Plotting a New Course: The World Bank’s Report on the Uncertain Future of Water

Photo Credit: Christian Madonna

Photo Credit: Christian Madonna

By Christian Madonna

Water shocks are going to adversely impact our economies along with our environment in the next hundred years, indeed they already do today. A group of distinguished water experts and economists gathered at the World Bank this week to discuss these findings in their latest Global Water Practice report: Uncharted Waters, The New Economics of Water Scarcity and Variability.

Water shocks are large swings in precipitation or drought conditions and are already affecting people’s economic livelihoods around the world in both urban and rural areas. They have the strongest adverse effect on the impoverished in both.

What happens when there is a water shock? There is a major impact to firms, farms, and families in either case. Wet shocks, more commonly referred to as floods, damage infrastructure, can result in loss of life, property, and livestock, contribute to health-based epidemics, and have either no noticeable or sometimes even a slight positive impact on agricultural production.

Though less immediate and visible, the effects of a dry water shock, or drought, are far more costly to affected areas than that of flooding. That may seem counterintuitive, but the reality is that a flood’s effects are immediate, visible, and handled better. Dry shocks are drawn out, harder to detect, and have less visible impacts. These droughts lead to water shortages, decreased agricultural output, electricity shortages, an increase in the spread of diseases, and can have lifelong effects on early childhood development in areas experiencing them.

The issues of water scarcity and variability are increasingly viewed through the lens of ever-increasing demand, as well as one of unstable and often variable supply. Changing patterns of climate, as well as increased temperatures, have caused greater evapotranspiration of water sources in many areas, as well as increased variability in rainfall patterns. Whereas the supply of water continues to be either steady, dwindling, or increasing, depending on location, the demand for water has been steadily increasing at an alarming rate everywhere as world population increases.

Not only is the usage of land and water for agriculture on the rise to feed this increase, but cities are growing rapidly too. Urban dwellers use far more water resources than their rural counterparts. Paired with improving standards of living and the mass ascension of people from poverty to the middle class, diets are rapidly shifting towards higher rates of meat consumption requiring more intensive water usage for livestock production.

Water supplies have long been treated as a limitless public good. As much as 70% of all freshwater use on the planet is for agriculture. We all depend on farmers to produce our food and they depend on water to produce that food and thus sustain their own livelihoods. As a result, when agricultural output declines due to dry shocks, farmer incomes decline and they often expand to larger farms to account for the decreased production. More land taken for agriculture leads to greater stress on local forest watersheds as trees are cleared to make room. This creates a feedback loop in which stressed watersheds decrease the stability of the water supply leading back to deforestation to increase farmland to address the decreased production.

These water shocks can have drastic impacts on the political and economic stability of a country. As seen in Yemen and Syria, water shocks caused mass migration as droughts forced people to move from rural areas in search of food and water, becoming climate refugees. This destabilizing force played a factor in the now crisis situations in both countries.

There is hope for solutions, though the experts concluded that the issues are too complex for any silver bullet to solve them. They are, however, solvable issues, and the panel discussed several implementable solutions.

Agriculture is the greatest user of freshwater resources and will thus be most affected by any solution tied to reducing demand. However, in a scenario without any solutions enacted, that allows supplies to be used at the increasingly unsustainable current rate, agricultural producers will be even more negatively impacted.

In the first scenario, farmers will have to reduce their water usage because of policies enacted to manage water supplies sustainably by reducing its demand. In the second scenario, farmers will still have to reduce their water usage because usable water supplies have decreased or become more variable. The second scenario has far less control on demand and puts farmers at the full mercy of changing global climate affecting supply.

The solution outlined in the first scenario is referred to as demand response. In basic economic theory, there is a balance struck between supply and demand for all scarce resources. Reducing water’s growing demand is a solution to maintaining a better balance with its finite supply.

One of the main issues surrounding a demand-side solution is that few truly recognize water as a scarce good. It has long been treated as an infinite public good, and as the tragedy of the commons has shown, public goods will be used and abused until they themselves are scarce.

Creating a value for water and thus a market for water usage will allow policymakers to enact regulations and laws that effectively use market tools, like pricing, to manage demand and drive efficiencies for both agriculture and industry.

Once there is a market for water, incentives can be created for farmers to produce more drought-resistant or less water-intensive crops and to invest in water-saving agricultural practices and technologies.

The difficulty with lowering demand for water through pricing and policy is that there is no agreed upon value for water, per any unit. Most users are charged for near unlimited access or not charged at all. Another key issue is how to charge a price for water that will reduce usage without harming the poorest and most vulnerable members of the economy-- urban poor and subsistence farmers.

On the supply side, increased investment in more efficient urban and rural water infrastructure will provide a supply of water resources that can better absorb water shocks and provide for growing populations and changing consumption patterns.

Increased public-private partnership in managing water across the business supply chain and in bringing water issues to the forefront of the public consciousness will be key components in establishing a market value for water.

Social safety nets, such as subsidies, drought insurance, and cash transfers during water shocks will be a necessary part of any solution in the coming years as water supplies become more scarce or variable.

As we progress further as a world that is dependent on access to a stable water supply, issues such as water shocks will worsen due to the impacts of changing climate and growing population. We are heading into unknown territory, but as the report shows and experts conclude, we can have a policy roadmap that addresses these monumental challenges, improves our health, conserves the environment, and ensures economic prosperity.

This Article was originally shared on Rational Conclusion.