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Weekly Economic Commentary | April 5, 2024

The Economics Of Water

Water raises the risks of conflict, civil unrest and economic pain in many parts of the world.

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By Vaibhav Tandon

I live in the city of Bangalore, in India.  Bangalore was once known as a city of lakes, home to hundreds of reservoirs constructed to store water, sustain fish and support agriculture. 

Today, the city faces an acute water shortage.  About half of the city gets its drinking water through piped supply.  The other half relies on groundwater, which has been depleted by unplanned and uncontrolled urbanization.

Bangalore is just one example of a developing global water crisis.  Cities across the world are becoming increasingly thirsty as the demand for water grows and supply dwindles.  Parts of Spain are experiencing the worst drought in recorded history.  Water scarcity forced the U.S. to limit water releases in its western states.  Unprecedented water shortages have afflicted Mexico City.  Cape Town is planning for “day zero,” a point at which the city’s taps would run dry. 

Two-thirds of the world's largest rivers are no longer free-flowing.  Since 1970, the world has lost over one-third of its remaining wetlands.  The Rio Grande/Rio Bravo, the water supply for over 6 million Americans and 10 million Mexicans, is drying up rapidly.  

Climate change, along with growing populations and the transition to clean energy, will only intensify water stress.  Morgan Stanley estimates global water demand will be 40% greater than supplies of fresh water by 2030.  India is the most stretched, with about one-fifth of the global population but only 4% of the world’s fresh water.  Saudi Arabia and South Africa are the major countries from the Group of 20 nations facing extreme water deficits.  Cooler regions are not immune: London faces “serious shortages” by 2040, according to the Greater London Authority.

Increasing water shortages are a particular threat to the most vulnerable sections of society.  Over 2 billion people around the globe lack access to clean drinking water.  Millions of people have to walk miles every day to just get a single bucket of water.  Around 3.6 billion people are living without access to proper sanitation.

Water shortages will hinder global economic growth.

Water scarcity will hinder economic growth.  Data from Aqueduct shows close to one-third of global gross domestic product, equivalent to $70 trillion, will be exposed to high water stress by 2050.  Agriculture accounts for 70% of global water withdrawals.  By 2050, the world will need to raise food output by almost 60% to feed the projected global population of 9.8 billion.  Receding water levels in Europe in 2022 caused disruptions to shipping and nuclear output.  A lack of water to cool powerplants in India between 2017 and 2021 led to 8.2 terawatt-hours in lost electricity output, enough to have powered 1.5 million households for five years.    

The need for critical resources such as oil and land have often led to serious conflicts throughout history.  Today, water stands to be a source of conflict and civil unrest in many parts of the world.

 


 

Water is linked to nearly every Sustainable Development Goal (SDG).  Yet this critical issue is frequently overlooked.  The United Nations Water Conference in March 2023 was the first meeting in 50 years on the subject.  But discussion of this most vital of resources was virtually absent from the SDGs Summit agenda held a few months later.  Treating it as a temporary crisis will not help address the long-term challenge. 

Benjamin Franklin once said: “When the well is dry, we know the worth of water.”  We are learning and living that adage more and more each year.

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