Water: Is There a Global Crisis?

by Elliott Morss, Morss Global Finance

Author’s note: This is the first in a three part series on global water problems. In the second part, water “experts” will be interviewed. The third part will consider investment opportunities in the water sector.  See Part 2 (Opinion) and Part 3 (Investing).

Introduction

We hear a lot about global crises every day – terrorism, global warming, children starving, children obese, running out of oil, and population bombs. Come to think of it, crisis mongering is not new. The media loves crises: they get more watchers and consequently mo ad revenues.

You might remember Paul R. Ehrlich, a Noble Prize winner and Stanford Professor. Back in 1980, he wrote “The Population Bomb” in which he claimed population growth would soon outrun the supply of food and natural resources – a real global crisis! Julian Simon, also an academic was skeptical, so he offered Ehrlich a wager. Erhlich could choose five commodities. Simon would bet him $200 per commodity that its price would be lower at whatever future date Ehrlich chose. Ehrlich bet that the prices of chromium, copper, nickel, tin, and tungsten would be higher in a decade – 1990. As it happened, the world’s population grew more rapidly (by 800 million) 1980 – 1990 than in any decade in history. But Erhlich lost the bet. The prices of the commodities he chose at the end of the decade were all lower.

We hear now that we have a global water crisis. In what follows, the arguments for this latest crisis will be examined with facts and analysis.

Are We Running Out of Water?

a. Facts

As Table 1 indicates, we have plenty of water. 70% of the earth’s surface is covered by water and with global warming; an increasing amount of it is in liquid form. Only 3% of it is not salted, but that is a lot. We are not running out. And keep in mind that whether we are running out of water is hardly a meaningful question. This is because unlike oil and other earth materials, we don’t “use up” water: in almost all applications – agriculture, industry, and human consumption – virtually all water immediately recycles.

Table 1. – Global Water Resources
Source: Meena Palaniappan and Peter H. Gleick, “Peak Water”

So let’s ask a more meaningful question: do we have enough fresh water? Estimates are that we use slightly more than 50% of all renewable and “accessible” freshwater flows annually. And of course, these data vary significantly by region and year. Table 2 provides data on the water withdrawal rates of the largest 20 countries. China and the US have acceptably low overall withdrawal rates but we hear of serious water problems in each country. Clearly, many water problems are in-country distribution issues. Egypt? A real problem country. Anyone who has flown south from Cairo has seen a narrow strip of green on both sides of the Nile – the rest – desert.

Table 2. – Water Withdrawal and Per Capita Usage, Largest Countries, 2011
Source: World Development Indicators 2013, The World Bank

Consider next the countries with the highest withdrawal rate (Table 3). How do these countries get by? Many use desalinization plants. Desalinization technologies are well-advanced and more than 10,000 desalinization plants are now in use. According to a recent study by the Pacific Institute, desalinization requires approximately twice as much power as wastewater reuse for the same volume of water. Yes, it is more expensive but it works. However, landlocked countries do not have this option, and Hungary, Turkmenistan, Uzbekistan, Moldova, and Azerbaijan are landlocked countries….

Table 3. – Countries With The Highest Withdrawal Rates
Source: World Development Indicators 2013, The World Bank

The Real Water Problem

In attempting to deal with the water problem, it is important to understand how water is used. Globally, 69% of all water is used for agricultural irrigation, 17% is used by industry, and only 13% is used domestically.

Next, I offer a few bulleted items that some people worry about:

  • The world’s population is growing by about 80 million people a year, implying increased freshwater demand of about 64 billion cubic meters a year. Competition for water exists at all levels and is forecast to increase with demands for water in almost all countries.”  Source: WWDR, 2012
  • Part of the current pressure on water resources comes from increasing demands for animal feed. Meat production requires 8-10 times more water than cereal production.”  Source: WWDR, 2012 How about Ethanol?
  • Water withdrawals are predicted to increase by 50 percent by 2025 in developing countries, and 18 per cent in developed countries.”  Source: Global Environment Outlook: environment for development (GEO-4).
  • Over 1.4 billion people currently live in river basins where the use of water exceeds minimum recharge levels, leading to the desiccation of rivers and depletion of groundwater.” Source: Human Development Report 2006
  • In 60 percent of European cities with more than 100,000 people, groundwater is being used at a faster rate than it can be replenished.” Source: World Business Council For Sustainable Development (WBCSD).

