Using too much water? That'll cost trillions of dollars

Report calls for higher water prices to prevent economic ruin and instability that could hit Middle East

A lack of water caused by climate change, environmental damage and excessive consumption could have catastrophic effects worldwide. AP

Using too much water could wipe trillions of dollars off the world economy by 2050 and destabilise dry regions such as the Middle East, according to a report that says people should be charged more for using it.

A commission including the President of Singapore, the founder of Egypt's Bibliotheca Alexandrina and ministers and economists warned of a "crisis of water" fuelled by climate change and overconsumption. The panel's executive director Henk Ovink told The National that "we are undermining our future".

The Middle East is one region where water scarcity is "top of the agenda" because "nobody needs more instability", said Mr Ovink, a former water envoy for the Dutch government. "In a fragile social and geopolitical context, any vectors of disaster – floods, drought, pollution, biodiversity loss – are literally trembling the foundations."

The commission forecasts that water shortages could knock 8 per cent off the developed world's GDP and 15 per cent off that of developing countries by 2050, amounting to a loss of trillions of dollars. By comparison, the world economy contracted by about 3.5 per cent in 2020, the first year of the Covid-19 pandemic.

Drawing on two years of work, the report warns that water shortages could put half the world's food production at risk in the next 25 years. It says the average person needs 4,000 litres of water a day to live a dignified life, taking into account what is needed to produce food and energy.

Parts of the Middle East, Africa and Europe would already be living in water scarcity but for the "green water" stored in nature, the report says. It says that even in socially and economically stable parts of the Middle East, any water shortages could spill over into more vulnerable areas.

Shortages are driven not only by "profligate use" of water in settings such as data centres and coal-fired power plants, but also by damage to soils and forests that results in less rain being stored by nature and ultimately recycled back into lakes and rivers, the commission says.

"Water is not just a victim in this cycle," Singapore's President Tharman Shanmugaratnam told a media briefing. "The degradation of the wetlands, the mismanagement of the soil, the deforestation, is all contributing to a loss of the world's stores of carbon and is accelerating climate change."

Price of water

A key recommendation of the report is that water should be priced at a level that "reflects the true opportunity cost and scarcity" of the Earth's resources. It says the "widespread under-pricing of water today encourages its profligate use across the economy".

The world must find ways to "ensure that rapidly growing digitalisation and the proliferation of AI do not consume an inordinate share of water" in water-hungry settings such as data centres, the report says. It says any policy could include subsidies for poor households and encourage the "prudent use" of water.

The report, entitled The Economics of Water, is billed as water's equivalent of the influential 2006 Stern Report, which was one of the first to make the economic case for climate action. The author, the former UK Treasury official Lord Nicholas Stern, wrote that the benefits of going green “far outweigh the economic costs of not acting”.

Better water management "goes beyond 'just put a cap on water use and we'll fix the problem'. It's way more complex," Mr Ovink said. "You can say, 'let's use a little bit less water'. Who should use a little bit less water? The poor and the most vulnerable use hardly any water.

"You have to distinguish where usage matters. Perhaps more important is the source of water. It is our biodiversity, it is our environment and land use planning, and economic incentives and objectives that determine the vulnerability of that source of fresh water.

"The good thing is that with sustainable land use management, resource recovery, sustainable water use, reuse and recycling, making sure that biodiversity loss is curbed and starting to restore our biodiversity and maintaining it, we actually are ticking many boxes."

Five missions

The report calls for five overarching "missions" to bring about "radical changes" in how water is managed. One of the commission's co-chairs is the Italian economist Mariana Mazzucato, whose work similarly inspired the UK Prime Minister Keir Starmer to adopt five missions for his new Labour government.

The missions are to embark on a "revolution in food systems" that preserves soil and saves water; protect natural habitats; get more supplies from wastewater treatment; make sure modern tech does not "exacerbate global water stresses"; and prevent children dying because of unsafe water by 2030.

"We must move beyond a reactive market-fixing approach towards a proactive market-shaping one that catalyses mission-orientated innovation," Ms Mazzucato said. "Only with a new economic mindset can governments value, govern and finance water in a way that drives the transformation we need."