than the retail tariffs charged to the final consumer in many water scarce countries relying heavily on desalination. Therefore, desalination programs often require support from the sovereign in the form of subsidies and could come along with a significant fiscal impact. Moreover, most medium- and large-size desalination plants are procured using BOT schemes. In these cases, low retail tariffs normally bring concerns on the ability of the utility to pay the desalinated water tariff on time to the developer, requiring the sovereign to assume certain contingent liabilities to make the desalination project viable. These contingent liabilities could, for example, relate to early contract termination or debt and revenue guarantees.1 Also, desalination, being an energy intense process, often benefits significantly from explicit subsidies to electricity applied across the board in many countries (that is, fiscal transfers to public electricity utilities to keep retail energy tariffs low) and from implicit subsidies to electricity generation in oil-producing economies (that is, selling fossil fuels to electricity generation companies below their international GOVERNANCE AND ECONOMICS OF DESALINATION AND REUSE: VOLUME 1 33 Figure 4.1. Drinking Water Tariff per m3 Considering a Monthly Consumption of 16 m3 vs. Desalinated Water Tariff US$/m3 3.0 2.5 2.0 1.5 1.0 Desalination cost 0.5 0 ) ) ) ) ) ) n) ) ) t) ) n) a) ) in an ar SA el ak pt ia co AE ai isi no da r ra ra at gy (Ir uw m oc ge (K (U n (Is ah (Q or ba O Tu (E ah or Al (K ah bi (J (B t( Le v a M s( ia s( sr ha vi dd ity oh ca an dr a t( t( Ba lA ni er am D tc us Je D m iru ba an Tu gi Te u ai Am M an Be ex Al Ra Ab w M Al Ku Sources: Global Water Intelligence (GWI) tariff survey 2024 and desaldata.com. Note: Desalinated water tariff of US$0.84/m3 calculated the cost calculator of desaldata.com, considering: (i) a seawater reverse osmosis desalination plant, with a production capacity of 150,000 m3/day, (ii) a price of electricity of 0.08 US$/Kwh, (iii) a facility availability rate of 95%, (iv) a debt/equity ratio of 3, (v) a loan repayment period of 20 years; (vi) an equity yield of 12%; and (vii) an interest rate of 6%. market price to keep electricity production costs artificially low). For example, in 2017 the World Bank performed an analysis of water subsidies in a Middle East and North Africa country. According to this analysis, the fiscal impact of the water sector tariff deficit represented 0.72 percent of the gross domestic product (GDP), including implicit subsidies to energy. While just 19 percent of the drinking water consumed in the country came from desalination, desalination made up 39 percent of the subsidies channeled to the water sector annually. Subsidies can make sense to address market imperfections, that is, when normal market conditions fail to attain desirable social outcomes. In the case of desalination, subsidies could eventually make sense, for example, to make water supply affordable for vulnerable groups, to create incentives to reduce pressure on overexploited aquifers, or to free up surface water resources to keep environmental flows at adequate levels. However, fiscal support should be channeled in a way to prevent the misalignment of the incentives perceived by different stakeholders. Traditionally, in many Middle East and North Africa countries, distribution utilities do or did not have to pay for desalinated water, nor for the mobilization of surface water resources from dams, which are often managed by other national agencies. Indeed, desalination costs often are directly paid by the treasury making fiscal transfers to the national utility in charge of developing and GOVERNANCE AND ECONOMICS OF DESALINATION AND REUSE: VOLUME 1 34 operating desalination facilities (this used to be the case of the Saline Water Conversion Corporation, SWCC, in Saudi Arabia, now called Saudi Water Authority, SWA) or to a national off taker of desalinated water produced by private developers, which subsequently dispatches the water to distribution companies free of charge (this is, for example, the case of Algeria and used to be the case of the Saudi Water Partnership Figure 4.2. Phases of the Saudi Arabia Water Sector Reform Strategy Phase 0: Prior to the reform Consumption Distribution Off-taking Production SWCC Citizens NWC SWPC Private developers Sovereign Phase 1: Current situation Consumption Distribution Off-taking Production SWCC Citizens NWC SWPC Private developers Sovereign Phase 2: Targeted subsidies to vulnerable citizens Consumption Distribution Off-taking Production SWCC Citizens NWC SWPC Private developers Sovereign Flow of desalinated water Payments Fiscal transfer GOVERNANCE AND ECONOMICS OF DESALINATION AND REUSE: VOLUME 1 35 Company, SWPC). In this context, distribution utilities have little incentive to invest in reducing water losses, despite the high cost of water production associated with the reliance on desalinated water. Moreover, channeling subsidies in this way usually results in desalination subsidies that are regressive (that is, they benefit more those clients of distribution utilities that are better off) because wealthier utility clients normally consume higher water volumes. The water sector reform currently under implementation in Saudi Arabia will allow the alignment of incentives perceived by all stakeholders. In Saudi Arabia, 70 percent of the drinking water supply comes from desalination. Prior to the launching of ongoing water sector reform, SWCC, a national utility developing and running in-house desalination facilities and water transmission pipelines, was supplying to the distribution utility (the National Water Company, NWC) desalinated water they consumed free of charge. Desalinated water was also produced by private developers under BOT schemes, delivered to SWPC, and then dispatched by the SWPC to distribution companies, also free of charge. The sovereign would cover SWCC and SWPC costs with fiscal transfers. Today, all subsidies—including desalination ones—are channeled through distribution companies, which in turn must pay the true cost of desalinated water to SWPC, which off takes and pays for the water produced both by private developers and SWA. As a next step, subsidies made available to distribution utilities are expected to decrease, as retail water tariffs are increased and targeted water consumption subsidies are made available to the most vulnerable citizens to compensate for the tariff increase. Figure 4.2 represents schematically the different phases of the Saudi sector reform strategy. More details on the ongoing sector reform in Saudi Arabia can be found in volume 2 of this knowledge series. 