Global Water Shortages and Potential Solutions

By Nick Ling

Around 70% of the surface of our planet is covered by water, but less than 1% of this water is fresh and can be used sustainably by humans. The “sustainable water” is not distributed equally around the globe and does not match the distribution of population across the globe (see Figure 1). For example, South America has the largest available supply of sustainable water, but only has a small percentage of the world population.

Figure 1: Global Sustainable Water Supply

Region Population Sustainable Water Supply (km3/yr)
Africa 1.0B 3,936
Asia 4.1B 11,594
Oceania 0.04B 1,703
Europe 0.7B 6,603
North America 0.5B 6,253
South America 0.4B 13,477
Total 6.8B 43,566

Source: UN Water 2011

As we saw in the California Water case this supply of water is also variable, and this has caused water shortages and droughts around the globe. Figure 2, shows the scale of droughts worldwide in the past 20 years. Darker colors represent more common occurrences.

Figure 2: Global Water Shortages 1980-2000

Source: NASA 2012

In the future this situation will become more serious. With global population and prosperity forecast to continue to grow, the demand for water will also increase (mainly driven by increased food demand). The European Commission has forecast that this demand (in a business as usual scenario) will result in a 3,000 cubic kilometer deficit in 2030. For context this is equivalent to around 70% of current demand.

This deficit cannot be alleviated sustainably through additional groundwater pumping and it is highly unlikely that it can be solved by moving freshwater between different parts of the globe. One way to solve this would be recycling water, so can the treatment of wastewater provide a partial solution to the problem?

By the treatment of wastewater I mean wastewater that has been treated to applicable standards for reuse and that has been or will be applied to some beneficial use. Globally the current capacity for recycling wastewater is 15 cubic kilometers, which is 1% of the 1,500 cubic kilometers total wastewater discharge (Osburn 2010). So even in the best case scenario, where a technology is developed that can recycle all wastewater safely, this would only make up 50% of the estimated 2030 deficit.

So it seems that we need a fundamental change in human behavior. Whether it is in an improved use of water in agriculture or educating the population to use municipal water more efficiently, only using the current supply we have better can help us meet the 2030 deficit.

[John M – the graphic below was added March 12, 2013 to supplement one of the responses here and also in the comment chain]

WaterFood

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About macomberjohnd

HBS Finance faculty interested in sustainability in the built environment including devices, structures, townships, and cities.

11 Responses to “Global Water Shortages and Potential Solutions”

  1. By John Macomber

    One could argue that access to clean water (or any water) will be the dominant theme of the careers of current MBAs.

    Singapore is committed to recycling water and is good at it…although the island-city-state has some implementation advantages.

    A student in the Sustainable Cities class posted about another solution [more of an adaptation]: that dry cities would have to be abandoned altogether. http://sustainablecitiesfinance.wordpress.com/2013/02/13/a-parched-future/

    My case “Water Shortage and Property Investing in Mexico City” also explores whether property owners and other businesses should basically short sell the city because of the water shortage issue (and it floods a lot there…but there is still a water crisis).

    For interested readers, “Charting our Water Future” is a stats-filled piece by McKinsey looking ahead and projecting impact of business as usual — reinforcing the concepts of this blog post.

    http://www.mckinsey.com/client_service/sustainability/latest_thinking/charting_our_water_future

  2. Not a huge, substantive comment, but: isn’t the other option for everyday folks, or the taxpayer, to bear the costs of desalinization or water treatment? After all, cash-rich desert countries already go this route.

    It may be that the problem is “solved” by a mix of market mechanisms: behavior change due to costs passed on to the consumer or other hazy “culture shift”; investment in desalinization of ocean or saline wellwater (expensive); investment in greywater / recycling (expensive); investment in efficiency technology in agriculture or behind-the-tap (tricky); or, worryingly, after considerable expensive but failed solution attempts, some cities could be pushed to abandonment or reduction in population (which looks and sounds very painful).

