The 21st century may turn out to be the time in history when we hit the natural resource limits of the planet. Despite the technological innovations of the last century, natural resources—from fresh water and forests, to healthy soils and fisheries—are becoming exhausted as we rely on them to meet the food, water and energy needs of a global population that is expected to exceed 10 billion by 2050. We need to manage differently now what little we have for today’s use and tomorrow’s needs.
But there is good news. Provided we are willing to change, it is possible to protect the natural capital of the planet for future generations while meeting human needs today. There is no better example of this than the challenge of managing our limited water resources. Water touches every part of our global economy. Without available, accessible water and its sustainable management, we could not produce food, clothe or shelter the world’s growing populations, nor power our cities and communities. It is essential to our daily life, more so than any other natural resource.
Yet, the state of our global water resources is far from good. More than 30 percent of the water sources that people depend on are over-exploited to near exhaustion—reservoirs and lakes are being drained, many aquifers have been sucked dry, and most rivers and streams have been over-diverted. Climate change further compounds the issue, as once dependable rainfall that replenished critical water supplies is now unreliable.
Corporate leaders consistently rank this water crisis as one of the top risks to global prosperity. And for good reason: the impacts to people and nature are very tangible indeed. Water shortages in the Tana River basin of Kenya led to the loss of hydropower generation and associated industrial production, resulting in losses of over US$2 billion in 1999-2000. Insufficient freshwater inflows to Florida’s Apalachicola Bay in the United States led to a 60 percent decline in oyster populations in 2013, resulting in revenue losses of 44 percent in the shellfish industry. Water shortages in the Badin District of Pakistan in 2013 left 27,000 hectares of rice farms without water, impacting 100,000 farmers.
While historically the response of most countries facing scarcity has been to build more dams to store water, build more aqueducts to move water from one location to another, or drill deeper wells to reach aquifers, the future is unlikely to be one where we can solely engineer ourselves out of this challenge. The cost would be prohibitively high and, in many cases, there is simply no new water to store, move or tap into.
A new report issued by The Nature Conservancy, “Water Share: Using water markets and impact investing to drive sustainability,” shows an alternative path: one that starts with harnessing the power of well-regulated water markets to help us make more efficient and productive decisions. Using water markets, we can shift water back to the environment, while increasing the productivity of irrigated agriculture and meeting the water needs of cities.
Today, at least 37 countries in water-scarce regions have water allocation systems based on the issuance of water rights. This means that a water user is entitled to a certain quantity of water, and that he/she could sell that entitlement to willing buyers. When the value of water is revealed through a market, those who have rights to water supplies are motivated to conserve water and sell their surplus. If constructed and regulated well, such transactions can stimulate water savings, increase water availability, improve productivity and allocation efficiency, and improve accountability for water use.