4.2. Barriers to Desalination Created by Retail Tariff Setting Mechanisms and the Economic Regulation of Drinking Water Supply Services Energy represents a significant share of the costs associated with the production of desalinated water. Currently, the most efficient seawater desalination plants, which use reverse osmosis technologies, consume approximately 2.9 kilowatt-hours of electricity to produce one cubic meter of desalinated water. While this figure could be reached in different in different geographies, and although according to a recent World Bank paper (2019a) electrical energy consumption represents approximately 41 percent of the operation and maintenance costs of SWRO desalination facilities, this share could vary significantly from country to country, because of differences in electricity tariffs. For illustration purposes, in June 2023 the average tariff paid by business for electricity in Algeria, Spain and Singapore, three countries relying significantly on desalination for drinking water supply in coastal areas, was $0.034, $0.153 and $0.314 per kilowatt- hour, respectively (Global Petrol Prices 2023). The importance of electricity costs is also illustrated by the breakdown of the levelized cost of water of the Sorel 2B SWRO desalination plant, one of the recently awarded desalination BOT projects with the lowest GOVERNANCE AND ECONOMICS OF DESALINATION AND REUSE: VOLUME 1 36 tariff. Its cost breakdown is as follows: $0.11 per cubic meter for capital expenditures, $0.05 per cubic meter for the cost of capital, $0.18 per cubic meter for electricity costs, and $0.065 per cubic meter for other operating expenditures (GWI 2020). Therefore, the cost of desalination might fluctuate significantly because of the volatility of global energy prices. Electricity is a unique commodity, because it cannot be efficiently stored, and the stability of the system requires a constant balance between supply and demand. Consequently, in countries with deregulated markets in which electricity is not managed by national publicly owned utilities and tariffs are not set politically and established by decree, electricity prices, as those of other basic energy sources (gas or heating oil), are significantly more volatile that the prices of other commodities. This is among other reasons because consumers are limited in their ability to switch to substitute energy sources. Acuamed, a Spanish state-owned utility running 12 desalination plants on the Mediterranean coast with an aggregated production capacity of 395 million cubic meters per year, had an electricity bill of €0.28 per cubic meter of desalinated water produced in 2019; €0.27 per cubic meter in 2020; €0.42 per cubic meter in 2021 and €1.03 per cubic meter in 2022; with a €1.28 per cubic meter peak in the third quarter of 2022. This situation may create significant financial distress to public desalination utilities and to the off taker of desalinated water, unless on-sale and retail water tariffs are appropriately indexed. In countries with regulated electricity markets or with national monopolies in the electricity sector, electricity costs associated to desalination production under BOT contracts are passed through from the private developer to the off taker, provided that the specific energy consumption (that is, kilowatt-hour consumed to produce a cubic meter of desalinated water) is below the contractually guaranteed value. In liberalized energy markets, the energy component of the desalination tariff is linked to agreed- upon energy price indexes, just as for other cost components. However, often the off taker of the desalinated water, or the public utility running the desalination facilities where this is the case, delivers the water to distribution utilities free of charge, or with a tariff that is not appropriately indexed. In cases were the off-taker or the operator of desalination facilities is the distribution utility, even when retail tariffs set by the regulator or approved by the corresponding political authorities are indexed, retail tariffs adjustments are usually not performed with the frequency of the reviews of the desalinated water tariff, or the evolution of the energy costs borne by the utility. This situation can create liquidity issues to the utility and might push it to postpone recurrent maintenance activities or require fiscal support from the sovereign. Countries with a drinking water supply and sanitation service regulator and that are new to desalination may have to adjust their economic regulatory model for the uptake of these new sources of water. For example, in Chile, besides distribution, drinking water tariffs approved by the regulator consider costs associated to the purchase of water rights (when needed), as well as to the operation, maintenance and asset renewal costs for water resources mobilization and treatment. However, until recently, the “model utility” regulatory approach used by the Chilean regulator would only allow for desalination GOVERNANCE AND ECONOMICS OF DESALINATION AND REUSE: VOLUME 1 37 costs to be covered by the retail tariff if they would be lower than the costs associated to the rights, mobilization and treatment of water resources in use. If desalination costs were to be higher, then just the equivalent costs of the traditional water source would be considered. This situation was recently corrected by the regulator, allowing utilities having to tap into desalination to satisfy demand to