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Alberta’s Future Water Wars

As Alberta contemplates a future with water pricing and possibly water markets, some say it’s not the cost per litre that matters, but the cost of water that’s rendered unusable

Jan 13, 2014

by Tim Querengesser

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Bill Robertson, mayor of Okotoks, stands beside the Sheep River, from which his community currently draws its water
Photograph Bryce Meyer

Last October, as Bill Robertson knocked on doors in Okotoks in his successful campaign for re-election as mayor, he saw that many homeowners had replaced their lawns with less water-hungry landscaping. “I was on every doorstep in Okotoks this election, eight-and-half thousand of them,” he says, “and I saw some great lawns which are not lawns, but fancy colours of gravel.” Like most communities, Okotoks, just south of Calgary, was built beside water. The town draws its supply for its 25,000 residents under provincial licence from the Sheep River, which is part of the South Saskatchewan River basin. But even with this advantageous location, Okotoks, currently one of the fastest growing communities in Canada, shares an existential problem with much of Alberta. “The major limitation right now,” Robertson says, flatly, “is water.”

But today’s limitation in Okotoks could soon spread, and draw battle lines across the province tomorrow. Okotoks isn’t the first, after all, to confront the spectre of fresh water as an emerging commodity. Several years ago, CrossIron Mills, a 1.4-million-square-foot shopping centre in Rocky View County, north of Calgary, made headlines when developers realized – halfway into construction – that water was no longer guaranteed for their property, thanks to the government closing new licences in southern Alberta. After desperately scouring an emerging water-licence market, Rocky View purchased licences granting it access to 2.47 billion litres of water. Cost? A stunning $15 million.

Unheard of in the past, water challenges are set to become common as Alberta attracts more people and economic activity. And that’s where things will potentially get heated. Alberta’s settlement was and its economy is built with a subsidy of free water. If, in future, there isn’t enough water for everyone, who gets some and who doesn’t? Who pays and who doesn’t? And, ultimately, what happens to that economy as a result? As Joseph Doucet, dean at the Alberta School of Business and a member of the Minister’s Advisory Group on Water, argues in a 2007 report, “In the management of Alberta’s economy, water should be viewed as being every bit as important as oil.” It doesn’t take a crystal ball, then, to see that such questions could pit Albertans against one another in ways no other conundrum ever has, with economic growth hanging in the balance. And for this reason, decision-makers are grappling with the questions today and have been for more than a decade. “We’re not short of water yet, but if we don’t get smarter about how we allocate, we may have some of those pressures,” says Andy Ridge, director of the water policy division of Alberta Environment and Sustainable Resource Development. “Inevitably with continued growth, we may be in that world, a true scarce world, where we may have to prioritize. That’s where you often get that conversation about ‘What is the value proposition for a drop of water going here versus there?’ ”

But unlike Ridge, some believe a water-scarce world could become Alberta’s reality faster than expected – and that we need to find answers quickly. “Maybe things are not so pressing now, but we don’t have the luxury of waiting until they become pressing and then deciding what to do,” says Mark Bennett, executive director of the Bow River Basin Council. “Policy development, especially in southern Alberta, has been proven to have a significant lag time between the determination of the need and a final policy being fully developed and implemented.”

As Bennett says, if industry is going to expand, it has to find water somewhere. And that’s both the edge and the wedge of it all. The oil sands industry, for one, currently uses 170 billion litres of fresh water per year, and that’s expected to increase markedly each year hence. The Canadian Association of Petroleum Producers projects oil sands production to skyrocket from 1.8 million barrels per day in 2012 to 5.2 million barrels by 2030. Net water use, according to CAPP, currently stands at 3.1 barrels of water per barrel of oil (the National Energy Board puts the figure at between 2.5 to 4 barrels) – yet there are several caveats. Water-hungry open-pit bitumen mining is expected to account for far less of the increase in future production than in situ methods, and more than 50 per cent of the water used by in situ is currently saline water rather than fresh water, and that percentage is expected to increase in the future.

Still, a 2005 position paper from the Banff Conference on Agriculture, Food and the Environment predicted that we already face the “imminent potential for water shortages.”

Water demand only increases as you look forward. Alberta’s population is growing at 3.5 per cent, year-over-year, and could top 7.5 million by 2050. By 2025, when Alberta’s water demands are forecast to have increased by 21 per cent, municipal demand will have grown by a quarter. The spike will come predominately from agriculture, where water usage is expected to swell by nearly 50 per cent, and from the energy industry, where the appetite for water is expected to balloon by more than half. It gets worse. The Alberta Wilderness Association notes that as water irrigation has become more efficient, the actual water consumed by agricultural producers – as opposed to water used and returned back into the province’s water supply – is on the increase. According to government data, the agriculture industry already accounts for 71 per cent of all consumptive water use.

