UWSEs Sustainability and Modernization: Achievements and Main Challenges

Abstract

This chapter highlights the impact of modernization on the sustainability of urban water systems in Europe and what the remaining challenges are, comparing the cases of Germany, France and England. It shows how economic and environmental aspects of sustainability fall short of expectations while social dimensions have a better outcome. Then the chapter shifts its emphasis to the economic mechanisms used for coordinating the modernization process. These mechanisms improve the ability to adapt in the face of new problems, but also increase uncertainty about future trajectories. The chapter also critically discusses price incentive mechanisms as a means of dealing with resource management and the social dimensions of sustainability.

Appendices

Conclusion of the Section

The three stylized facts stated at the end of this section are the result of an observation of urban water systems in Europe (UWSE) and of their modernization, formalized periodically by the identification of Salient Facts. To simplify this third and final phase of observation, all of the Salient Facts (F_sn) have been collated below (Box 3.1). The methodology adopted to highlight these facts is based on an institutional analysis by means of comparison of the models of German , French and English urban water systems (UWSs). Among the Salient Facts that have been identified, several really capture this approach. They distinguish a European model within the diversity found on a global scale (F_s1, F_s2), and specify the characterization of this model (F_s3, F_s4, F_s5, F_s6, F_s9, F_s10) and its national variations (F_s7, F_s8). The first stylized fact reflects the phenomenon of change within the structure of UWSEs, the second a phenomenon of the transformation of UWSE dynamics and the third a phenomenon whereupon the antagonisms between the objectives of UWSEs are exacerbated.

Box 3.1: A Reminder of the Salient Facts in Part I

Salient Fact 1: The technical characteristics of the deviation process in developed countries contribute to the universal provision of services via a mature network infrastructure.

Salient Fact 2: The micro-economic features of the urban water cycle differentiate the European model of UWS; with relatively moderate consumption and relatively high prices , the water bill per average inhabitant is equivalent to 2/3 of that of the American model.

Salient Fact 3: The territorial structure of the institutional environment of UWSEs is unique in that it combines high levels of development, the artificialization of land and centralized cities.

Salient Fact 4: European cities are characterized by their compactness and have only recently developed in terms of structure under the impetus of urban sprawl.

Salient Fact 5: European countries enjoy a style of governance that is based on very formal regulatory systems.

Salient Fact 6: A strong polycentric and multilevel character shapes the organization of governance within European countries.

Salient Fact 7: In Europe, governance follows a liberal model, which gives rise to a variety of enforcement methods ranging from a tendency towards pure liberalism (Mediterranean and Anglo-Saxon systems) to moderate liberalism (German, French and Nordic systems).

Salient Fact 8: The modernization of UWSEs does not unfold in the same way in all countries, giving rise to three ideal organizational variants typical of the European model in Germany, France and England (in order of appropriateness in relation to the organizational principles of modernization).

Salient Fact 9: The withdrawal trend has followed that of consumption , decreasing since the 1990s.

Salient Fact 10: Modernization brings UWSEs into age of environmental engineering.

Salient Fact 11: Modernization tends to empower services through decentralization and the devolution of organizational processes.

Salient Fact 12: The integration of modernization in the political structure tends to be stronger when the UWSs agree to participate in the private sector.

Salient Fact 13: The modernization of UWSEs tends to reduce the number of operators within a national territory and, consequently, there is more of a focus on the ‘big’ operators who have reached a substantial critical mass.

Salient Fact 14: The principles of modernization diffuse better in structures that are derived from common law: they are more flexible and less bureaucratized.

Salient Fact 15: There is a connection between the degree of integration of modernization and the capacity of the legal structures to focus on the individual and favour the resolution of disputes rather than defending abstract and/or moral principles in the name of general interest.

Salient Fact 16: Modernization supports the notion of the public sector no longer managing the urban water cycle.

Salient Fact 17: Modernization has induced a shift in legal structures, allowing more freedom of contract.

Salient Fact 18: Modernization has induced evolution in institutions, encouraging a reduction in the duration of contracts and increasing competition in terms of the procurement of contracts and the deviation process.

Salient Fact 19: Modernization promotes the emergence of different state actors in the regulation process.

Salient Fact 20: Modernization increases the weighting of contractual relations within the institutional polycentrism of the UWSEs.

Salient Fact 21: Less modernized UWSEs continue to have a dependence on political or moral principles.

Salient Fact 22: In the German UWS, management is still largely in the hands of the public sphere, which monitors the supply of network services in the general interest.