request a modification of the model utility used as a benchmark, if it demonstrated that conventional water resources cannot be further mobilized in an environmentally and economically sustainable way. Regulatory models are focused on efficiency and may create barriers when desalination is considered to deal with precipitation variability and not exclusively as a water augmentation strategy. In natural monopolies with asymmetries of information the goal of economic regulation is mimicking market competition to ensure that said monopolies offer to their customers the services they want at reasonable tariffs. This is tariffs that are enough to cover efficient service delivery costs allowing for a reasonable return of capital. However, this focus on cost efficiency of regulators often fails to allow for the redundancy and diversification of water resources required to achieve the desired level of service reliability (continuity) in different climate scenarios, and, in many geographies, climate change comes along increased precipitation variability, that in turn increases the volatility of surface water sources. Therefore, when it comes to water resources mobilization, regulators should not focus on looking for the water mix that minimizes the levelized cost of bulk water, but rather on the mix that achieves the desired level of reliability at the lower cost. In other words, the mix with the lowest risk-adjusted costs. The way to determine the optimal weight of desalination and reuse in the water resources mix to achieve the desired level of reliability at the lowest cost is explained in volume 3 of this knowledge series. 4.3. Water Abstraction and Pollution Taxes as Incentives for the Uptake of Reclaimed Water The “polluter pays” principle imposed by many countries poses questions regarding the appropriate mechanism for ensuring the financial sustainability of wastewater reuse. This principle was first introduced by the Organization for Economic Co-operation and Development (OECD), and it refers to the responsibility of the polluter to bear the cost associated to the pollution prevention, control and reduction measures adopted by public authorities, but also their responsibility to pay for the environmental damage caused by pollution, even if emissions were bellow permitted limits. The polluter pays principle has been adopted by several environmental authorities to manage water pollution, including those of the European Union (EU). However, in practice national authorities apply significant discretion on who should pay and how much for what services. Often the polluter is expected to cover just costs of the treatment required to meet discharge standards (which are often set considering primary and secondary treatment) and users of reclaimed water to cover the additional treatment required to reach reuse standards (usually tertiary treatment). Nonetheless, in practice tax-payer GOVERNANCE AND ECONOMICS OF DESALINATION AND REUSE: VOLUME 1 38 funding is often used to subsidize partially or totally capital costs of all these steps, and sometimes the operating costs. Recently EU environmental ministers agreed to charge cosmetical and pharmaceutical companies for the additional treatment that will be required to remove emerging micropollutants (quaternary treatment), as per the updated version of the Wastewater Directive, applying the principles of “extended producer responsibility.” As per the new directive, by 2045 tertiary treatment will be required for wastewater treatment facilities of more than 10,000 population-equivalent and, by the same year, an additional treatment removing a broad spectrum of micro-pollutants (“quaternary treatment”) will be mandatory for all plants over 150,000 population-equivalent. 80 percent of the costs required for the quaternary treatment are to be provided by cosmetical and pharmaceutical companies. Taxes charged for the abstraction and use of conventional water sources are low or inexistent in most countries. These taxes, when applied, are often differentiated per type of water source (groundwater or surface water) and by sector of application and type of user. Different water authorities applying such taxes might also do it for different purposes, such as funding the administrative costs of running the water resources governance structure, to fund activities to be performed under water resources management plans, to create incentives for efficient water use or to deter the use of stressed water sources. Different authorities applying such fees might also use different methodologies or type of fees, that is, volumetric, fixed (for example, per hectare of irrigated land) or per license. In this context there are limited economic incentives for the efficient use of water and the uptake of reclaimed water for irrigation. In most cases water authorities have limited ability to enforce such a taxing system, fees are not volumetric, and the level of charge is too low to create incentives for efficient use or to deter the exploitation of stressed water sources. Moreover, even tariffs charged by agencies in charge of the operation and maintenance of bulk water supply infrastructure are often below cost recovery levels, and in many countries, farmers enjoy electricity subsidies for groundwater pumping. Nonetheless, even if these taxes and tariffs are low, in water stressed jurisdictions allowing for trading of water rights, the markets may create these incentives for efficient water use, facilitating for the uptake of reuse and for the payment for reclaimed water. Israel is a good example of how to create economic incentives for reclaimed water irrigation. Under the 1959 Water Law, all water resources in Israel are state-owned. The Israel Water Authority is responsible for issuing water abstraction licenses and determines annual allocations, which can be reduced to ensure sustainability. Under the Water Law, a production license is required to run a self-supply system. High levies on extraction are set by the Water Authority to ensure that those with access to their own supply do not receive