Global Water Intelligence Magazine: Maharashtra state and 2030 Water Resources Group aim to pilot trading mechanism to incentivise reuse

Source: Global Water Intelligence Magazine, Vol. 21, Issue 3, 19 March 2020 (membership only)

India’s highly industrialised Maharashtra region hopes to increase wastewater treatment and recycling through a novel trading mechanism for reuse certificates.

The Indian state of Maharashtra and the 2030 Water Resources Group (WRG), a partnership hosted by the World Bank, are planning to launch a platform enabling trade in wastewater reuse certificates (WRCs), in an attempt to incentivise greater levels of reuse.

Maharashtra’s water sector regulator, the Maharashtra Water Resources Regulatory Authority (MWRRA) and the WRG are overseeing the initiative, in which companies and municipalities will be awarded certificates by hitting wastewater reuse targets. These can then be traded, with organisations that do not meet their targets required to buy certificates.

While certificate trading is established in the energy space in India through renewable energy credits, the idea is new in the water sector, where the uptake of wastewater treatment and reuse technology has been plagued by low water tariffs and inconsistent regulatory oversight.

Inspired by the energy and emissions trading sector, the proposal will focus on building an economic instrument by setting up a transfer and trading platform, similar to the Indian Energy Exchange, and developing a market-based mechanism for carrying out these transfers.

Comparing the initiative to other models of trading environmental commodities, a senior official from 2030 WRG in India told GWI that regional markets for carbon trading are quite active, but that using the concept in water reuse will come with its own challenges. “The WRC, although it draws its concept from such examples, is complex to handle due to challenges pertaining to water quality assessment,” the official said.

The WRG is looking to take on consultants to help define the guidelines for the WRC trading platform, advise on a detailed roll-out of the plan, and formulate a handbook to act as a training resource. The proposed trading platform is planned to use IoT-based metering and blockchain-linked distributor ledger techniques. The WRC initiative is initially intended to be rolled out in Maharashtra and potentially Bangladesh, but may eventually be considered for other countries such as Vietnam, Ethiopia and Brazil.

“Assuming WRCs are rolled out for industrial and commercial segments, an initial market example for Maharashtra could be ten municipalities and 30-odd industries,” the senior official told GWI. “The top 20% of water users may be a part of this trading platform, and market players will increase as reuse opportunities are harnessed for smaller housing societies. If this scheme is rolled out, initial calculations show a market liquidity of $800 million or so, as an annual trade in the state of Maharashtra alone.”

Certificates may be valid for a period of two years, depending on market liquidity, and the official added that “although daily trading may not be possible initially, monthly trading can be implemented once market participation gains momentum. We expect further development of the WRC structure to take place during the calendar year 2020, and a roll-out during 2021-22.”

The MWRRA has formulated a draft regulation, the MWRRA Water Entitlement Transfer and Wastewater Reuse Certificates Platform Regulations, 2019, and it is currently awaiting final notification from the state government. Speaking to GWI, the chairman of the MWRRA, KP Bakshi, said while the government is reviewing the regulation, the MWRRA is undertaking preparations on other fronts, including target preparation guidelines, monitoring, exchange tariffs, and other aspects emanating from the regulation. The MWRRA is also the tariff-setting body in Maharashtra, allowing it to price the WRCs in a way that ensures viability.

The issuance of WRCs will be carried out by MWRRA on the trading platform, with certain floor and ceiling prices for the certificates as a tradeable permit. “Regulators can consider a cascaded level of WRCs, such as platinum, gold and silver, based on the quality of treated water available for reuse,” the 2030 WRG official said. “MWRRA will set targets for the reuse and recycling of water for all stakeholders, the transfer of entitlements from one entity to another, and freshwater entitlement data.”

According to Bakshi, “urban and industrial water consumption account for around 15% and 10% of water use in Maharashtra, respectively, and these sectors have been selected for the initial roll-out. The concept of the WRC is target-based as per the mutual agreement with an urban local body or an industry with the MWRRA. Certificates would be awarded for exceeding targets, and they can then be redeemed or exchanged in the market.” He further explained that the MWRRA led the development of the Integrated State Water Resources Plan for Maharashtra, approved in February 2019, which outlined ambitious plans for the reuse of wastewater, including the goal that 30% of treated effluent be reused by 2025, and 100% by 2030.

The MWRRA and WRG are now looking to create a sound framework for utilities, industries, and other stakeholders based on a ‘polluter pays’ principle.