Ger Bergkamp and Claudia W Sadoff

Water is as essential to economies as it is to human life. Clean drinking water is needed for the health of productive populations, but only 10 percent of global water use is actually for household consumption. Agricultural water is needed to produce food and fiber. Water is a direct input in virtually all industrial production processes, and it is needed to produce hydropower and to cool thermal power plants, which together account for the vast majority of world energy supplies. In lakes and rivers it is used for transportation, fisheries, and recreation.

Water is also essential, however, to sustain the ecosystems people live in and depend on. It must be recognized for its value as an environmental resource that underpins economies and societies. Consider the findings from a disparate set of recent economic analyses: • Wastewater treatment services provided by the Nakivubo Swamp to the citizens of

Kampala, Uganda, are worth $363 per hectare of swamp area per year.

• Wetland products in the Zambezi basin in Southern Africa—including crops, livestock, fish, and tourism—are valued at an average $48 per hectare.

• The net market value of downstream flood protection given by avoiding upstream deforestation through the establishment of the Mantadia National Park in Madagascar is estimated at $12.67 per hectare per year.1

Recognition of water's full range of values comes at a time when societies are confronted with mounting water shortages and the fact that clean and reliable water can no longer be taken for granted, even for those who can afford it. Over the last century water usage increased sixfold, twice the rate of population growth. Fifty years ago people did not perceive water as a globally scarce resource. But

Dr. Ger Bergkamp is head of the Water Programme at IUCN-The World Conservation Union. Claudia W. Sadoff is Economic Adviser at IUCN and Principal Economist at the International Water Management Institute.

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

today competition for clean water is becoming the norm in many regions. Experts estimate that by 2025 over three quarters of the people in the world will face some degree of water scarcity. Already 2.8 billion people—40 percent of the global population—live in basins with some level of water scarcity. Nearly half of the world's river systems are degraded to some degree, and the flows in some rivers no longer reach the ocean.2

In some locations and economies water scarcity is a matter of physical shortage; in others, it is an issue of economic or sociopolitical access. Physical water scarcity can be defined as a situation in which water use is approaching or exceeding sustainable lim-its—that is, where more than 75 percent of flows are withdrawn for agriculture, industry, or domestic purposes. (See Figure 8-1.) In this sense, dry areas may not be water-scarce if there is adequate water to meet all demands, while wetter areas may be effectively water-scarce. Economic water scarcity occurs when human, institutional, infra-structural, or financial limitations prevent people from gaining access to water even though there is enough available locally in nature to meet human demands. The existence of water resources and the management and delivery of water services are dual but distinct constraints.3

Shortages in water stem from growing economies, rising populations, and changing lifestyles. The result: ever increasing

Figure 8-1. Physical and Economic Water Scarcity

Figure 8-1. Physical and Economic Water Scarcity

Water Scarcity Physical Factors

I Little or no scarcity: <25 percent of river flows withdrawn for human uses

I Physical scarcity: >75 percent of river flows withdrawn for agriculture, industry, domestic purposes D Approaching physical scarcity: >60 percent of river flows withdrawn

D Economic scarcity: <25 percent of river flows withdrawn, but human, institutional, and financial capital limit access to water □ Not Estimated Source: IWMI

I Little or no scarcity: <25 percent of river flows withdrawn for human uses

I Physical scarcity: >75 percent of river flows withdrawn for agriculture, industry, domestic purposes D Approaching physical scarcity: >60 percent of river flows withdrawn

D Economic scarcity: <25 percent of river flows withdrawn, but human, institutional, and financial capital limit access to water □ Not Estimated Source: IWMI

SPECIAL SECTION: PAYING FOR NATURE'S SERVICES Water in a Sustainable Economy demand and competition for water. Newspapers are filled with warnings of a "global water crisis" and impending "water wars." Although these headlines may be hyperbole, there is simply no question that the way water resources are managed today is unsustainable. The resource is vulnerable to overexploitation and pollution and increasingly scarce relative to current and future demands. Uncertainties associated with climate change are adding to communities' vulnerability to an unreliable and scarce water resource.

Growing demands and rising competition over water mean that choices must be made— choices over allocating water for different purposes. Drinking water and sanitation, food and fiber production, hydropower generation and industrial production, river transportation and the maintenance of ecosystems and their services: all these need water. Choices must also be made in the ways water is used—whether it is wasted or conserved, polluted or protected, overextracted or managed sustainably, valued for all its uses or simply exploited for a few.

The increased recognition of the value of water for economies and the impending water shortages present, surprisingly, an opportunity to move toward a more sustainable global economy. As economies are closely linked to the way water is used, managing water wisely becomes an economic imperative rather than a luxury available only to those who can afford it. Moving in this direction, however, requires significant changes in the way water is viewed and managed. The practical steps needed include more inclusive and transparent decisionmaking, investments in new technologies to enhance water use efficiency and water productivity, and a careful alignment of economic signals and incentives.

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