    Regardless of the way, human ingenuity isn’t likely to solve this problem without some pain, financial or otherwise. I hope for financial, and the question remaining is: will this pain be borne by taxpayers (if so, how?), or is there a more “commercial” solution such as tiered pricing with heavy H2O users subsidizing those in need?

  3. Nick, I absolutely agree with you on the magnitude and scope of the global water shortage problem as well as the treatment of wastewater representing an effective solution. I would add, however, that desalination is going to be an increasingly important part of the solution, in my opinion. Desalination technologies are not only getting more sophisticated but they are also getting cheaper, particularly as innovative, new technologies like “forward osmosis” are challenging the market-dominant reverse osmosis (RO) process, and just coming to the market. As I mentioned in my post, Boston-based Lux Research believes that “the global desalinated water supply will grow at a CAGR of 9.5% over the next decade, reaching 54 billion m3/year (cubic meters per year) in 2020 – 54 trillion liters/year – or triple what it had been in 2008.”

    I further agree with you that the more efficient and effective utilization of agricultural water is critical to long-term water sustainability. In fact, it is intimately related to my point above: the Food and Agricultural Organization (FAO) estimates that poor irrigation has actually contributed to the salinization of up to 10 percent of the irrigated world! Added to that, it is estimated that ~60% of agricultural water is actually wasted, which is support for the greater role that micro and drip-irrigation technologies can play in both the United States and around the world. So I see multiple levels of opportunity: first moving from non-irrigated to more irrigated farmland, and second to enhance water conservation by moving from rainwater/surface irrigation to more sophisticated irrigation technologies.

    In addition to changes in human behavior and higher levels of education, I believe technology is an integral part of the solution.

  4. It is interesting you bring up desalinization as a solution. It undoubtably will help us make up some of the deficit in the future. However it does take my mind back to the discussion we had in the California Water Shortage Class. We discussed how building a new large infrastructure water project to the “fertile valley” was an option, but maybe only a temporary solution. In 10 years time, would the valley be faced with a similar water shortage as people become used to having an increased supply?
    I worry that if we solve the issue of the water deficit with desalinization and waste recycling we will just be “buying” our way out the problem and not solving it. A far more sustainable route (as you both point out) seems to be a more effective utilization of what we have today.

  5. By Anonymous

    Maybe I am getting a little ahead of myself. But as exciting as the advancing desalination technology sounds, I’m worried about what it would do to water value. While nearly all scarce resources are allocated through prices, water does not even have a true market. Its prices are often determined politically, rarely taking economic value into account, and don’t usually respond to short-term and long-term changes in supply and demand (except in Australia).

    In other nonrenewable resource cases, we’ve seen how prices fell overtime – despite depleting stock – because of technological progress (making extraction cheaper, deriving substitution to other materials, etc) and new discovery of stock (Slade). And desalination is pretty much the combination of the two – technology progress that discovers new stock.

    So then…with its price already undervalued today, what will happen to water, if one day, desalination works flawlessly and the entire ocean becomes our new stock? Perhaps it is a good thing that there is no true market for water today, and we can look to the policymakers to intervene before our insatiable yet unappreciated demand for water does any more harm to the earth.

    Reference:
    Slade ME. 1982. Trends in natural-resource commodity prices: an analysis of the time domain. Journal of Environmental Economics and Management, 9:122–37

  6. By Ananth Gudipati

    My comments are in response to two cases discussed around increasing the water efficiency. Any policy/ operational improvements around increasing the water efficiency should start by looking at finding the delicate balance between agriculture, food security and water sustainability in the world. Agriculture accounts for approximately 71 percent of global water withdrawals today (http://www.mckinsey.com/App_Media/Reports/Water/Charting_Our_Water_Future_Exec%20Summary_001.pdf) . The water challenge is therefore closely tied to food provision and trade.

    Within the agriculture demand, the water needed to grow cereal grains such as wheat, rice, and corn accounts for about 27% of global water consumption; meat and dairy products accounted for another 20% respectively (http://www.fao.org/nr/water/aquastat/water_use/index.stm). Any talk on water efficiency must start by looking at reducing cereals, meat and dairy water demand for water. The answer might just lie in biological innovations rather than physical innovations or market efficiencies.

