July 24, 2014 / 9:23 AM / 5 years ago

China to roll out seven pilot markets for trading water rights

BEIJING (Reuters) - China has picked seven provinces to host pilot markets for trade in water rights, as the government battles a spreading water crisis that threatens to curtail economic growth and hurt food production.

A worker on a boat sprays water clarifier into a polluted canal in Beijing July 17, 2014. REUTERS/Kim Kyung-Hoon

The move is the latest sign that China aims to use market-based mechanisms to handle growing environmental problems. It has already launched seven pilot markets to cut emissions of climate-changing greenhouse gases, and plans to roll out a national scheme later in the decade.

The provinces of Gansu, Guangdong, Henan, Hubei, Inner Mongolia, Jiangxi and Ningxia will draw up rules for their water markets and have them approved by October, the Ministry of Water Resources said on its website.

“We will attempt to make progress in ... policy framework building in the next two to three years, and use the experiences to model a national trading system,” the ministry said.

The provincial governments will issue water rights under the scheme, and recipients who use less than they receive can sell the surplus in the market. It remains unclear whether rights will be issued to companies or local governments.

The pilot regions will study how water rights can be distributed and how to register usage rights.

But the legal basis for the scheme could prove controversial, with one expert saying a water trading system could infringe the law.

“China’s water is owned by the state, and only the central government can decide how much water is allocated to regions,” said Song Guojun, dean of the Environmental Policy and Planning Research Institute at Renmin University in the capital.

“If local authorities trade water it would be a violation of the constitution.”

Keeping track of water use rights could also prove tough, another expert said.

“Because water resources are mobile and uncertain, registering water use rights is going to be very difficult,” Wang Yahua, a professor at Tsinghua University told local newspaper 21st Century Business Herald.

Water is rapidly emerging as one of the most pressing environmental concerns for China, which is naturally water scarce, and where each citizen’s access to freshwater stands at around a fifth that of the United States.

Decades of pollution have left large swathes of rivers, lakes and groundwater too dirty to use.

Food production in some parts of China is threatened by the crisis, which also causes challenges for a manufacturing industry that mostly relies on water-intensive coal-fired power.

The government has launched a $62-billion project to divert some southern rivers to the dry north, and in May the State Council, or cabinet, approved more than 170 schemes to boost supply.

Water-stressed Beijing in April hiked prices for industrial users of water in a bid to stem demand.

In March, the Ministry of Finance said it would launch a national air pollution market to halt China’s smog crisis, which prematurely ends half a million lives annually.

Reporting by Kathy Chen and Stian Reklev; Editing by Clarence Fernandez

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