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All that glitters is not (blue) gold

The water crisis is not about a lack of water but about creating a system of rules that determines who manages and governs it.

by Antonio Massarutto
06 May 2020
12 min read
by Antonio Massarutto
06 May 2020
12 min read

This article is taken from World Energy (WE) number 46 – Water stories

According to the OECD, if current trends do not change, 4 billion human beings will experience issues of “water stress” by 2030: North Africa, the Middle East, Central Asia and the U.S. Pacific seaboard are the main candidates.

The water stress index represents a combination of the allocation of natural resources (precipitation per capita) and intensity of use (usage per capita). This does not mean per se that we're going to die of thirst, but rather suggests a growing conflict between its usages. Economists use the term "trade-off": do either one thing or another. The alternatives are mutually exclusive, and something has to be sacrificed.

In the media debate, however, the terms of the issue are often misunderstood. In the dominant narrative, water scarcity is framed as a problem of physical scarcity. Water is becoming increasingly scarce, because we are squandering it by running out of “reserves,” and because humanity is growing, the world population having now exceeded 7 billion. Conflicts are therefore bound to arise over “blue gold,” the oil of the 21st century. The multinationals, long since aware of this, are trying to grab usage rights, to later be sold off at a profitably high price. Citizens have revolted against this attempt, proclaiming a “right to water,” acknowledged by a movement ranging from the UN to Pope Francis and now even codified in national constitutions. The same tendency equally forcefully vaunts citizens’ ownership of water (a trope of the “common good”), resulting in a corollary of requiring government management, alien to the logic of profit.

Such a reformulation has become so ingrained in the back of our minds that it has become a kind of conditioned reflex, an inalienable truth, even a mantra. All we need to understand the fundamental mistake being made is a little data analysis. Of course there is some truth in this, but the causal concatenation, the way concepts and data are juxtaposed, ends up somewhat blurry and ultimately misleading.

Physical and economic scarcity

To begin with, who ever said that water is scarce in a physical sense? The availability of fresh water is accounted for in billions of cubic meters, usage in millions of cubic meters. The difference is a factor of 1000. This is confirmed not only on a global scale, but also on a continental and sub-continental level. Yes, there are regions of the world where water is actually scarce in a physical sense (the deserts of the U.S., North Africa, some parts of Central Asia and northern China, southeastern Australia), although that scarcity could be thought of as due to the concentration of population in resource-poor areas.

Again, it should be considered that, at a certain finite cost—a high but not very high one—water can be made available in desired quantities, anywhere. The cost of seawater desalination in plants of sufficient size is around USD 0.50/m3; this technology is already being widely used, from California and Spain to Greece and Israel.

Another fact that should be noted is that water resources are not a finite stock, as is the case with fossil fuels. Water is a flow, constantly renewed with the cycle of evaporation and precipitation. Total precipitation has become less significant than outflows, the profile of which is reliant on the capacity of “natural reservoirs” (snow, ice, lakes and underground aquifers) and, to a much lesser extent, artificial ones (regulated lakes, dams, aquifer recharge). 

In another light, this feature ensures that the usages of water do not necessarily involve consumption or grabbing from other possible uses. In other words, the highly intensive usage of water where it is available in abundance is not necessarily a waste (the water taken would otherwise have ended up at sea, certainly not increasing availability to those in need).

So, where's the problem?

Firstly, what matters is not the absolute availability of water resources, but rather accessibility and usability at a reasonable cost. The fact that we can have all the water we want at a given cost does not protect us from conflict. That cost may be higher than the theoretical option of paying per use, especially for irrigation. Secondly, that cost may still be out of reach for potential users, because they are too poor to afford it. It's “economic scarcity,” rather than physical, where there is an issue for a significant portion of humanity. That is, where purchasing power is insufficient, drilling a well to access an underground aquifer can also be prohibitive. Especially in terms of agriculture, the issue of scarcity is mainly the concern of those whose livelihoods depend on self-sufficiency on agricultural products, and not so much of those where agriculture is fully incorporated into a market mechanism.

To add a little levity, water isn’t scarce, it’s heavy. For human use, it must be available in the times and places it's needed, at the right quality. This is possible, but it requires wastefulness of technology and economic means. It's not water scarcity, it's a lack of money, warns Bernard Barraqué, one of the European gurus in the sector.

So, we need an organization, a management system, a system of rules that determines who manages and governs it, by whom and how it is accessed, by whom and how the economic cost is paid to make it widely available.

On closer inspection, "water wars" are almost never conflicts over the appropriation of one disputed resource or another; they involve much more subtle conflicts. They are an issue of governance, inasmuch as they relate to the need to cope with stressful situations (there is less water than is needed) with an evolution of the system of services and rules. 