    For example, in the water markets, a good case that was discussed was the Australian Water markets. The leap into the Australian water market has been justified on economic (allocation efficiency) and technical grounds (reduced salinity). However, recent studies estimate that industries with high water usage but lower or more volatile value products will be impacted more than higher value products. In agriculture, it was particularly seen that water markets shifted the production away from low value crops to high value crops for efficiency, resulting in a complete collapse of the domestic grains and cotton markets and mushrooming of the wine industry (http://www.mdba.gov.au/draft-basin-plan/delivering-healthy-working-basin). It was pointed of the mushrooming wine industry was not the right model to go forward from a food security point of view in many countries. These water markets essentially can work in countries with high land to population ratio. This kind of a system will also lead to mushrooming of the virtual water market leading to increased cultivation of water intensive crops by water rich nations leading to unsustainable practices.

    In the physical innovations space, drip irrigation and sprinkler irrigation are unsuitable for the present cereal production practices and are targeted towards the vegetable and fruits production. Most of the cereals are produced through the flood irrigation/surface irrigation methods.

    In such a scenario, we must look at alternate methods to increase the water efficiency in the cereals and dairy production. One of the methods is to take a policy approach towards decreasing the overall intake of cereals and meat in both the developed and the developing world. This would help in lowering the overall demand of cereals globally. The other approach could be increasing “crop per drop” through a mix of improved efficiency of water application and the net water gains through crop yield enhancement. These might include customizing familiar technologies of improved water application, such as increased drip and sprinkler irrigation. The full suite of crop productivity measures includes, among others, no-till farming and improved drainage, utilization of the best available germplasm or other seed development, optimizing fertilizer use, and application of crop stress management, including both improved practices (such as integrated pest management) and innovative crop protection technologies. Indeed the recent innovation in ( http://www.guardian.co.uk/global-development/2013/feb/16/india-rice-farmers-revolution ) grain production in India might just be the silver bullet for the balance to water efficiency and food security.

  7. By Fabian

    Go Long on Beef. Keep Drinking Beer.

    The shortage of fresh water has been debated for a long time. It is one of the most evident and easily reconcilable macro trends of the 21st century. X number of humans on this world times X liters of fresh water needed by each human times projected population increase over the years to come. Simple.

    The consequence of this simple math, though, is complex and manifold. It reaches from human survival chances and supply chain impacts to showering habits.

    Moral concerns aside, there will also be a huge opportunity to make money from this process. Betting on the to be expected impact on food is just one of them. It is simple math that supports the underlying investment thesis.

    Fresh water will turn into a scarcer commodity. At relatively inelastic demand, this will drive price upwards. As a consequence, products whose production requires water will face higher production cost. Price of such products will increase. Price increase will be the higher the higher the required input of fresh water per unit produced.

    The production of 1kg of food requires vastly different amounts of fresh water. 1kg of chocolate requires 17,196 liters of fresh water. 1kg of beef requires 15,415 liters. Producing 1kg of potatoes in contrast only requires 217 liters and producing 1 liter of beer depends on “only” 296 liters. Comparing nutrition “similar” beef to potatoes, that is a 54x multiple. In other words, it is a 54x lever on water price increase on beef versus potatoes.

    Chart here

    It is unlikely society will abandon its beef and meat eating habits in the absence of prohibitive price increases. On the contrary, current trends in developing countries and Asia in particular show a huge surge in people’s desire for beef.

    A rational investor believing in the water scarcity story might therefore choose to go long on water thirsty food products, possibly relatively shorting less water thirsty products like beer. Maybe most pragmatically by simply drinking them. Cheers!

    Sources:
    http://www.guardian.co.uk/news/datablog/2013/jan/10/how-much-water-food-production-waste
    http://www.lenntech.com/water-food-agriculture.htm
    http://www.waterencyclopedia.com/St-Ts/Survival-Needs.html

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