Designing water abstraction regimes for an ever-changing and ever-varying future

•Most abstraction regimes manage water scarcity with difficulty. New ones are needed.•Water entitlements to be separated from land and defined as a share of the resource.•Entitlement to access water and the right to use it should be separated.•Entitlements and allocation trading promotes innovation and encourages efficiency.•Sequencing of reform for efficient management of scarcity to be developed with care. Most of the world's water entitlement and allocation regimes evolved during periods of abundance and, hence, are not well suited to the management of water scarcity. Development of the institutional arrangements necessary to manage changing demands and supplies is in its infancy. Design criteria for the development of a set of institutional arrangements for the robust management of scarce water resources is offered and then used to develop a generic framework for the allocation and use of water. Variations to account for differences in ground, regulated and unregulated water resources are offered. The question of how best to sequence reform of existing water entitlement and allocation regimes is also addressed. The result is a recommendation for the use of water sharing plans to determine how much water may be used at any point in time and an unbundled suite of arrangements that enable efficient but separated management of long term and short term considerations and, also, the control of externalities. System-wide adjustment is facilitated through the periodic revision of water sharing plans. Individual adjustment to changing circumstances is facilitated through trade in entitlements and allocations. Before the introduction of institutional arrangements that encourage adjustment through trade it is recommended that the abstraction regime used be converted into one that accounts for return flows and allocates water according to shareholder entitlement. Seniority, beneficial-use criteria and opportunities to third parties to prevent adjustment according to pre-specified rules should be repealed. Well-designed regimes can be extended to include dam-capacity shares and allow the use of market-based instruments in delivery of water-quality objectives. Pooling can be used to lower the costs of risk management.