cheaper water than other users relying on other sources. The extraction of water is monitored through metering, which is universally required under the 1955 Water Measurement Law. Also, the sovereign grants of up to 70 percent GOVERNANCE AND ECONOMICS OF DESALINATION AND REUSE: VOLUME 1 39 of capital expenditures are available to water associations to set reuse schemes. Agricultural associations pay a nominal rate for the treated wastewater they receive from municipal treatment plants and charge their members a rate covering distribution costs, allowing for the cost of reclaimed water is kept well below that cost of freshwater sources. Table 4.1 shows the 2021 irrigation water rates. Table 4.1. Irrigation Water Tariffs in Israel, 2021 Water quality Rate ($/cubic meter, inclucling VAT) Potable water 0.66 1.25 1.75 (upto allocation) (≤ 10% above allocation) (> 10% above allocation) Treated wastewater 0.51 1.14 1.75 (Shafdan) (up to allocation) (≤ 8% above allocation) (> 8% above allocation) Treated wastewater 0.41 0.53 0.64 (tertiary) (up to allocation) (≤ 8% above allocation) (> 8% above allocation) Brackish water 0.27–0.55 125% of base rate 150% of base rate (up to allocation) (≤ 8% above allocation) (> 8% above allocation) Source: Israel Water Authority Rate Book 2021. NOTE 1. See volume 4 of this knowledge series for more details on desalination and reuse PPP regulations and structuring, as well as on direct and contingent support to this types of transactions. GOVERNANCE AND ECONOMICS OF DESALINATION AND REUSE: VOLUME 1 40 5. The Influence of the Functioning and Regulation of Other Related Sectors 5.1. Energy Sector Regulation and Its Influence on the Viability and Sustainability of Desalination Initiatives Desalination utilities operating in countries with liberalized and sophisticated energy and financial markets may partially off-set electricity prices volatility risk purchasing energy derivatives. As explained above, the important weight of energy in the cost structure implies that desalinated water production costs may fluctuate significantly. Acuamed, a Spanish state-owned desalination utility, has a combined electricity purchasing strategy aimed at minimizing energy costs. The company buys energy in the spot and daily OMIE1 market and in the futures OMIP2 market, when convenient. Acuamed takes the decision on whether to purchase energy in the futures market based on desalinated water demand projections (demand concentrates in the May to December period) and the price difference between the spot and future electricity prices in the market. While in 2023 electricity prices were such that Acuamed decided not to purchase future contracts, this strategy allowed the company to reduce its energy bill by 10 percent in 2017 (see figure 5.1 for the evolution of OMIE and OMIP electricity prices in 2017). One of the barriers faced by Spanish state-owned utilities to operate in the futures market is the restriction of the public procurement law of maximum contract duration of five years. Acuamed and other Spanish state-owned enterprises with high energy bills are lobbying for extending this, possibly to ten years, to take the most from their participation in the futures market. The volatility of electricity prices also creates incentives for the project sponsor to develop captive renewable energy generation facilities, contributing to the reduction of the carbon footprint of desalination. For example, Acuamed is developing an ambitious program to increase electricity self-generation capacity with the installation of solar panels in all its desalination facilities and the development of captive photovoltaic generation facilities aimed at reducing its energy bill and reducing exposure to the volatility of the electricity markets. Acuamed plans to invest €236.7 million in these generation facilities, with the bulk of the investment covered with grants coming from the European Union’s Next Generation funds. The objective is to produce inhouse the equivalent to 25 percent of its energy demand. The total costs of production of photovoltaic energy (without subsidies) for Acuamed is estimated to be €0.03 per kilowatt-hour. Annualized cost of the solar installations is certainly below current energy GOVERNANCE AND ECONOMICS OF DESALINATION AND REUSE: VOLUME 1 41 prices and can provide savings, even at market prices before the energy crisis (€0.04 per kilowatt-hour). Figure 5.1. 2017 OMIE and OMIP Electricity Prices Euro/KWh 100 90 80 70 60 50 40 30 20 10 0 7 7 7 7 7 7 7 7 7 7 7 7 7 7 7 7 7 7 /1 /1 /1 /1 /1 /1 /1 /1 /1 /1 /1 /1 /1 /1 /1 /1 /1 /1 1 1 1 2 3 3 4 4 5 5 5 6 6 7 7 8 8 9 /0 /0 /0 /0 /0 /0 /0 /0 /0 /0 /0 /0 /0 /0 /0 /0 /0 /0 01 16 31 15 02 17 01 16 01 16 31 15 30 15 30 14 29 13 Average day-ahead price OMIE (Euro per KWh) OMIP fiscal year 2017 Power Futures (from 2016, one year maturity) Source: Authors, based on OMIE and OMIP data. However, certain countries impose limitations to self-supply energy systems to companies that are not energy utilities. For example, in Morocco, a country with an important pipeline of desalination projects with an aggregated production capacity of 1 billion cubic meters per year, applicable regulations only allow for electrical energy self-generation for industrial facilities with installed capacity above 300 MW, a threshold that today is only met in the country by the Office Chérifien des Phosphates. The Moroccan legal framework also imposes limitations to renewable-energy-generating companies to enter into direct agreements with end users, which is allowed for high voltage consumers but restricted for medium voltage consumers (World Bank 2019b). This may impair the effectiveness of water sector authorities’ efforts aimed at greening desalinated water production. In liberalized energy markets that allow large electricity consumers to enter into direct agreements with generating companies, desalination utilities may be able to purchase certified green energy. Renewable energy certificates are marketable property rights over renewable electrical energy injected into the grid that can