Water 4 The economics of greening water use

Research around the world suggests that there are no single-shot solutions to the world’s mounting water access, sanitation and scarcity problems. Each circumstance has its own unique set of challenges and opportunities. At the most general level, it is becoming apparent that the best results come for the pursuit of mixed solutions. Simple single-shot solutions tend to be prohibitively expensive and, in many cases, are insufficient to solve known supply problems (2030 Water Resources Group 2010). In the Zambezi Basin, it has been estimated that even full development of the area’s irrigation potential would benefit no more than 18 per cent of its rural poor (Björklund et al. 2009). A much more sophisticated investment strategy is needed (Ménard and Saleth 2010).

4.1 The economics of investing in water and ecosystems

Under the global model developed for the Green Economy Report by the Millennium Institute, the green investment scenario assumed investment in the water supply and sanitation sector would equal that estimated by Hutton and Bartram (2008b) as necessary to achieve the MDGs for water by 2015. Once this is achieved, it is assumed that governments will decide, once again, to halve the number of people without access to a reliable mains water supply and adequate sanitation. This new goal is achieved in 2030. Any funds left over during this second period are allocated to other water-related investments. In areas where there is economic water scarcity, priority is given to the construction of dams. In other areas, investment is channelled into making water-use more efficient. Where possible, and economically appropriate, desalination plants are constructed. These are assumed to supply water into the urban sector at a cost of US$ 0.11/m3 US$ 2010, same unit for monetary values below.

– in constant

Under the business-as-usual scenario, water use remains unsustainable and stocks of both surface and groundwater decline. Under the green investment scenario, global water use is kept within sustainable limits and all the MDGs for water are achieved in 2015. Water use is more efficient, resulting in increased agricultural, biofuel and industrial production. The number of people living in a water-stressed region is 4 per cent less under the green investment scenario by 2030 compared to business-as- usual, up to 7 per cent by 2050.

The results from this modelling are encouraging in terms of both economic terms and from the perspective

2% GDP invested in green sectors

Unit

Additional investment in water sector

Additional water from desalination

Water from efficiency im- provements (driven by green investments)

Total employment in the water sector

Change in total employment in the water sector relative to BAU2*

US$ Bn/year Km3 Km3 Mn people %

2030 191

27 604 38 -13

2050 311

38 1,322 43 -22

* The water-related investments are part of an integrated green investment scenario, G2, in which a total of 2 per cent of global GDP is allocated to a green transformation of a range of key sectors. The results of this scenario, in which the 2 per cent is additional to current GDP, is compared to a corresponding scenario in which an additional 2 per cent of global GDP is allocated following existing business-as-usual trends,BAU2 (see Modelling chapter for more detailed explanation of scenarios and results).

Table 2: Modelled results of the Green Investment scenario

of water management (see Table 2). For 2050, total employment and income is greater under the green investment scenario, whereas the number of people working in the water sector is lower. This counter- intuitive finding occurs because the sector becomes much more efficient. Labour and other resources, which, under BAU2 would have been retained in the water sector, are freed for use in other sectors. In addition, as water is used more efficiently, more is available for manufacturing and other purposes with the result that more people are gainfully employed.11

The overall conclusion from this assessment is that, where there is water scarcity or when large proportions of a population do not have access to adequate water supply and sanitation services, early investment in water is a necessary precondition to progress.

4.2 Selecting projects and initiatives for investment

While it is useful and informative to examine the

economics of investing in water at the global level, investments must be made primarily at the river basin, catchment and local level.

11. These findings are consistent with those of Hagos et al. (2008) who found that, as access to water improves, employment in other sectors expands.

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