Salient Fact 23: In French UWS, the increase in the number of Sapin procedures and the reduction in the duration of contracts have seen competition intensify.

Salient Fact 24: The organization of the English UWS formally allows operators to have more freedom and is based on the production, dissemination and control of information by autonomous regulatory agencies.

Salient Fact 25: The total length of the infrastructure used in the deviation process is the largest in France, then in Germany and England respectively.

Salient Fact 26: The assets of the UWSEs are entering a phase in the life cycle where the failure rate increases and the survival function decreases.

Salient Fact 27: In order to maintain the quality of the services provided, both the management of and investment into the infrastructure of assets of UWSEs must become a central objective for the next two decades.

Salient Fact 28: The renewal rate in the infrastructure of the deviation process seems inadequate in the face of the estimated requirements, something that threatens the physical integrity of the networks in the medium term.

Salient Fact 29: The leakage rate is higher in more modernized countries.

Salient Fact 30: The leakage rate tends to decrease in UWSEs.

Salient Fact 31: In Germany, there has been no major shock to the modernization of the quality of the (already good) infrastructure.

Salient Fact 32: The political use of price facilitates the necessary level of investment in the UWSE being achieved.

Salient Fact 33: The level of investment in the urban water cycle of UWSEs is insufficient to ensure the physical sustainability of the network.

Salient Fact 34: The governance principles of the modernization of UWSEs do not seem sufficient to be able to incite the actors of the urban water cycle to increase their willingness to invest, thus leading them to enter into conflict with the principles of corporate governance.

Salient Fact 35: Macroeconomic difficulties reduce the ability of key players in UWSEs to ensure the level of investment necessary for the sustainability of the deviation process of the UWSEs.

Salient Fact 36: The characteristics of urban growth in European cities increase the costs of management and operation of the deviation process of UWSEs.

Salient Fact 37: Following the modernization of UWSEs, the key players are not able to respond to the economic objectives that allow the sustainability of the systems; the profitability of the sector therefore seems threatened in the long term.

Salient Fact 38: Average water consumption has decreased in UWSEs since the 1990s.

Salient Fact 39: The impact of large consumer subscribers on the decline in water consumption is due to a sharp reduction in their consumption , while that of small-scale consumers is largely as a result of the large number of such consumers.

Salient Fact 40: The decline in consumption that has been taking place from the 1990s is not directly attributable to the modernization of UWSEs. Rather, it is about structural changes.

Salient Fact 41: A decline in consumption greatly complicates the financial balance of UWSEs and the financing of asset management, but does result in environmental objectives being met.

Salient Fact 42: The rationalization rules pertaining to the governance of UWSEs and to the environmental objectives included within the modernization process exacerbate tensions within the urban water cycle.

Salient Fact 43: The clash between the structural tendency to lower consumption and the growing need to invest in the deviation process crystallizes these tensions.

Salient Fact 44: The renewal of infrastructure creates a viability issue for UWSEs.

Salient Fact 45: The waters of UWSEs retain an average ecological quality , although they have improved since the 1990s.

Salient Fact 46 : Economic usage, as a result of the pollution  it causes, appears to be one of the main factors contributing to the average ecological quality of UWSEs.

Salient Fact 47 : The artificialization of land is a factor influencing the reduced integrity of UWSEs.

Salient Fact 48: Regulations to maintain the ecological sustainability of UWSEs and the resource in general come into conflict with the preferences of key players in the urban water cycle and/or are not able to respect them.

Salient Fact 49: Climate change is likely to contribute to an alteration in the sustainability of UWSEs by increasing tension in terms of their integrity.

Salient Fact 50: European regulations lead to issues in viability for UWSEs, by incentivizing pro-environmental measures that represent a significant additional financial burden.

Salient Fact 51: An increase in the number of environmental standards can become counterproductive.

Salient Fact 52: Compliance with the European health and sanitation rules comes at a considerable cost , which adds to the need for investment.

Salient Fact 53: The key players in UWSEs struggle to comply with the environmental rules regarding modernization and thus face fines, which only serves to emphasize the ongoing issue of viability.

Salient Fact 54: In the UWSE, users have little or no awareness of price changes and, therefore, of the intended incentives.

Salient Fact 55: Among the components of rational pricing, the fixed fee component and the first pricing block offer the most incentives .

Salient Fact 56: There is a gap between the pricing formulae that are best in theoretical terms and those formulae adopted in the UWSE.

Salient Fact 57: Under current conditions, the levels of equity and universality of access to services are acceptable and are not one of the priority objectives of pricing structures.

