Response: Global Water Shortages and Potential Solutions

By Natasha Pereira-Kamath

(This is a response to “Global Water Shortages and Potential Solutions,” entered as a new post to preserve the graphics – John)

While I agree that desalination has some major benefits and that the cost of the infrastructure will decrease as more and more countries adopt it, I tend to agree with Nick that recycling wastewater seems like a good solution for most types of agricultural production (in conjunction with Jain Irrigation-style drip systems).

When I visited Israel last year, we had the opportunity to visit an Israeli kibbutz that is now the largest supplier of drip irrigation equipment in the world. I was amazed to learn that 80% of Israel’s wastewater is treated and used to water non-ground sitting agricultural crops. Treated wastewater accounts for 50% of total water used in Israeli agriculture today. This is part of a multi-pronged Israeli water conservation and treatment strategy that has been supported by significant infrastructure spend and legislation by the Israeli government. As you can see, in the below image, the Israeli government has mapped out all the major inflows and outflows of water around the region and created a diverse set of water management strategies to recoup as much potable/fresh water as possible from the entire system.

Source: http://www.juanico.co.il/Main%20frame%20-%20English/Issues/Salination.htm

In the longer term, behavior change will be necessary. Water remains very difficult and expensive to transport, so those regions of the world that have a surplus cannot easily trade with those that suffer deficits.

Another set of solutions involves public and private initiatives. Governments, NGOs and international bodies should invest in better water transportation infrastructure to reduce the 20-40% loss from leakage experienced around the world (especially in water-strapped developing regions). Then private companies must innovate to create better monitoring systems that allow people to understand exactly how much water they consume and how best to reduce – think a Nest or OPower for water. Finally, recycling of water must become more of a norm. Desalination may be great for cities and countries near the ocean, but it does not solve the needs of landlocked areas.)

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About macomberjohnd

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

7 Responses to “Response: Global Water Shortages and Potential Solutions”

  1. I agree that recycling used water is a great solution, but what will provide the catalyst for people to take action? By looking at mapfight.appspot.com, one can see that the state of California alone is nearly twenty times the size of Israel. Such a large amount of infrastructure for a wastewater recycling and distribution system would be hard to sell when there has already been a large amount of money put into freshwater infrastructure. I think the only catalyst for this to occur would be increasing water prices for agriculture. Until agriculture water prices start reflecting the cost required to provide it, there will not be enough impetus to change the current system.

  2. By Anonymous

    Given agriculture’s enormous need for water resources, its interesting to observe different countries’ response to investing in infrastructure to support the industry. Having observed several businesses that serve the agriculture industry by providing irrigation solutions, it’s a concern to me that only very specific regions are addressable by such private sector solutions.

    One interesting phenomenon is observed in certain parts of India and Latin America where effective irrigation systems have been shunned by farmers for two reasons. First, the systems have proven to be so effective that agricultural output in the isolated region goes up in excess of 60%, resulting in an oversupply of crop in the local market, driving down prices. Secondly, payback periods in excess of three years make the initial capital investment so great that farmer’s cannot afford to tie up so much capital. This is further exacerbated by the fact that many of the current systems in place require replacement every 5-7 years.

    How do we address this problem? The first is to ensure that such irrigation solutions must be coupled with cooperation amongst farmers to develop the infrastructure and supply chain to effectively channel product to major markets where you don’t run into an absorption problem. Regarding the capex issue, getting the World Bank/IFC or other bottom of the pyramid financing solutions to enable farmers to engage in a “pay as you go” model will be critical to improve acceptance. Individual businesses do not have the means to setup market places nor tie up so much working capital, so like any other great product, the next stage of irrigation solutions will have to be bundled within a broader ecosystem that enables longevity for the business and the customers.

    • By John Macomber

      Is there not a rental/leasing model here? Presumably the replaced system also needs to be disposed of or recycled too. This would seem a natural opportunity, so there must be some other factor discouraging renting/leasing.

      To the productivity issue, this is a big deal in all sectors in all countries. There are plenty of anecdotal examples where a business or government does things in a people intense manner to preserve jobs rather than have people unemployed. One could argue that this policy in India is the primary choice that leads to the other water, electricity, bad food custody chain, fuel subsidy problems. But what’s the other policy choice when half a billion people are presently farmers? Have Cargill and ADM feed them and they all move to cities to flip burgers and work in call centers and make iPads? There are serious supply/ demand imbalances causing downward pressure on wages all over the world…and HBS should be among the leaders in considering what to do about that, too.

      I wonder if we can collectively navigate a path that carefully preserves finite resources like oil, water, and clean air in a hyper-productive way but lightens up on mechanical productivity (or work hours) when human labor can do the work and earn a wage. Neither of those is the natural order of things – on their own, market forces seem to encourage using more resources and paying fewer people. More fodder for Tuesday’s discussion about market capitalism at risk and what are we / you doing about it.