Disorderly growth of megacities and lack of infrastructure

The visible growth of megacities, especially in the poorer countries of the world, is the most obvious symptom of “water stress": not because of a lack of water, because there is no way to support such a tumultuous development with the service networks that could accommodate them. In the never-ending suburbs, people do not have water because there is a lack of adequate infrastructure, due both to supply and the equally important factor of sanitation and hygiene.

“There is enough water for everyone…. Water insufficiency is often due to mismanagement, corruption, lack of appropriate institutions, inertia and a shortage of investment in both human capacity and physical infrastructure,” the United Nations noted in 2006. 

Secondly, stating that water is a resource that is cyclically renewed does not mean that human use cannot interfere negatively with this cycle, as is the case, for example, when an aquifer is permanently damaged by too much tapping.

As well as its heaviness, water is also vulnerable. If we want to use it for all our needs (in both the civil and the production sectors), we cannot forget the ecological functions nor act in such a way as to alter the renewability profile.

Thirdly, the case of water clearly reveals one of the most critical and disturbing features of what we usually know as the Anthropocene, a phase of the Earth's evolution, characterized by the near-ubiquitous extent of anthropogenic impact on the ecosystem. The "water-food-energy nexus" reveals to us the increasing interdependence that exists between these three issues, all crucial to our development. It is not possible to address one without affecting the others, and we therefore need an integrated vision that considers all the interrelations between them.

The use of water resources, even if abundant, needs to be made hugely more efficient. The linear model of the past, that of the Roman aqueducts, traveling further and further to find more resources to feed the metropolis, is no longer practicable. It is necessary to invest intensively in a completely new system, drawing its inspiration from “circular” recycling, i.e., doing more with less, supplying the uses of one with the (treated) waste of another, increasingly replacing “natural capital” with the “artificial capital” of technology.

Translated into practicalities, this awareness means that not only is the investment of immense resources needed to achieve water infrastructure, but that even more money must be spent to ensure that the water we return to the environment does not affect the essential functions of the water ecosystem. Taking Italy as an example, we see that the real water emergency is not drought or anyone dying of thirst, but rather the inadequacy of the country's sewage and treatment systems, the incompleteness of which has already resulted in E.U. sanctions. But more generally, Italy is suffering from an aging infrastructure overall, a lot of which needs modernization. Only recently have we seen a relatively clear and uniform framework of information on service levels and needs for maintenance and improvement, a worrying situation that requires investment of tens of billions of euros.

As demonstrated by a recent REF study, however, such an investment plan could be a major boost to overall demand, and could also therefore promote Italy's economic recovery. These resources can be mobilized through tariffs—still lower than in most European countries. However, this will require a complete overhaul of tariff structures to avoid impacting the weaker social groups.

Goal 6, safe access for all

Things are not that different around the world, although due proportionality is vital.

The Millennium Development Goals for drinking water (to cut by half the number of people with no access to a guaranteed and controlled water supply) were achieved on time. It's proving a tougher challenge to meet the Sustainable Development Goals for 2030 (ensuring safe and economically sustainable access to drinking water), despite the fact that the numbers have risen by around 1 billion over 15 years. The rise in global population, especially in poorer countries, is moving the goalposts further and further apart (infographic). The graphs clearly show that the main problem is in rural areas.

Further still lie the goals on purification. Despite some progress in absolute terms, distance from this goal is widening even more. Again, the issue is mainly concentrated in rural areas. Access to personal hygiene in much of the world is guaranteed to less than half of the total population.

The main issue here, however, is the ability to mobilize the necessary economic resources. Although even a significant increase in tariffs would not be an insurmountable problem in terms of social impact, in most poor countries these margins are much more limited. This does not mean that they are non-existent, as demonstrated by multiple studies conducted by the United Nations, the World Bank, the OECD and the Asian Development Bank. The consequence of this reasoning is that when we talk about sustainability, in terms of water, we need to look at four different factors at least.

The first dimension is the environment: water use should interfere as little as possible with its ecosystem functions, ensuring its integrity. The second is ethics. Water is a fundamental asset—access to it is considered a fundamental human right, so its cost cannot exclude those who are unable to pay. Third, the financial aspect. The costs of building infrastructure and managing services must be covered, so the system can mobilize adequate human, technical and financial resources. The fourth is economics. Water resources must be allocated efficiently (i.e., favoring the uses that create the most value), but economic resources must also be allocated efficiently (i.e., investment to upgrade infrastructure should only be made if the value of the water made available exceeds the cost).

All four are equally significant, even if they do result in a paradox. If it is true that the economy consists of the application of the scientific method to trade-offs, that is, to mutually exclusive choices, the essentially economic nature of water scarcity and its associated conflict is revealed.


The author: Antonio Massarutto

Teaches public economics at the University of Udine. Director of IEFE (the Center for Research on Energy and Environmental Economics and Policy at Bocconi University, Milan), working on environmental policies and the organization of local public services, especially in the water and environmental fields.