Salient Fact 58: Water pricing represents an effective tool with which to achieve the economic objectives of UWSEs, but its use should take into account the risk of making the system more inequitable.

Salient Fact 59: The success of privatization and the achievement of the intended effects depends on the framework provided by the institutional structures and the institutional environment.

Salient Fact 60: A priori, an increase in the degree of liberalization enhances the ability of the urban water cycle to reorganize in the short term.

Salient Fact 61: The impact of liberalization on the environment is difficult to determine and is not necessarily positive.

Salient Fact 62: Modernization improves the adaptive capacity of UWSEs (innovation, organization and speed) but this gain is accompanied by greater uncertainty about the evolution of the system.

1.1 First Stylized Fact: Modernization and Depoliticization of UWSEs

The first stylized fact relates to a transformation brought about by the modernization of the structure of the organization of UWSEs. It is based on the general finding of a reduction of the role of the state in the UWSE, a notion that is deduced from Salient Facts 5, 6, 7, 11, 12, 13, 16, 19, 20, 23 and 24. Indeed, within a polycentric and multilevel system, modernization implies a decline in the activity of the state as an actor in the two parts of a UWS: the water institutions and the urban water cycle (F_s5, F_s6, F_s7).

At the level of the water institutions, this means a reduction in the dependence of the actors and the coordination mechanisms on state powers of coercion and control (F_s19, F_s20, F_s23, F_s24). The increasing use of contractualization and the emergence of autonomous regulatory agencies highlight this trend more explicitly (F_s20, F_s23, F_s24). Confirming the result of this observation as part of an analysis of the evolution of governance following the signing of PPPs in Europe, D. Giauque (2009: 388) notes that due to the increase of information asymmetries:

The complexity of governance that induces these new forms of coordination partnership is hardly of a nature to facilitate the task for the public authorities in their efforts to control regulation (Giauque 2009: 388)

At the level of the urban water cycle, the shrinking role of the state results in a greater autonomy and diversity of the actors in the deviation process (F_s7, F_s11). We have seen a gradual substitution of public actors with other private law actors, and, a priori, these are legal persons that are more independent of politics (F_s12, F_s16).

The first stylized fact takes into account the following phenomenon: the modernization of UWSEs brings about the process of their depoliticization. To clearly define the content of this statement, and therefore the explanatory perspective of Chap. 5, two clarifications are necessary. First, this phenomenon highlights a causal relationship between modernization and depoliticization. Then, by depoliticization of UWSEs’ we mean a dynamic whereby the water institutions and/or the urban water cycle deviate little by little from the crux of the business of the state and from their conduct, i.e. they are no longer limited to the functional role of the state. In this way, the term does not refer to conflicting aspects and issues of power, such as might be considered from a realistic perspective. ²⁸

1.2 Second Stylized Fact: Modernization and Socio-institutional Resilience of UWSEs

The second stylized fact reflects a transformation of the organizing dynamics of the UWSEs related to their modernization. It is relative to the dynamic of the organization for the coordination of UWSEs and its formulation is based on salient facts 7, 11, 14, 15, 17, 18, 24, 60 and 62. We have found a correlation between the degree of penetration in water institutions of the principles of modernization and the ability of UWSEs to transform.

This ability stems from the multiplication of the potential sources of institutional innovation/development and the removal of obstacles to these alternatives. We have seen that the penetration of modernization is accompanied by the increased diversity of actors and the modalities of coordination (F_s7, F_s17, F_s18). It appears that, faced with socio-economic or geophysical shock, actors quickly reorganize by following new plans and schemes. When it comes to removing these obstacles, it is clear that modernization better penetrates water institutions when they facilitate flexibility in the choice of the form of governance (F_s11, F_s14, F_s15, F_s24, F_s60, F_s62).

The second stylized fact takes into account the phenomenon whereby the degree of integration of the principles of modernization in a UWSE is positively correlated to a resilient socio-institutional dynamic rather than a resistant one. We define socio-institutional resilience as the ability of the human system to change its coordination mechanisms in the face of a shock, and to do so quickly while continuing with basic duties (Gunderson and Holling 2002). This is directly correlated to the system’s level of transformability and persistence. The analysis by C. Knill and D. Lehmkuhl (2002) confirms the statement of this phenomenon. By studying ‘Europeanization’ mechanisms, the authors note that, in the water sector, Germany and France demonstrate resistance to the penetration of Community principles in contrast to England. Similarly, G. Marcou (2012), citing the example of the Localism Act of 2011, points out that, in England, freedom of action and organization of key players is growing.