be purchased by end users of energy to ensure the “green” nature of the electricity they consume. Acuamed in Spain, for example, purchases exclusively certified green energy. If the regulation of the energy sector allows for self-supply or direct agreements with power generating companies, the energy cost and supply risk could be partially GOVERNANCE AND ECONOMICS OF DESALINATION AND REUSE: VOLUME 1 42 transferred to the developer under PPP schemes. In countries with state-owned energy utilities or with regulated electricity markets in which developers have no maneuvering space to bring down their electricity bill beyond enhancing the energy efficiency of their facilities, the electricity costs are basically a pass-through to the off taker, provided that the guaranteed specific energy consumption (established contractually) is met. However, in liberalized energy markets allowing for self-generation and negotiation directly with generating companies, bidders for desalination projects could not only act on energy efficiency but also on the optimization of the electrical energy supply mix and, in certain markets, to account for potential income from energy sales when demand for desalinated water is such that there is an excess self-electricity-generation capacity that can be sold to the grid. In such cases, although the electricity cost component of the desalinated water tariff would still have to be indexed to ensure the long-term financial equilibrium of the PPP agreement, several aspects of the energy cost and supply risks can be transferred to the developer, such as potential inability of the energy provider to supply electricity and the potential changes in the electricity tariff structure. 5.2. Energy Sector Regulation and Its Influence on the Sustainability of Wastewater Treatment and Reclamation Anaerobic wastewater treatment processes that could be adopted as part of water reclamation liberate methane gas that could be used as a source of renewable energy. In the digestion process, microorganisms transform organic matter into simple molecules through a chain of chemical reactions that liberate energy in the form of heat and gases that are rich in methane (along with carbon dioxide, nitrogen, and hydrogen sulfide in lower quantities). The methane can be transformed into electricity using combustion turbines, which liberates carbon dioxide, a gas with a lower greenhouse effect than methane, and heat, which can be used in the wastewater treatment process to facilitate the digestion of organic matter. Certain efficient wastewater treatment facilities, which often are also equipped with rooftop solar panels or with microturbines to take advantage of the natural flow of water to produce electricity, are able to produce more energy than what they consume. However, as explained above, in certain countries electric power self-generation is not allowed by applicable regulations and nonelectric utilities are not allowed to sell excess production capacity or to use the grid to push the power to other facilities. When they exist, removing these regulatory barriers is essential to green and mitigate the climate impact of the municipal water sector. 5.3. Urban Planning Regulations, Sewage Discharges Quality, and Wastewater Reuse Heavy metals and exceptionally high concentrations of organic content or of other pollutants can inhibit the treatment process in wastewater treatment plants conceived for domestic sewage. To ensure proper treatment and allow for safe wastewater GOVERNANCE AND ECONOMICS OF DESALINATION AND REUSE: VOLUME 1 43 reuse, utilities set quality standards for sewage discharges and require a certain level of pretreatment to industrial and commercial clients. However, utilities often lack the capacity to monitor and enforce the application of these regulations. In this context, well-designed and enforceable city zoning regulations are essential to ensure good performance of the water reclamation process. Besides regulating industrial sewage discharges, Israel has regulated the boron and sodium content in detergents to prevent soil degradation when irrigating with reclaimed water. Treated wastewater has a higher salt concentration than freshwater, and a high salt content, and therefore when reclaimed water is used for irrigation, could have a negative impact on crops, soil structure, and groundwater. In Israel, the main source of salts in wastewater in the 1990s was, by far, the use of washing powder, followed by other household uses, water softening processes, and industrial discharges (textile, dairy food processing, and meat koshering) (Juanico and Weber 2004). To reduce the concentration of salt in reclaimed water, the government of Israel issued a series of regulations limiting the use of salts in ion exchange processes used for water softening (1994), forbidding the discharge of brine to the sewer network (1998, commissioning brine outflows for large industries and industrial parks), and regulating the boron, sodium, and chloride content of domestic washing powder (1999), among other measures. As shown in figure 5.2, these measures resulted in a significant reduction in the salt content of wastewaters. Figure 5.2. Boron in the Effluent of the Shafdan Wastewater Treatment Plant, 1991–2019 New Israeli standard in effect, limiting B Boron as B (mg/L) content in detergents 0.9 0.8 Beginning of potable water supply 0.7 from the 1st seawater desalination plant (3rd quarter 2005, 100 millin m³/year) 0.6 0.5 0.4 0.3 0.2 0.1 0 91 94 97 99 02 05 08 10 13 16 19 9 9 9 9 0 0 0 0 0 0 0 /1 /1 /1 /1 /2 /2 /2 /2 /2 /2 /2 9 6 3 2 9 5 2 1 8 5 2 /0 /0 /0 /1 /0 /0 /0 /1 /0 /0 /0 19 15 11 06 01 28 22 18 14 10 04 Source: SUNAWU. GOVERNANCE AND ECONOMICS OF DESALINATION AND REUSE: VOLUME 1 44 For the same reason, quality standards set for desalinated water goes beyond the boron concentration allowed by drinking water standards when it is used to feed a system in which wastewater effluents are reused. In seawater, boron exists mostly in the form of boric acid, which, unlike other ions, is not as readily rejected by conventional