My response to these concerns? They can be dealt with. The real problem is in the area the World Health Organization calls “Water, Sanitation and Hygiene”.

According to the World Health Organization (WHO), there are approximately 1.9 million deaths annually attributable to “water, sanitation and hygiene” problems, and most of these occur in developing nations. The WHO has also developed a health risk statistic – the Disability-Adjusted Life Years (DALYs). It measures years lost both because of a premature mortality and years lost due to time lived in less than full health. Data on how “water, sanitation and hygiene” problems compare with other problems are presented in Table 4.

Table 4. – Deaths and DALYs from Selected Problems
Source: WHO

These data are subject to interpretation inasmuch as there is considerable discretion in deciding what something is “attributable to”. For example, the first and third leading causes of death are high blood pressure and high cholesterol, both having to do with being overweight/obese. A side note in passing. The FAO reports

“that while some 870 million people were still hungry in 2010-2012…1.4 billion are overweight, of whom 500 million are obese.”

Back to water: in short, it is clear that there is a global water problem, mostly having to do with people’s health, and most of it located in developing countries. But before getting to this problem, let’s look at the US.

US Water Problems

As Jim Thebaut portrays in his video documentary “Running Dry” there are real water availability problems in the southwest of the country. The reason is obvious – water has been treated as a free good. And where have most of the benefits gone? To agriculture – a huge subsidy.  And put that together with the government subsidies to agriculture (Table 5), it is outrageous. Of particular note – the tobacco subsidies – subsidies to grow a crop that is highly addictive and a real killer.

Table 5. – US Farm Subsidies, 2012
Source: Environmental Working Group

How can this be explained? Open Secrets estimates agribusiness paid lobbyists $139 million in 2012 to work for them.

But there is a solution to the US water problem in the southwest: Come up with a regional plan to satisfy the water needs for the next 25 years (additional desalinization plants will be needed) and float a bond to finance it. Figure out how much it would cost to amortize the debt over the next 25 years. Add the annual amortization costs to annual “water” operating costs and charge water users accordingly. Water costs would increase substantially. That is what should be done.

Developing World

Consider next developing countries where there is a serious water problem. The UN estimates they could be cut in half for $20 billion a year. $20 billion is 0.2% of bilateral and multilateral development assistance. $20 billion is only 0.02% of global GDP. But should more money go into ending water problems? There are certainly other problems in the developing world, and it is probably an either/or situation. Consider the seriousness and progress on some of the other UN Millenium Development Goals:

  • The proportion of people living in extreme poverty has been halved at the global level. The world reached the poverty reduction target five years ahead of schedule. In developing regions, the proportion of people living on less than $1.25 a day fell from 47 per cent in 1990 to 22 per cent in 2010. About 700 million fewer people lived in conditions of extreme poverty in 2010 than in 1990.
  • Remarkable gains have been made in the fight against malaria and tuberculosis. Between 2000 and 2010, mortality rates from malaria fell by more than 25 per cent globally. An estimated 1.1 million deaths from malaria were averted over this period. Death rates from tuberculosis at the global level and in several regions are likely to be halved by 2015, compared to 1990 levels. Between 1995 and 2011, a cumulative total of 51 million tuberculosis patients were successfully treated, saving 20 million lives.
  • The proportion of slum dwellers in the cities and metropolises of the developing world is declining Between 2000 and 2010, over 200 million slum dwellers benefitted from improved water sources, sanitation facilities, durable housing or sufficient living space, thereby exceeding the 100 million MDG target.
  • The hunger reduction target is within reach. The proportion of undernourished people in developing regions decreased from 23.2 per cent in 1990–1992  to 14.9 per cent in 2010–2012. Given reinvigorated efforts, the target of halving the percentage of people suffering from hunger by 2015 appears to be within reach.
  • Environmental sustainability is under severe threat, demanding a new level of global cooperation. The growth in global emissions of carbon dioxide (CO2) is accelerating, and emissions today are more than 46 per cent higher than their 1990 level.
  • Big gains have been made in child survival, but more must be done to meet our obligations to the youngest generation Worldwide, the mortality rate for children under five dropped by 41 per cent—from 87 deaths per 1,000 live births in 1990 to 51 in 2011.
  • Too many children are still denied their right to primary education. Between 2000 and 2011, the number of children out of school declined by almost half—from 102 million to 57 million.

