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Global Effort equired To Tackle Key Challenges From Water Scarcity: Report

Global Effort equired To Tackle Key Challenges From Water Scarcity: Report 1

Benglauru, NFAPost News Service: Credit Suisse Research Institute (CSRI) which published a comprehensive study on water scarcity and the key challenges that lie ahead, calls for definitive action to be taken on a coordinated global basis.

Water scarcity, and the societal risks it poses, is one of the primary challenges faced by the world today. Over two billion people still live in countries experiencing high water stress, while four billion people experience severe water scarcity for at least one month a year.

There’s plenty of water on Earth. Indeed, it covers 70% of the surface. The problem is, not much of it is useable. Freshwater – safe for us – accounts for as little as 3% of the entire world’s water. With demand still growing, governments and the private sector need to act.

Global Effort equired To Tackle Key Challenges From Water Scarcity: Report 2

Water use has more than tripled since 1950s. According to forecasts, the demand for water will continue to grow at a fast pace. Meeting this need will be a huge challenge, given ageing or poor-quality infrastructure, growing population, and climate change. Around two billion people worldwide currently lack access to water, and by 2030 we can expect a 40% supply-demand gap.

Overall, urbanization helps improve access to water in developed and emerging countries. However, it can also result in negative side-effects. In the US, for example, residents in Reno use 1,166 liters per person each day, while in rural Africa the average daily water use is 20-40 liters per person. As these statistics seem to indicate, improved access might induce consumers to take an overly liberal approach to water use.

Global Effort equired To Tackle Key Challenges From Water Scarcity: Report 3

Poor water quality exacerbates the issue, with 80% of waste water globally being returned to the environment untreated, while 4.5 billion people still lack access to safely managed sanitation services.

Chairman of the Board of Directors of Credit Suisse Group and Credit Suisse Research Institute Chairman Urs Rohner commented that it has become clear that water scarcity is and will continue to be a significant issue facing the world in years to come.

“The numbers are stark and a concerted global effort is necessary. Water stress and climate change are inextricably linked, given the related disruption in rainfall patterns,” said Chairman of the Board of Directors of Credit Suisse Group and Credit Suisse Research Institute Chairman Urs Rohner

Credit Suisse Head of Global ESG & Thematic Research Eugène Klerk said water scarcity is one of the key areas of focus as part of the UN’s Sustainable Development Goals (SDGs) and addressing the consequences of the problem is central to six of these SDGs.

“The social and economic benefits are clear, but meeting the aims of the SDGs comes at a cost. The public and private sector both have a substantial role in developing the necessary infrastructure and new technologies,” said Credit Suisse Head of Global ESG & Thematic Research Eugène Klerk.

Key highlights in Asia Pacific

·         Since the 1950s, total annual water consumption globally more than tripled from 1.22 trillion m³ to 3.9 trillion m³ in 2011.
·         The BRIC countries (Brazil, Russia, India, China) account for 43.7% of current global freshwater use, up from 39% in 1956.
·         India will be particularly stressed for water by 2050, as its potential annual freshwater consumption per capita could represent 70% of its available domestic renewable water resources in 2050.
·         By 2050, four out of every five people impacted by sea-level rise will live in East and South East Asia.  In India, the projected sea level rise could push average annual floods above land currently home to some 36 million people. West Bengal and coastal Odisha are projected to be particularly vulnerable, as is the eastern city of Kolkata.
·         China is home to 20% of the world’s population but possesses just 7% of all water resources and of that 7%, 77% of it is located in the south of the country. Critically, these provinces represent 38% of China’s agriculture, 50% of its power generation and 41% of its population.
·         Beijing is now the fifth most water stressed city in the world due to aquifer depletion and is sinking at a rate of four inches per year.
·         Jakarta is also suffering the same problem – the city has sunk by 2.5 meters per year for the last ten years due to aquifer depletion. This also makes it more prone to sever flooding.
·         Water tariffs on the rise:
–          Ecolabs estimates that water costs will rise by 78% in India, 133% in China and 192% in the USA by 2030 relative to 2014 figures;
–          Beijing water prices, although still significantly below the world average, grew 35% between 2013 and 2016.
–          Delhi has raised water tariffs for high-volume users by 20% this year.
–          Singapore increased water prices by 30% in 2018 – the first hike in 17 years.

Water demand: a secular challenge

With total water consumption set to see structural growth for decades to come, the report finds three factors driving water demand:
(1)    Population growth – global population is expected to reach ten million by 2050 with global water usage expected to reach 5.3 trillion m³ by 2050, up from 3.7 trillion m³ currently.
(2)    Urbanization – the long-term trend toward a more urban world is likely to improve the quality of water infrastructure. Of all water delivered to urban areas each year, most is used in and around our homes, with residential water use accounting for 64% of total urban use.
(3)    The impact of the rise of the emerging middle class – rising wealth in emerging economies is  likely to lead to higher per-capita food and calorie intake as higher incomes allow greater expenditure on food, as well as increased consumption of water-intensive non-food products.