reverse osmosis membranes, and it is therefore particularly expensive to remove from seawater. Moreover, the average concentration of boron in seawater (4.5 milligrams per liter) is higher than is usually acceptable in the public water supply. Boron standards for desalinated water may be health driven or agriculture driven. In countries where wastewater is not reclaimed for irrigation, boron requirements usually track drinking water standards. These standards vary between countries because of the uncertain impact of boron on human health and variations in the amount of exposure from other sources. Indeed, in 2009, the World Health Organization (WHO) relaxed its previous guideline value of 0.5 milligrams per liter to 2.4 milligrams per liter. Many countries have adopted the more recent WHO recommendation, but some retain very stringent boron limits in their drinking water guidelines. There is greater consensus on the impact of boron on crops and soils, with certain crops harmed by levels above 0.5 milligrams per liter. As a result, countries where a large proportion of desalinated water will directly or indirectly be used for agricultural irrigation, such as Spain and Israel, impose stricter limits on boron in desalination plants than specified in their drinking water standards. Figure 5.2 also shows the evolution of boron content in wastewaters in the Shafdan (Israel) wastewater treatment facility after the commissioning of the first large scale desalination plant. NOTES 1. OMIE is the nominated electricity market operator (NEMO) for managing the Iberian Peninsula’s day-ahead and intraday electricity markets.  2. OMIP is the Iberian Electricity Market where electricity and natural gas derivatives are traded, including futures, swaps, forwards and options contracts. GOVERNANCE AND ECONOMICS OF DESALINATION AND REUSE: VOLUME 1 45 6. Guidelines for the Identification of Priority Policy and Regulatory Reforms and Approaches to Mainstream Desalination and Reuse This section provides a road map for the identification of the most appropriate policy and regulatory framework for mainstreaming new water sources in the water mix in a healthy and sustainable manner. Guidelines and recommendations provided relate to the five areas covered in previous sections, that is, guidelines and recommendations for: (i) adapting water rights regimes in place to the greater weight of unconventional resources in the water mix; (ii) developing desalination and reuse- specific environmental policies and regulations; (iii) adapting water sector financial policies and economic regulation for mainstreaming these two new sources of water; (iv) factoring-in considerations related to the regulation of the energy sector in the design of desalination activities; and (v) developing and enforcing regulations aimed at improving the quality of wastewater effluents to reduce the costs and improve the performance of the water reclamation process. 6.1. Adapting Water Rights Regimes in Place to the Greater Weight of Desalination In countries with a federal government system, clarify which part of the sovereign holds proprietary authority over seawater. While in most countries there is a solid case law base and a clear statutory requirement related to the authority over other natural resources present in coastal and marine areas, such as fisheries and subsoil mining resources, because seawater itself has not historically been considered as a valuable resource, it might not be clear if state of federal governments hold proprietary authority over seawater as a resource. When this is the case, this should be clarified in the legal framework related to littoral and coastal management. GOVERNANCE AND ECONOMICS OF DESALINATION AND REUSE: VOLUME 1 46 Establish in littoral laws and regulations a clear mechanism to grant rights and permits for the abstraction of seawater for a beneficial use. Once the level of government with proprietary authority over seawater is clarified, the mechanism for granting rights and permits for the use of seawater should be stablished, because today littoral rights and permits relate almost exclusively to the access, occupation, and construction in public domain and to the exploitation of other natural resources. This seawater abstraction rights and permitting system shall establish authorized seawater withdrawal quantity (including conversion rate), temporality aspects (temporal or perpetual permits), geographical considerations (point of withdrawal and of brine discharge), authorized uses, and alienation conditions (tradability, cancellation, and entitlement to compensation, eventual appurtenance to land). The way the rights over abstracted seawater are defined, that is, whether they are like real property rights (like concessions in the mining industry or prior appropriation water rights) or not (like other water rights) would subsequently define the claims of the developer over desalinated water and suspended and dissolved minerals and chemicals. If, alternatively to clarifying developers’ claims over seawater in the littoral law, authorities decide to define claims over desalinated water in the water law, they might also have to consider the need to regulate separately claims over minerals and chemicals contained in brine. Spain originally considered desalinated water part of the public water domain once it is discharged into natural streams, reservoirs, or lakes, but the law was subsequently modified so as to consider it part of the public trust as soon as it is produced and subject to the same water rights and permitting regime as natural freshwater resources. This, however, leaves unresolved the issue of claims over the brine effluent, which might be important to clarify in the medium-long term, given the promising prospect of the brine mining industry. This could eventually be regulated in the littoral or the mining legal framework. 