Faced with these unique challenges, and the spectre of water-dependent economic growth butting up against growing human need, some say the best way for Alberta to govern water is to attach a price to it. But not just a price by the litre for water taken but also for how much of that water is returned for others to use again.

Water started shifting from ubiquitous to something approaching a commodity back in 2006. That year, the government closed water licences on the South Saskatchewan basin, save for the Red Deer River, as a way to rationalize distribution of the nine trillion litres of water allocated under the province’s antiquated water rules (for scale, imagine a cube out in the ocean that’s nine kilometres long, nine wide, and nine deep). Under this system, known as “First in Time First in Right” (FITFIR), the older the water licence, the more prioritized its holder’s right to draw a near unlimited amount of water during a shortage. The FITFIR licences are everywhere: a shocking 65 per cent of all irrigated land in Canada is in southern Alberta, where there are more than 8,000 kilometres of water conveyances, literally making the region the land that irrigation built. The FITFIR model, passed on from Ottawa in 1930 when Alberta won control of its natural resources, enabled agriculture and encouraged settlement as Alberta grew. But by 2006 it looked ancient and wasteful, as demand in the south was exploding while supply remained constant or was in decline. Closing the South Saskatchewan basin to new licences, while also allowing historic licences to be transferred, allowed for a market based on who would pay more to redistribute water without reworking water title or ownership.

What that market has pushed Okotoks to do might surprise you, though.The town once planned to stop growing at 30,000 people, dictated by its water licence volume cap, but now that there’s a market for water access, Okotoks has abandoned that idea. Neighbouring communities, Robertson says, are aggressively pursuing growth and the necessary water licences that such growth entails. And as Robertson says, the town can jump into the water market now or later, but prices are potentially at their lowest now. Jumping in now, however, means Okotoks must pursue growth in order to pay for the infrastructure and the water that it’s looking into securing for the future, estimated by a recent study to cost the town $120 million. The water licences alone that Okotoks recently purchased cost it $1 million, which works out, in theory, to just less than $0.25 per litre of allowable water use. Waiting could see those prices go up. “Water is scarce [and] our backs are against the wall now,” Robertson says. “The price is going up. It’s becoming a commodity and if we’re getting another 1.5 million or more people [in Alberta] in the next 30 or 40 years, then more and more municipalities will be behind the eight ball.”

Does this mean that water in Alberta now has a price? The answer is complicated – Okotoks has paid for water access, but still doesn’t pay for the volume of water used. Think of the difference by comparing the way you currently use a tap in your kitchen versus a pump at a gas station. And that’s a definitive difference going forward. “There’s no tie between the amount of water you consume and the amount you’re paying for water,” says Joseph Doucet. He is part of a litany of thinkers pushing for more economic levers being applied to water. “People think they pay for water, but they’re paying a charge for the treatment,” says Doucet. And therein lies the problem with the current water regime that he and many other water thinkers point to. Under FITFIR, even when licences are priced, there’s still little economic incentive to use and consume water sustainability, says Nicholas Rivers, the Canada Research Chair in climate and energy policy and a professor at the University of Ottawa who models water pricing scenarios. “It’s like an all-you-can-eat buffet with a cap,” he says. That’s because there’s an absence for practical purposes of a price attached to a volume of water a licence-holder consumes; instead, the price buys access with a high volume cap. Doucet agrees. “If you charge for water use, you’re going to obviously provide an incentive for firms to use less water.”

Many say introducing a price on the volume of water a user consumes is a fix to encourage conservation and avoid having to decide whether industry gets water or people do. But how you introduce pricing is the key question, says Ted Horbulyk, associate professor of economics at the University of Calgary and a leading thinker on introducing markets to public resource allocation. If the government, as ostensible owner of Alberta’s water, sets one price, consumers may feel they’re treated unfairly, Horbulyk says. That’s because they use water differently than, say, industrial users, and don’t profit from its use. Yet if prices are different for different industries or sectors, some of these sectors may no longer remain profitable. What it all requires is homework to understand how much water you have to sell and how the market will respond – something Horbulyk says Alberta still doesn’t know. “You can do the conjectures to figure out who really pays the bill at the end of the day,” Horbulyk says. “It would play out differently depending on what sectors you wanted to have pricing for.”

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Finding that balance is critical, says Bob Sandford, Epcor chair for water in support of the UN’s “Water For Life” initiative. Water pricing can be used, he says, “in very surgical ways” to change water usage, and examples such as the European Union, where water pricing has been mandated since 2010 (though not completely implemented), and where agriculture and industry pay comparatively more than individuals do for water, provide the ideal template for Alberta to follow. Sandford cautions some in Alberta want to push for privatized water and water markets. And he says introducing even pricing may be difficult. “We know that if we charge the full price of water that certain operations would not be economically feasible, such as the oil sands,” Sandford says. “You’ll find considerable opposition to pricing there.”