1.3 Third Stylized Fact: Modernization and Barriers to Sustainability

The third stylized fact takes into account the relative ‘underperformance’ of modernization in the face of its sustainability objectives. It is relative to the role of modernization in the evolution of the sustainability of UWSEs, and its formulation is based on the majority of the Salient Facts noted in this chapter (F_s26 to F_s60). The number of mobilized facts is greater here than with the previous two stylized fact statements because this third stylized fact is articulated in two stages. Firstly, we see the inability of modernization to meet its requirements in terms of sustainability, followed by an intensification of difficulties at the interface with the economic dimension of sustainability.

On a general level, the condition of UWSEs is degrading or threatening to do so (F_s26, F_s29, F_s45) and structural trends such as the decrease in consumption , and climate change —which are external to the urban water cycle—are likely to accentuate this dynamic (F_s36, F_s40, F_s49). Moreover, the theoretical effectiveness of the principles and instruments of modernization to meet the challenges identified is not reflected in their application to UWSEs (F_s54, F_s56, F_s59, F_s61). Modernization is a stumbling block in curbing these trends and fans new tensions in terms of efficiency (F_s28, F_s34, F_s37), viability (F_s42, F_s43, F_s46, F_s48, F_s50) and potentially effiquity (F_s57, F_s58).

The third stylized fact takes into account the phenomenon according to which modernization not only fails to satisfy its own requirements in terms of sustainability, but also stirs up antagonism between the economic pillar and the other pillars. We consider that this antagonism results in an accentuation of incompatibilities between the principles of governance of modernization and its objectives, i.e. between the expected and the actual functioning of coordination. This third phenomenon might seem tautological in light of the ontological principles of UWSEs, including those of dialogic, polycentric and multilevel organization. However this is not the case, insofar as it identifies a source and a demonstration area that benefits from the antagonisms cited.

The statement of these three stylized facts closes this observation of the modernization of UWSEs and sets out the phenomena to be explained in Part 2. A reflection of these phenomena will enable us to ultimately provide an explanation of the substance of modernization, contributing to knowledge on identifying the drivers of coordination and information on institutional development that can be generalized and applied to other sectors.

Notes

• 1. They also address the issue of agricultural practices, including irrigation (Ménard and Saleth 2013).

• 2. It should be noted that M. Saleth and A. Dinar partly accept this position: ‘These stages progress as a circular process which is subject to constant subjective and objective feedbacks, learning, participation and adaptations’ (Saleth 2006: 11).

• 3. The holographic principle posits that the component contains everything, and vice versa; analysing a component therefore allows an extrapolation of the entire structure.

• 4. In its ‘Private Member’s Bill aimed at preparing for the transition towards a clean energy system and the various provisions on pricing of water and wind turbines’ of 11 March 2013, the National Assembly noted in article 28 that ‘pursuant to article 72 of the constitution, an undertaking is made for an experiment to be held over five years from the date of enactment of this Act to promote access to water and implement social pricing of water’ and that ‘the national water committee is responsible for the monitoring and evaluation of this experiment. Before the end of 2015, it will present to the government a report describing actions undertaken within the framework of this experiment, with an intermediary report to be presented before the end of 2016, and an evaluation report and proposal to be submitted before the end of 2017. These reports are to be sent to the local authorities that participated in the experiment for comments’.

• 5. Three periods mark their chronology: (1) from 1974 to 1986, the field is marked by the book Limits to Growth (Meadows et al. 1972); (2) from 1987 to 1996, a literature on sustainability emerges; and (3) since 1997, the field has been booming and expanding.

• 6. This is not to do with a fractal approach in geographical terms, which refers to the issue of the ‘glocal’ (Godard 1996; Boutaud and Brodhag 2006).

• 7. On 6 February 2003, P. Lamy gave a talk on the origin, vocation and usefulness of the SIA. The speech can be found at the following web address: http://europa.eu/rapid/press-release_SPEECH-03-61_en.htm?locale=FR, accessed 6 May 2013.

• 8. The eight départements looked at in the study were Allier, Aveyron, Doubs, Hérault, Indre-et-Loire, La Manche, Somme and the lower Rhine.

• 9. The identification of these ‘problematic’ materials is the result of an investigation undertaken by J. M. Cador (2002) and it corresponds to the parameters and variables adopted by R. Herz (1996) for Stuttgart. According to the survey, the materials in question are steel and cast iron, which are very brittle and were an essential component of pre-1970 pipelines—in other words, 45% of assets in 2000². Old PVC piping with glued joints used during the 1970s account for 15% of assets while those made of asbestos-cement are estimated to be 2% of assets. It should be noted that J. M. Cador (2002: 174–180) has analysed three different renewal strategies and has illustrated a spike in investment between 2005 and 2025, and then after 2050.