6.2. Adapting Water Rights Regimes in Place to the Greater Weight of Reuse Delimit the entitlement of the holders of freshwater rights to reuse treated wastewater effluents, ensuring the application of the no injury rule. Reuse and diversion of treated wastewater effluent discharges could have negative impacts on the environment and downstream users. For this reason, it is advisable to ensure that any water reclamation and reuse project, entailing or not a transfer of the right to use from the original right holder to a third party,1 is subject to the review of water authorities and to a public consultation process. The approval of such reclamation proposals should be subject to the no injury rule. The ability of the holder of the original freshwater right to trade with the used water effluent would depend on the characteristics of said original right and shall be conditioned to the compliance of the no injury rule, to be for the same type of GOVERNANCE AND ECONOMICS OF DESALINATION AND REUSE: VOLUME 1 47 use (that is, not allowing the reuse for a consumptive use if the original right was for a nonconsumptive one), and for authorized uses. Ensure that entities performing reclaimed water managed aquifer recharge have priority groundwater abstraction rights. The permit for performing managed aquifer recharge activities should ideally establish the permitted injection volume, the maximum withdrawal volume (perhaps as a percentage of the recharged volume), the time period over which the recharged volume might be recovered, and the maximum authorized annual withdrawal volume. If private investment is to be mobilized for desalination or reclamation facilities, issue seawater abstraction and reclaimed water rights or concessions, rather than permits or authorizations. Water rights and concessions are alike real property rights, they cannot be revoked without compensation from the awarding authority, and they are usually in perpetuity or long term. On the contrary, permit and authorizations are usually short- term and they can be revoked without compensation. 6.3. Developing Desalination and Reuse Environmental and Health Policies and Regulations Define the weight and use that desalination and reuse should have in the water security strategy considering social and environmental risks and benefits and institutional and financial capacity. In particular, the possibility of using desalinated water for other applications beyond municipal water supply, such as irrigation, may be assessed considering the level of irrigation tariffs, farmers’ ability and willingness to pay, and the economic value of the associated agricultural activities, among others. As for the potential use of reclaimed water, that is, restricted or unrestricted irrigation, industrial uses, and direct or indirect potable reuse, the decision should consider aspects such as social acceptance of the different uses; the technical, managerial, and financial capacity of utilities to manage the required treatment facilities and water reclamation and reuse processes, which level of complexity and cost varies depending on the tolerable risks associated to each of the different application; and the capacity of regulatory authorities to monitor and enforce regulations aimed at preventing, mitigating, and compensating for environmental and health risks. Define environmental and health policies and pollution control approaches considering cost effectiveness and the institutional capacity of the monitoring and enforcing authority. Although relying exclusively on performance standards gives space for innovation and for improving cost effectiveness, in countries with lower monitoring and enforcement capacity, it might be advisable to combine performance standards with technical or design standards because it is easier to verify compliance. Although BAT approaches allow for a continuous improvement beyond the permitting date, they imply methodological complexities requiring a strong institutional capacity for their GOVERNANCE AND ECONOMICS OF DESALINATION AND REUSE: VOLUME 1 48 implementation. Also, if inappropriately managed, BAT approaches risk neglecting cost effectiveness and may create a barrier for projects that would otherwise have positive socioeconomic returns at the cost of manageable environmental risks and impacts. Multibarrier approaches to water reclamation might bring down capital and operating costs and reduce the technical complexity of treatment facilities. They might also entail a dilution of responsibilities, need epidemiological research capacity at the local level to set appropriate standards, and require greater monitoring and enforcement capacity. Consider relevant international treaties when developing environmental policies and pollution control regulations. Certain international treaties might guide the choice of the regulatory approach to be adopted for certain pollution control activities. For example, the Protocol for the Protection of the Mediterranean Sea against Pollution from Land-Based Sources, which includes desalination among activities covered and brine discharges among the substances to be regulated, calls for the adoption of BAT and best environmental practices for the regulations of these activities and discharges. Define performance and technology standards considering expected water use and technical, managerial, and financial capacity of the institutions responsible for the operation of facilities. Setting performance standards that can only be achieved with unaffordable technology leads to either noncompliance with the regulations and the adoption or perpetuation of unsafe water reuse practices or to the failure of government efforts to scale up unconventional water resources, which might be essential to ensure reliable access to water or food security. Therefore, every country should adapt international guidelines and regulations based on local conditions and derive corresponding national standards. Similarly, the list of parameters to be monitored and regulated should be in accordance with the intended water uses and local laboratory and financial capacity. Look beyond treatment performance, facility design, and quality control to consider, as well as risk management and quality assurance. Permitting authorities