  3. These posts all bring interesting insights about ways to increase efficiency in the water use equation – both on the supply side and on the demand side. However, it seems to me that it is really hard to address to the problem properly without an adequate effort to price the water properly. In the absence of that, is really hard to coordinate the efforts to “create” more water supply and change demand behaviors at the same time. The challenge here appears to be how to set this price in a way that there is true long term efficiency.

    On he supply side, the initiatives mentioned to recycle or fight water salinization appear to be pursued only in places with severe supply constraints (such as Israel) or with strong government incentive or subsides. In this current scenario, private sector will only play a role in the regions that now control the largest water supplies once they are mostly depleted, so there is an implicit or explicit higher price for water and a higher level of volume constraints when that happens. The problem is that when it happens it might be too late in terms of what is the usable supply that is left for a given state of water supply exploration technology.

    The government-led incentives also impose some problems. One is that is not clear how politically sustainable is to divert public funds to support efficient use of water in places that today are water abundant (but might not be in the future). The second is that at the same time that there are government programs supporting the supply side of the problem, there is also programs supporting the demand of it (e.g. creation of irrigation systems). SInce there is no pricing of the resource in the system, is not clear how the supply-demand equation is shifting due to government incentives, but it possible to imagine situation is which the unbalance that leads to inefficient use of water is made worse. For instance, I see the combination of having government or IFC type of support projects to implement irrigation systems in a institutional context that does not price the water accurately as as something that will most likely increase the inefficiencies of the system. With the incentives, the cost of using water is reduced, given the incentives on the implementation of the irrigation system, plus the absence or artificially lower price for water. This create an overuse of the water resources, even if at a decreasing marginal benefit rate for the farmer (as long was the marginal benefit in terms of increased yield from irrigation is higher that the marginal cost).

    Therefore, the major initiative to be pursued is actually pricing the resource properly, as to attract more private resources to the the development of supply side initiatives, and having a greater economic support for either efficiency or behavior change on the demand side of it.

    • By John Macomber

      In the real estate world, another price signal comes when the water stops and the building can’t be rented or the houses can’t be sold. In the near term, tanker trucks and rooftop collection work. In the long run, there is already risk that entire cities are seeing property values fall because of water. A post from the Sustainable Cities class discusses “A Parched Future” in which areas are abandoned, like Fatehpur Sikri near Agra, India. I’ve been to real estate conferences with groups who in 2008 pooh-poohed water issues and now in 2013 are plenty worried about the implications when the water table in Gurgaon, near New Delhi, continues to drop at over a meter a year (article). That’s a lot of deep wells.

      My case, “Water Shortage and Property Investing in Mexico City,” notes that the price is not the issue…it’s the availabilty and then the robustness of all the activity nearby. “Sin agua, no vale nada” says one of the real estate investors. “You never know the value of water til the well runs dry” is another quote from the case.

  4. Australia’s drought issues offer a cautionary tale — albeit an extreme one — of how agricultural and political coordination problems must be addressed well in advance of potential or imminent drought conditions. In 2007, the Prime Minister (Howard) worked with the affected states to implement incentives for capping extractions from the river and water rights trading in order to more efficiently allocate use of a very scarce resource after years of increasing drought conditions. However, they could not rely on this alone; as a more critical step, behavioral change through mandated limits on daily consumption was really the only way to create sustainable, equitable water management in a time of crisis. Investments in dredging equipment to manage deleterious silt deposits in the mouth of the Murray-Darling as well as desalination equipment along the coast were also crucial management tools.

    I once listened to the former Governor of Queensland give a keynote speech about this crisis at a California energy conference, and was pleasantly surprised to hear how Australians responded to increasingly stringent water demand reduction mandates to survive these dire circumstances. His remarks followed a morning discussion on the water/energy nexus, which must be a primary consideration when advocating for greatly expanding desalination investments. He stressed to have faith in demand side incentives, and reminded Californians of the imminent impacts of climate change on the Sierra snowpack — and thus obviously on Central Valley farming and metropolitan supply.

    Ultimately, we need an “all of the above” approach to water resource management that includes continued desalination plant investments where feasible (California recently adopted a decision approving one in Monterey), however, demand side management tools must be a central strategy. Advanced metering infrastructure (AMI) for water like those being deployed in retail electricity markets is a start. In addition, evolution of rate design on a more time-variant or dynamic pricing basis that provides strong incentives for reduction of usage are one potential tool, although it should be clear that price signals alone will likely not change behavior, either. I like the idea of a suite of innovative behavioral economic solutions akin to what Opower is beginning to accomplish in the electricity sector, which leverages social media, apps, and the like to build a keener awareness of usage and easier ways to manage it. A marketing, education, and outreach plan that couples with the rollout of new AMI technology, rate designs, and software/electronic alerts must accompany gradual infrastructure investments. By optimizing on the demand side, you should hopefully be able to minimize or better manage investments on the supply side.

    Sources:
    http://www.economist.com/node/9071007
    http://www.engineersaustralia.org.au/sites/default/files/shado/Infrastructure%20Report%20Cards/Queensland/part3_water.pdf

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