Water value, resource rent recovery and economic welfare cost of environmental protection: A water-sector model for the Steelpoort sub-basin in South Africa

Abstract

This study developed an analytical framework and an empirical water sector model to evaluate current and alternative water allocation regimes in the Steelpoort sub-basin (SPSB) in terms of the key objectives of the national water act of South Africa. The analyses showed that bulk water is currently not only oversupplied to offstream uses in the SPSB at the expense of the ecological Reserve (instream benefits) but also underpriced. The water research levy, the only mechanism used for rent capture, recovers a negligible proportion of the water resource rent (RR) (less than 2% at best) implying that almost all RR dissipates to various offstream users in the form of indirect subsidies of about R0.42/m 3 with the more realistic lowprice elasticity assumption. Commercial irrigation enjoys the highest subsidy being the major consumer followed by mining and hence the most to be affected by policy change in this regard.

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