should also look into the actual technical, managerial, and financial capacity of the developers of desalination and reuse facilities and ensure that the developers have in place sound monitoring, operation, maintenance, and contingency management plans. When considering remediation and compensation for environmental damage caused by pollution below permitted values, assess the possibility of adopting market- based approaches. Especially when a country is thinking of adopting a programmatic approach to bring desalination to scale, allowing developers to either design and implement remediation interventions at the project level or contribute monetarily to a program-level remediation intervention might allow improved cost effectiveness of the regulatory approach. Convey to decision-makers the benefits of regulation and compliance to mobilize support and funding for required institutional development investments of regulatory and enforcing agencies. Investing in developing institutional capacity to enforce the GOVERNANCE AND ECONOMICS OF DESALINATION AND REUSE: VOLUME 1 49 required environmental and health protection regulations is essential for ensuring the effectiveness of these regulations, promoting compliance, and achieving the intended outcomes, creating a level playing field and preventing unfair competition, and building public confidence—which in turn is essential to build support for scaling up reuse and protecting the environment for present and future generations. 6.4. Adaptation of Water Sector Financial Policies and Economic Regulation Price water resources closer to their marginal cost to improve the financial sustainability of desalination and reuse. Besides incentivizing a more efficient allocation of scarce resources, helping to manage demand, and supporting cost recovery, pricing water resources closer to their marginal cost provides a stronger economic case for investing in the development and utilization of unconventional water resources. This promotes diversification of water resources and enhances water security. If desalination and reuse are to be subsidized, channel fiscal support through the end of the service delivery chain to ensure that incentives perceived by all stakeholders are aligned. Channeling subsidies this way promotes transparency and accountability, allows for better monitoring and evaluation of the subsidy program, and creates incentives for improving cost effectiveness of fiscal resources and for improving service delivery and water resources use efficiency. Adopt mechanisms for the indexation of on-sale and retail water tariffs and other mechanisms to mitigate utility liquidity risks associated to the volatility of desalination prices. Because of its energy intensity, desalinated water production costs are highly volatile, and this should be accounted for in the on-sale and retail water tariff structure and review process. Yet, a mirroring match of these tariffs and those of the bulk desalinated water tariff might be unpractical and inadvisable, and other mechanisms, such as the establishment of reserve accounts, might be required to mitigate the liquidity risk to utilities. Assess the need to adjust the economic regulatory framework of drinking water supply services to broaden its focus beyond service efficiency to account for the need of ensuring climate resilience. In the current context of climate change and increased variability of precipitation patterns and surface water stream flows, economic regulators of water services must factor in climate risk to come up with an efficient tariff to attain service resilience and continuity targets at the lowest cost. This implies shifting the focus from the lowest levelized cost of individual water resources mobilization alternatives to the lowest risk-adjusted levelized cost of the water resources mix. GOVERNANCE AND ECONOMICS OF DESALINATION AND REUSE: VOLUME 1 50 6.5. Factoring in Energy Sector Regulations’ Considerations in the Design of Desalination and Reuse Programs Account for implicit and explicit energy subsidies when performing the economic appraisal of desalination initiatives. Being an energy intense process, desalination often benefits significantly from explicit subsidies to electricity applied across the board in many countries (that is, fiscal transfers to public electricity utilities to keep retail energy tariffs low) and from implicit subsidies to electricity generation in oil-producing economies (that is, selling fossil fuels to electricity generation companies below their international market price to keep electricity production costs artificially low). If not permitted, lobby from the water sector for required regulatory reforms in the energy sector to allow for self-generation of renewables and to sell or move electricity through the network. This is essential to allow for tapping the full cogeneration potential of wastewater treatment and reclamation, as well as to reduce water production cost volatility and reduce greenhouse gas (GHG) emissions of desalination activities. Take advantage of instruments offered by the financial and electricity markets to hedge electricity costs and reduce GHG emissions of desalination and reclamation activities, allowing utilities to purchase electricity in the futures markets and purchasing green energy certificates. 6.6. Improving the Quality of Wastewater Effluents to Reduce Costs and Improve Performance of the Reclamation Process Set and enforce industrial wastewater sewer discharge standards, requiring industries to pretreat effluents. Prior to that, authorities must characterize wastewater effluents identifying industrial, commercial, and domestic discharges to the sewer network that might impair or increase the costs of the water reclamation process. Develop and enforce urban planning and zoning regulations segregating industrial activities to facilitate the implementation of shared treatment industrial wastewater treatment facilities. This also will reduce the costs of reclamation of domestic wastewaters. 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