• 10. The M49 chart of accounts is available on the web page of the French Ministry of the Economy: http://www.collectivites-locales.gouv.fr/files/files/finances_locales/m4/m49_pdc_dev_2014.pdf, accessed 31 October 2015.

• 11. This Salient Fact recalls the famous article in The New York Times Magazinesby M. Friedman (1970), ‘The Social Responsibility of Business Is to Increase its Profits’, which marks the modern debate on corporate social responsibility and the links between personal and public interest in an economy based on private property. M. Friedman criticizes the assertion that pro-social behaviour systematically benefits the public interest.

• 12. Previous studies have only analysed investment costs ; G. Pflieger and F. Ecoffey (2011) propose a method that also integrated the annual operating costs , as well as those costs relating to renewal and maintenance.

• 13. The analysis of universal distribution of water in Paris shows that this increase began in 1860 in the same format (Boquet et al. 2009).

• 14. In addition, should the water become warmer in the pipes as a result of the decline in flow, this also facilitates the formation and deposit of bacteria.

• 15. Dean Stansel (2011) examined this and produced an overview of the ‘shrinking cities’ process in the USA.

• 16. A directive on the ecological quality of surface waters had been previously proposed. Despite the growing interest in environmental issues, it never materialized. A withdrawal of socio-economic interests to the benefit of ecology would likely be the principal reason behind a deadlock in the negotiations (Hering et al. 2010).

• 17. The reports of all European countries are available on the following website: http://cdr.eionet.europa.eu/, accessed 31 October 2015.

• 18. The Water Information System for Europe (WISE) makes available a large number of maps and charts showing the condition and status of water in the European Union (http://water.europa.eu, accessed 31 August 2015).

• 19. Here, we have only brought together the most aggregated indicators in order to account for the general state of the resource in Germany. The report by the Federal Environmental Agency (Arle 2011, section 2) provides more detailed statistics.

• 20. Analysing the link between climate change and the management of water brings us back to foresight exercises and, on this point, differs from the objective of this book and this section. Nevertheless, there is a wealth of literature on this topic: Morel (2007), Pahl-Wostl (2007); McDonald et al. (2011), Gersonius et al. (2013). For more information on a scenario-based analysis, please see: Gallopin (2012).

• 21. A project that is part of the ANR sustainable cities programme—the EAU&3^E project—deals with the sustainability of water services in large cities , offering a multidisciplinary approach. The acronym 3^E refers to the three ‘E’s of the environment-economy-equity triptych, to which the notion of governance is also added.

• 22. F. Arbuès et al. (2003: 86–87) lists all of the price elasticities calculated in various academic works. A.C. Wothington and M. Hoffman (2008: 845–852) provide a complementary table. More recent work, using more specific econometric methods, does not refute the content of the main message: price elasticity has little or no effect on the UWSE.

• 23. Although they are interesting, these findings should be interpreted with caution since this study only notes the correlation and does not explain the logical relationship between the two variables (Hanemann 2006).

• 24. The Aqualibrium report drawn up by Shahrooz Mohajeri et al. (2003) presents at the end of each chapter the status quo of national debates on the liberalization and privatization of the water sector.

• 25. Elinor Ostrom (1990) sets out privatization, along with liberalization , as being one of the three main paradigms of the governance of water. Totally public management (‘the Leviathan model’) and self-organization (‘alternative solution’) are the basis for the other two.

• 26. If the reader is interested in the details of this issue, the latest developments pertaining to this can be found in recent special issues of the Revue d’économie industrielle and the Journal of Economic Behavior & Organization. Edition 140 of the Revue d’économie industrielle (2012) offers a qualitative diagnostic and empirical feedback on the French experience of PPPs. Edition 89 of the Journal of Economic Behavior & Organization (2013) brings together various communications on theoretical approaches and empirical developments on this theme. Iossa and Martimort (2015) present and discuss the microeconomic foundations of PPPs.

• 27. It is all about the risk of a change in status within the same regime (Perrings 1998; A. Rose 2007).

• 28. As such, the reader will recall that, following the definition of a UWS, we noted that the ‘power’ dimension would not be addressed here because of the strong contingency involved in its analysis. Indeed, we are dealing with cross-cutting and generalizable phenomena in order to increase the scope of the theoretical analysis undertaken in the second part of this work.