In short, there are competing claims for aid monies. So what progress has there been on the water problems? I quote from the UN:

“Over 2 billion people gained access to improved sources of drinking water. Over the last 21 years, more than 2.1 billion people gained access to improved drinking water sources. The proportion of the global population using such sources reached 89 per cent in 2010, up from 76 per cent in 1990. This means that the MDG drinking water target was met five years ahead of the target date, despite significant population growth. Gains in sanitation are impressive. From 1990 to 2011, 1.9 billion people gained access to a latrine, flush toilet or other improved sanitation facility.”

This is great progress.

Conclusion

Is there a global water crisis? No. We are certainly not “running out of water”. But worldwide, water is “given away”, treated as a “free good”. This should stop. Water should be sold for what it costs to provide. In developing countries, water is frequently “not clean”. But in recent years great progress has been made on this issue and it should be continued.

© Elliott R. Morss 2013   All Rights Reserved

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8 replies on “Water: Is There a Global Crisis?”

  1. A good article. However if 69% of fresh water is used for agriculture and that figure sounds about right to me, raising the price of that water would simply raise the price of food and fiber to consumers. So it would have no impact unless you are thinking it would reduce food consumption which might have a positive health impact in some places but not generally..  In many places water is not a free good. In New Mexico water rights sell at a high price so the farmer incurs an opportunity cost by using rather than selling his water. If delivered by an irrigation district they charge for that service. If the farmer pumps groundwater, pumping is not cheap. So the idea that fresh water is a free good may not be true everywhere and probably is true nowhere in the U.S. The price mechanism is effective re municipal use but probably not for agriculture use and industrial use probably varies by segment within that large category. For some segments a higher cost of water may encourage conservation. But doing so may not be legal everywhere. In the U.S., governments usually do not own the water supply but hold it in trust and appropriate water for private use or under a riparian doctrine again but by a different mechanism the right to use water becomes private property. Water utilities purchase their right to distribute water and thus can determine the fees they charge to their customers. But usually there is no legal mechanism to raise the price of water to farmers since the farmers already own their right to use water. Much industrial use is similar with the industrial user owning the right to use water. Thus attempting to raise the price of water to such users would be a taking and require compensation which would offset the price increase. Of course water is not private property everywhere. But it is in the U.S. .

  2. Good article, but you underemphasize the importance of governance, i.e., the politics of who gets water and who pays for it. Governance matters in developed countries (per SS’s comment on subsidized farmers) and even more in developing countries (that’s why the “human right” to water is not doing much. From a factual basis, you also miss the nuance in the billion people lacking access to “an improved water source” — the revised MDG. The number without access to CLEAN water is nearer to 3 billion. Finally, since you’re going to talk about investments, don’t forget to keep in mind that water is nearly always operated as a monopoly (=inefficiency) and the importance of  “regulatory risk” (i.e., governance) on the value of water projects… For more on these topics, check out my blog, aguanomics.

  3. Comment submitted by e-mail:
     
    Sig: Thanks for your comment. A couple of thoughts:
    1. As an old fashioned economist, I recognize just how out of whack everything can get if prices are not right. You talk about consumption prices. Well, yes, food prices should be higher. But you don’t mention the effect on producers. There are too many ag. producers living off the “welfare dole” they get by paying off legislators for subsidies and low price supports from their state utility commissions. This should be changed, and if it is, at least some ag will relocate where water is cheaper. Good. They should. 
    You offer some history on water rights and prices. Well, fine, they are problems. These are tree issues and not forest issues. 
    The reality is that water prices are far too low. And until this changes, water prices and where US agriculture locates will be really screwed up.
    Elliott Morss