The “full price” of water? Consider not only the cost for the resource itself, but for all the investment in infrastructure to clean, deliver, treat, test, govern and monitor it. The question, though, is one that perplexes many involved. Countless experts were asked the hard dollars-and- cents cost of getting water right and wrong in Alberta; countless experts didn’t have an answer. Bennett thinks we need to find a way to solve this. “You can turn on your radio and find out how much gold is worth, but water is often valued differently, on what it does. You put it through that turbine, it generates that much worth of power, or you spread it on fields and come up with that much yield. It’s odd for me that we don’t seem close to understanding that we’re not valuating water; we’re valuing what it does. Wouldn’t it be great if we knew what water was worth, for being water?”

In Alberta, all water users are not equal. While residential use often results in up to 80 per cent of water withdrawn being returned, treated, into the ecosystem, large-scalewater users – specifically the oil sands, in situ energy producers and agriculture – don’t return the majority of the water they use (or, if they do, return it in a degraded, polluted form). In the case of deep-water injection after in situ bitumen extraction, for example, zero water is returned; in the case of agriculture, much of the water used is exported, literally, in the food it has fuelled to grow and which retains much of that water. Because of this, to talk about pricing water in Alberta fairly means to talk not only about how much is used but about how much is returned to streams, rivers, lakes and water tables, and in what condition, for others to use again.

Conservation has taken off when it comes to residential use. Calgary, for instance, has added nearly 300,000 people in the past 15 years, says Bennett, but “they’re not pulling any more water out today than they did 15 years ago.” Similarly, in Okotoks, Robertson has installed rain-water capture systems at his house. The town now has strict bylaws prohibiting using water to replenish a lawn or wash a car during hours of intense daylight, to limit the amount of water lost due to evaporation. And using water for such activities is only allowed two days per week, anyways. All told, domestic water use has been pared down, Robertson says, to about 295 litres per person per day, far lower than the 350-litre Alberta average. Yet these measures matter little to Okotoks in the emerging water market as it’s currently set up, he says.

“Certainly everybody is limited by the quantity of the water in the South Saskatchewan River basin right now,” Robertson says. What should change, he says, isn’t necessarily the way water is entering a market, but the rewards that market gives to those who play by better rules. “Efficiency should be rewarded.”

Fittingly, that’s the big idea on the horizon – something called water-quality pricing. “You can talk about water-quantity pricing, which is the one we’re more familiar with, and then there’s been exploration with water-quality pricing or charges,” says Rivers. Under such a system, “If a company degrades the quality of the water but still returns it to the aquifer, then there might still be a charge, whereas if a company takes water out and puts it back but doesn’t degrade it there might not be a charge,” he says. “We see some of this popping up [in other jurisdictions] in watersheds with heavy agricultural use. You might get penalized when you dump phosphorous into the aquifer, which is like agricultural runoff. So that’s there to discourage maybe not your overall quantity of water use but what you do to the water.”

If a better method of pricing water were introduced in Alberta, not only would water usage be valued, but using water in a way that allows it to be used again in the future would be incentivized. Innovation and investment would follow the potential profits resulting from avoiding the potential charges. The subtext of such an idea is to challenge industry and agriculture to use water differently. Yes, water is extensively recycled and reused by oil sands producers today, and saline or brackish water is increasingly being used, especially with in situ production, where by 2020, less than half a per cent of Alberta’s fresh water allocation will be used by the in situ industry, according to CAPP. And yet it should be no secret to anyone that the stain on Alberta’s environmental shirt, as it were, is created by tailings ponds, where the outside world looks aghast at a fundamental resource that for many other regions is in scarce supply. Clearly, there are large improvements to be made.

Regardless of the discussion on pricing – be it volume pricing, quality-based pricing and credits, or even markets – public resistance will determine what is possible in Alberta, Doucet says. “The single most important, most significant downside is the public distrust of using markets and prices for water and the fear that the public might have that this would mean for water for domestic use,” he says.

So where are we now? Alberta began public consultations on water policy last year through an online survey and consulations in communities. The idea came out of the 2003 Water for Life strategy, which set a nominal roadmap for Alberta’s water governance for the upcoming decade, though critics point out it has soft targets rather than hard deadlines. One decade after the strategy was released, the province is building more water monitoring and measuring capability, with 80 per cent of large-scale users now required to report their water usage, says Andy Ridge. And specific industries now have water target plans, he says.

But Robertson says a single price for water is unjust. “Our bone of contention with the province is that we’re treated the same as an oil company,” he says. “When an oil company takes that [water] and injects it into deep wells, the water never comes out and disappears forever. When Okotoks or any municipality takes water, we take it out but we return 80 per cent of it. We think there should be some sort of credit given.”

Pricing the amount of water we remove from the market makes most sense, economically and ecologically. There will be more of us but there won’t be more water. We should reward those who use it wisely and charge those that don’t. It’s just good business.

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