Aligning Economic and Water Policies

Water management and economic management is a two-way street. Water management affects the performance and structure of economies—and economic policies have an impact on the condition of water resources. The sustainability of economies and water-related ecosystems could be strengthened by better aligning the two and by looking for more-efficient and more-equitable uses of water resources across various sectors and users.

On the one hand, water management should be designed with due consideration for its economic implications. What sorts of economic activities will be encouraged or discouraged? Are these prospective changes consistent with broader economic, environmental, and social goals? Are they likely to enhance growth or sustainability? Who will benefit and who will be harmed? How will this affect poor people and the broader distribution of wealth?

On the other hand, those making economic policies should consider the implications for water management. Will sectoral and macroeconomic policies encourage more-

Water in a Sustainable Economy SPECIAL SECTION: PAYING FOR NATURE'S SERVICES

efficient and sustainable water management or lead to waste, overexploitation, and degradation of the water resource and aquatic ecosystem? Can policies be modified or compensatory mechanisms put in place so that economic incentives are aligned to promote sustainable water management?

In a sustainable economy, social, economic, and regulatory incentives need to be aligned to promote:

• water use patterns that are sustainable;

• water allocations that enhance current and future welfare; and

• water investments, technologies, and practices that promote efficiency, water quality, conservation, and ecosystem integrity. Today's water use patterns are clearly not sustainable. There is strong evidence that under a business-as-usual scenario there will not be enough water to produce the food needed to feed the world in 2050. Current practices are also depleting and degrading many ecosystems, raising serious concerns for the future of the natural environment and the sustainability of ecosystem services. Grappling with environmental and ecosystem dynamics remains the main challenge for sustainable water resources management in industrial and developing countries alike.29 There is reason for both optimism and activism. We are not on a straight-line path to the future, and the best available information suggests that over the coming decades the world can make the changes necessary to feed the planet and sustain it at the same time. As described in this chapter, a range of innovations in technologies and management practices are increasing the potential productivity of water in all its various uses. The supply of water available for people and the environment is also effectively being enhanced through increasingly sophisticated management and technologies. Ecosystem diagnostics and management techniques are demonstrating cost-effective means for sustaining and even strengthening ecosystem health.30

Broader consultations and more structured and transparent decisionmaking is helping water managers to capture the range of water's value and to avoid many of the environmental and social missteps of the past. Increasing recognition of the need to sustain ecosystem services and the desire to conserve the natural environment are also leading to a closer alignment of economic signals and incentives with sustainability.

Together these innovations, and those still to come, can help ensure the sustainability of water management, ecosystems, and economies. The challenge is to change.

SPECIAL SECTION: PAYING FOR NATURE'S SERVICES

CHAPTER 9

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