Demand management and the price of water scarcity

By Dr. David Lloyd Owen

Managing Director, Envisager

What would happen if we really start to run out of water? Pondering the cost of making good such a shortfall can highlight the value of demand management and properly pricing water. The United Nations Food & Agriculture Organisation (FAO) estimates that out of the 42,600 Km3 in global annual river flows, 37,700 Km3 are non-productive; 17,274 Km3 flowing in the wrong place and 20,426 Km3 at the wrong time. So, 4,200 Km3 of river water is available each year, with 2,810 Km3 abstracted in 2000 along with 1,050 Km3 of groundwater, the latter already being withdrawn at an unsustainable rate. Water demand in 2000 & 2030 and the forecast supply shortfall (Source: FAO)

Water abstraction (Km3) 2010 2030 Shortfall by 2030
Municipal 434 900 429
Industrial 733 1,500 703
Irrigation 2,699 4,500 1,566
Total 3,856 6,900 2,698

Could we make good this shortfall ourselves? Assuming all municipal and industrial water could be reused (and that means the necessary sewerage and sewage treatment infrastructure has to be in place), that would cost an extra USD 0.20-0.30/m3, with desalination being needed for municipal water where effluents are inadequately treated. Desalination costs an additional 0.45-0.60/m3 and a further USD 0.10-0-20/m3 for the 40% of humanity living more than 100 km from a coast. If all recoverable water goes to industrial and municipal customers, then agriculture would have to depend on desalination. The table below shows replacing water provision shortfalls via desalination & wastewater recovery in 2030

Municipal water shortfall (429 Km3) USD 86-129 bn pa
Industrial water shortfall (703 Km3) USD 141-211 bn pa
Agricultural water shortfall (1,566 Km3) USD767-1,645 bn pa
Total USD 894-1,985 bn pa

You could use the wastewater for irrigation, but then municipal and industrial users would depend more on desalination, so it is something of a zero sum game. The idea of irrigation needing to depend on desalination appears absurd. It is almost as odd as the profligate use of our already scarce resources. What can we do about this? All current projections assume a business as usual (BAU) approach, which is supply management led, rather than employing demand management (DM). Here are my calculations for the potential impact of demand management on demand in 2030. The table below shows the impact of demand management on shortfalls in 2030

Km3 BAU DM Shortfall net of DM Cost
Municipal 900 600 129 USD 26-39 billion
Industrial 1,500 900 103 USD 21-31 billion
Irrigation 4,500 1,800 0 USD 0 billion
Total 6,900 3,300 232 USD 47-70 billion

These are illustrative figures, as the data now needs to be broken down to the national and / or river basin level and to factor in renewable and non-renewable groundwater resources. Even so, a USD 47-70 billion per annum cost of making up municipal and industrial water shortfalls lies closer to the realms of possibility. Rainfall can cease and rivers do run dry, as Californians are discovering. Getting to grips with the real cost of water scarcity could help us to value the resources we already have and to give demand management the attention it needs.

Biography – Dr. David Lloyd Owen

Dr Lloyd Owen is Managing Director of Envisager, a strategic consultancy advising governments, multilateral institutions, financiers and companies on water and wastewater market, policy, regulatory, environmental and management drivers. He has written seven books on water finance, markets and management including ‘The Sound of Thirst: Why urban water for all is essential, achievable and affordable.’ He is currently writing a textbook on smart water in theory and reality. He has developed two comprehensive databases covering global water financing needs and PPP. He has followed the water sector since 1989, previously at BNP Paribas and Ecofin Limited and is a member of the Advisory Board for the Pictet Water Fund and XPV Capital’s Water Fund and is an Ambassador for Pump Aid, along with being a Court Assistant for the Worshipful Company of Water Conservators.