The cost of misvaluing waterWith the UN Water Conference around the corner, governments, consumers and investors need a frank discussion about t...
Published by Water Network Research, Official research team of The Water Network
The cost of misvaluing water
With the UN Water Conference around the corner, governments, consumers and investors need a frank discussion about the real value of water, writes Matus Samel, lead of the Resilient Futures initiative.
“Progress begins with water” was the message at World Water Week in Stockholm. The warning of “water bankruptcy” was less comforting: persistent depletion and damage beyond a water system’s ability to recover. A drought may pass; bankruptcy implies lasting losses. Governments must plan within those limits, not simply promise more supply. The task after Stockholm is to finance reliable services without further exhausting the resources that sustain them.
Even temporary shortages impose heavy costs. By late July roughly half of the European Union and United Kingdom was under drought watch, warning or alert. In August the Joint Research Centre reported exceptionally low levels in rivers including the Loire, Po, Rhine and Danube. The effects extended beyond farms and ecosystems to electricity generation and river transport. Water shortages constrain production well beyond the industries that use the most water.
The risks to business are substantial. MSCI estimates that water scarcity exposes around 9,500 issuers to US$485bn in probability-weighted annual losses, including $158bn through supply chains. These are modelled expected losses, not a tally of losses already recorded in company accounts. Some dependencies are easy to miss. Data centres use water for cooling, but also depend on it for electricity generation. The price on a water bill is a poor guide to the cost of doing without it. The Global Commission on the Economics of Water estimates that lower-income countries could lose 10-15% of their GDP by 2050 due to the disruption of the global water cycle.
Yet economic value does not guarantee investment. “Making water count”, an Economist Enterprise report supported by Grundfos and the Grundfos Foundation, explores this problem in access to safe drinking water. Construction costs appear in project budgets; avoided illness, saved time and higher productivity benefit households, hospitals, schools and employers. An appraisal that overlooks those gains can make a worthwhile investment look poor value.
Share of the population with access to safely managed drinking water services, 2024
Find out more from Water Access Imperative
In rural Ethiopia, the study’s model estimates that extending piped water to 1m more people could generate $1.2bn in lifetime benefits, or 2.3 times the full cost. The calculation includes construction, operations and maintenance over 20 years. The projected gains include nearly 400,000 avoided cases of waterborne disease and roughly 7,000 fewer deaths. These are estimates, not results from a completed project, but they highlight the significant value that remains unlocked.
Such gains can justify public support, but they do not automatically provide the revenue to make the investment financially viable and sustainable. The OECD’s Financing Water Security report highlights that there are numerous underutilised sources and approaches —including bonds, results-based models, public-private partnerships (PPPs), and Islamic finance—that can improve the durability and effectiveness of water-related investments. Fundamentally, what is required though, is a change in how governments, businesses, communities and investors value water.
Access to water is a human right, but it is also a limited, and increasingly scarce, resource essential for agriculture, energy, manufacturing and digital services—everything underpinning modern economies. Valuing water doesn’t have to equate to charging households more. But it means governments, consumers, taxpayers and donors should accept that the water-pricing mechanisms need to reflect its scarcity and the essential services it provides.
The UN Water Conference in December is a significant milestone for global efforts to put water on the global political agenda and an achievement in itself in the current global geopolitical context. Yet the SDG6 goals remain unachievable and the global funding gap for water persists, despite the growing costs of the water bankruptcy. Stockholm’s optimism and understanding that “progress begins with water” needs to be matched by an honest conversation about the structural misvaluation of water. Economist Enterprise’s Water Summit will aim to contribute to this crucial discussion.
With the UN Water Conference around the corner, governments, consumers and investors need a frank discussion about the real value of water, writes Matus Samel, lead of the Resilient Futures initiative.
“Progress begins with water” was the message at World Water Week in Stockholm. The warning of “water bankruptcy” was less comforting: persistent depletion and damage beyond a water system’s ability to recover. A drought may pass; bankruptcy implies lasting losses. Governments must plan within those limits, not simply promise more supply. The task after Stockholm is to finance reliable services without further exhausting the resources that sustain them.
Even temporary shortages impose heavy costs. By late July roughly half of the European Union and United Kingdom was under drought watch, warning or alert. In August the Joint Research Centre reported exceptionally low levels in rivers including the Loire, Po, Rhine and Danube. The effects extended beyond farms and ecosystems to electricity generation and river transport. Water shortages constrain production well beyond the industries that use the most water.
The risks to business are substantial. MSCI estimates that water scarcity exposes around 9,500 issuers to US$485bn in probability-weighted annual losses, including $158bn through supply chains. These are modelled expected losses, not a tally of losses already recorded in company accounts. Some dependencies are easy to miss. Data centres use water for cooling, but also depend on it for electricity generation. The price on a water bill is a poor guide to the cost of doing without it. The Global Commission on the Economics of Water estimates that lower-income countries could lose 10-15% of their GDP by 2050 due to the disruption of the global water cycle.
Yet economic value does not guarantee investment. “Making water count”, an Economist Enterprise report supported by Grundfos and the Grundfos Foundation, explores this problem in access to safe drinking water. Construction costs appear in project budgets; avoided illness, saved time and higher productivity benefit households, hospitals, schools and employers. An appraisal that overlooks those gains can make a worthwhile investment look poor value.
Share of the population with access to safely managed drinking water services, 2024
Find out more from Water Access Imperative
In rural Ethiopia, the study’s model estimates that extending piped water to 1m more people could generate $1.2bn in lifetime benefits, or 2.3 times the full cost. The calculation includes construction, operations and maintenance over 20 years. The projected gains include nearly 400,000 avoided cases of waterborne disease and roughly 7,000 fewer deaths. These are estimates, not results from a completed project, but they highlight the significant value that remains unlocked.
Such gains can justify public support, but they do not automatically provide the revenue to make the investment financially viable and sustainable. The OECD’s Financing Water Security report highlights that there are numerous underutilised sources and approaches —including bonds, results-based models, public-private partnerships (PPPs), and Islamic finance—that can improve the durability and effectiveness of water-related investments. Fundamentally, what is required though, is a change in how governments, businesses, communities and investors value water.
Access to water is a human right, but it is also a limited, and increasingly scarce, resource essential for agriculture, energy, manufacturing and digital services—everything underpinning modern economies. Valuing water doesn’t have to equate to charging households more. But it means governments, consumers, taxpayers and donors should accept that the water-pricing mechanisms need to reflect its scarcity and the essential services it provides.
The UN Water Conference in December is a significant milestone for global efforts to put water on the global political agenda and an achievement in itself in the current global geopolitical context. Yet the SDG6 goals remain unachievable and the global funding gap for water persists, despite the growing costs of the water bankruptcy. Stockholm’s optimism and understanding that “progress begins with water” needs to be matched by an honest conversation about the structural misvaluation of water. Economist Enterprise’s Water Summit will aim to contribute to this crucial discussion.
Tags
- Water Access
- Water Security
- Access
- Water Security
- Water Supply
- Water Security
- Ethiopia