Water supply: a static problem

Water supply, measured using renewable internal freshwater resources, excluding external resources, is typically very static. Part of the reason why the issue of water scarcity has not received the necessary attention from the global community to date might be because water scarcity is perceived as a more local issue than climate change. Although water scarcity and stress differ by country, a global approach is needed.

Given the regional nature of the water-scarcity problem, it is not surprising to find a number of countries facing high levels of stress just north of the equator, as renewable resources are low in these areas, given climate and geography. Notably, North Africa and the Middle Eastern countries, along with some Asian countries such as India, are all facing high stress levels.

 Climate change and water stress

·         Water stress and climate change are intrinsically linked – not least because disruption to rainfall patterns is a direct, incontrovertible result of climate change. The implications are two-fold. One is an immediate disruption: increased droughts, floods and temperatures. The other is a more permanent, systemic effect where increases in water vapor in the atmosphere increase heavy downpours and, ultimately, soil erosion.
·         The impact of this is that emerging markets and low-income OECD countries are disproportionately affected as they are more exposed to extreme weather events.
·         2019 alone saw a number of extreme weather events from flooding, drought, heat, cyclones/hurricanes/typhoons and fires.
·         It is important to note that actual water availability is impacted by projected increases in both flooding and drought going forward. Increased flooding puts up to 1.6 billion people at risk by 2050. However, compared to the sporadic impacts of flooding, drought is a chronic, long-term issue, and arguably the most pernicious result of climate change.

Water scarcity and geo-political stress

As water becomes scarcer and demand continues to grow, how water resources are shared between countries will become more contentious. While limited numbers of conflicts have resulted from water issues in the past, due to the supply and demand imbalances, tension between and within countries over water security issues is expected to grow.

What is the true value of water?

While water is an essential part of life, consumers pay heavily regulated and subsidized prices, distorting the long-term economics of project finance. Currently, the average price for water and wastewater is USD 2.06 per cubic meter, which falls well short of its true capital cost. Global Water Intelligence estimates that water tariffs need to increase by 5.9% every year to achieve the UN Sustainable Development Goals by 2030.

The price/value mismatch is most evident if the true environmental cost is incorporated. Research by Trucost estimates the unpaid environmental cost of water consumption by global primary production and processing business sectors at USD 1.9 trillion, or around 2.5% of global GDP.

Moreover, when we compare so-called leakage rates with water prices, a clear negative correlation appears. In Mexico, for example, where prices are lowest at USD 0.49 per liter, the water leakage rate is highest at 44%. So, not only do higher water prices make the economics of investing in new water infrastructure more attractive to external capital providers, but they also seem to result in improved investments in existing infrastructure.

Can the private sector close the water investment gap?

Water infrastructure is extremely capital-intensive and underinvested, with estimates ranging from USD 7.5 trillion to USD 23.1 trillion needed for additional global water and sanitation infrastructure by 2030.

Looking at private sector investments in emerging markets, it is clear that investment in water has been lagging behind and is reliant on public funding. Over the past 30 years it has averaged USD 1.6 billion, while transport and energy investments averaged USD 14.9 billion and USD 20.5 billion, respectively. If this trend is to change, the private sector has to be involved. That will include public-private partnerships, as well as innovative financing that matches capital markets with specific projects through green and blue bonds.

Governments and the private sector need to act

Given the water-related challenges, we see a significant need for the world’s governments to increase their focus on issues such as the alternative protein, circular economy (i.e. systems aimed at eliminating waste and the continual use of resources), and the raising of awareness among consumers as to their impact on water stress.

Investment requirements and challenges

Water faces a mismatch between the daunting infrastructure investment requirements and the capital costs entailed, with the current ability to price water being significantly constrained and regulated. Estimates of the required investment in global water and sanitation infrastructure by 2030 vary considerably from USD 7.5 trillion (McKinsey 2016) to USD 23.1 trillion (New Climate Economy Report, 2014). An OECD technical note reviewing varying forecasts, estimates a USD 13.6 trillion cumulative investment requirement (2015 USD, 2016–2030).

The Credit Suisse Research Institute is Credit Suisse’s in-house think tank. The Institute was established in the aftermath of the 2008 financial crisis with the objective of studying long-term economic developments, which have – or promise to have – a global impact within and beyond the financial services. Further information about the Credit Suisse Research Institute can be found at www.credit-suisse.com/researchinstitute.

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