  4. I guess it makes a difference whether or not you raise the price of water somewhere or everywhere.
    If everywhere, I think the consumer not the farmer absorbs the higher price. If only somewhere, production shifts as the producer is more likely to have to absorb the higher cost.
    There are many nuances to this. But a major point I was making is that if farmers own their water rights how do you raise the price of water to them?
    If you read some other articles I have written for Econointersect, I think in one I use the expression which is a paraphrase of the US position with respect to the farmers water rights in the Lower Rio Grande; “We stole them fair and square”.
    Where water rights are private property, one can’t just decide that the farmer should pay more for their water. People get confused between farm water and public water supply water. The farmer generally owns the right to use their water. A public water supply also owns that right but they are a reseller of water. As a reseller, they can charge whatever they want subject to regulation and the political system. Bu that represents a small fraction of water use. And half of public water supply water is reclaimed. In New Mexico actual depletion of water by public water supply is 6% of the water put to beneficial use. Pricing clearly can reduce that use as there is a point where people will let their gardens die. Indoor uses are essentially 100% reclaimed so you can induce people to take shorter showers but it does not save any water. It reduces the workload of the water treatment plant.
    So one has to look a the ownership structure of water.
    Also historically cheap food has led to stability and not cheap food has lead to revolutions and war. So I am not at all convinced that raising the cost of food is a good idea. I guess I am saying that the idea of raising the price of water is not a viable approach.

  5. @Sigmund Silber (1) An increase in food prices will probably not have an impact in the US. Farmers may lose some market share on exports, tho. (2) “I was making is that if farmers own their water rights how do you raise the price of water to them?” A: You can do this via “opportunity cost” i.e., allowing farmers to rent or sell their water rights (consumptive use, only). Such a market “raises the price” of them using water for crops. You can see this in action where farmers are selling to frackers.

  6. @aguanomics Farmers can in general sell their water rights to anyone they want. There is the little matter of whether or not the title to the water right has been adjudicated. Not an issue in Colorado but an issue in New Mexico. I do not know how that sorts out around the world.
    It is not likely that farmers will be selling their water to oil companies. There are many reasons why that will not happen often. Some of the most important reasons are:
    A. location wells are not generally located where farming is taking place.
    B. Period of use. Fracking is a point in time (24 hour) event requiring a lot of water and may be repeated but is not a constant use of water at the same location
    C. Ag water may not be of sufficient quality for fracking.
    D. It is probably cheaper to drill a well to get oil-field water. Since this water is not consumed and returned to the ground it does not require a water right.
    E. It is becoming practical to clean and recycle the water re drilling,.
    F. I you sever the water from ag land, the ag land usually becomes worthless or a nuisance. So what might be good for the farmer may have negative impacts on the community;.
    It is better to look at oil and gas as ultimately suppliers of water rather than consumers of water.
    I see no benefit in raising the price of water to farmers. Where farmers have a limited supply of water they already have an incentive to use it efficiently. To say that raising the price of water to farmers is a good idea is a lot like saying raising the cost of diesel oil to framers or fertilizer, or insecticide or labor is a good idea. How does raising the price of inputs lead to a better result?
    I know a lot of people who think it is a waste of water to grow alfalfa. Say goodbye to the dairy industry.
    .

  7. I agree with the conclusion.  The effects of this narrative are unhelpful to water management.
     
    The presumed link between global water demand and supply creates potentially harmful or unworkable efforts to solve the crisis.  Policy makers and experts are drawn to presumed panaceas that may not translate well between settings (Meinzen-Dick 2007; Brock and Carpenter 2007; Ostrom 2007; @aguanomics 2013).  Institutional economist, Lin Ostrom (2007) laments “drastic simplifications of the structure and process of ecological systems as well as of the relevant social system related to these sytsems” in order to draw conclusions or implement optimal solutions.  When the “‘optimal’ solution fails…skepticism increases as to whether ‘any’ solution is possible given that efforts to impose an optimal solution have not generated expected results” (4).  Big engineering projects, sometimes designed to move water between basins, incur large environmental, social, political and financial costs at questionable returns (Reisner 1986; Zetland 2011).  Furthermore, centralized, large-scale policy solutions may lack flexibility, disrupt delicately balanced institutional and political power-relations, and disregard local management techniques, local social capital and informal property rights (i.e. steamroller first order, highly embedded institutions) (Bruns and Meinzen-Dick 2005).  These efforts may intensify and multiply cases of mismanagement at regional and local levels, in turn deepening a crisis that spectators and commentators misunderstand or misrepresent as “global.” 
     
    The article touched on a possible explanation for why the obsession.  Here are two more:
    Water-focused and development-focused NGOs may find a message of universal crisis more compelling for awareness-building and fundraising purposes.
    Businesses hawking solutions may likewise find such a message useful for attracting investment.

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