This article summarizes the outcome of a session held at the World Water Week 2015, managed by Valuing Nature, which explored the benefits and limitations of the use of water valuation metrics and presented a range of case studies. One of the important learning is the organizations need to look beyond water scarcity, at the value of water, to support their decision making processes.
Often identified as one of the most important environmental risks worldwide, water scarcity is in fact an effect, and not a cause, of the underlying issues: degradation of natural, built and social capital (including institutions) and inadequate water allocation and usage, altogether exacerbated by climate change.
Indeed, we tend to forget that we actually create water scarcity through our economic and social activities. This distinction, between the effect and its cause, is subtle but important if we want to better understand water related risks and develop efficient solutions. Water scarcity metrics, which are based on a ratio of the level of water use over the available water resources, are quite inefficient with regard to informing about water related impacts. Indeed, they can even mislead decision making, as for example a location with high water scarcity does not translate into existing environmental or societal negative impact, the opposite being true as well.
To illustrate this point, think for instance of the sub-Saharan countries, not identified as water scarce, although their local communities suffer greatly from lack of access to water which is due to investment gaps in the development of required infrastructures and institutions. On the other hand, take a country with high water scarcity such as the United Arab Emirates, which has the economic power to compensate for the lack of water, resulting in low overall negative externalities. Take as well Switzerland, which experiences high water scarcity in some regions every summer, resulting in negligible negative impact thanks to efficient water institutions and laws. Understanding the value that various stakeholders derive from water within a watershed, whether negative or positive, is key to tackle water issues. We underestimate most of the time the benefit and costs associated to the water we use and need. Water is undervalued.
Water valuation is the exercise of qualitatively or quantitatively measuring (for example in $/m3) the value which different stakeholders derive from water resources. It can either be a negative value, due to lack of water, or a positive value, due to the contribution of water to the production of goods and as a contributing factor to our wellbeing. Various valuation techniques exist however the objective is not to review them here. Water valuation metrics are more useful indicators to inform about impacts and risks than water scarcity metrics.
The value of water should reflect the required investment to reach a sustainable supply and demand of water at local level. These two components are essential to sustainable water management:
Within the water supply component, the natural and built infrastructures providing water resources in a specific location need to be recognized and preserved. Declining levels of natural capital value, such as forests and wetland degradation or losses, are already impacting water resources and our economy.
Within the water demand component, the competition over resources, driven by increased economic activity (including agriculture) and demographics, and undermined by inadequate institutions, is the main problem.
Sustainable allocation of water resources, supported by well-designed institutions, and combined with protected water sources from natural ecosystems are key issues to address. The three pillars of sustainability - the economy, environmental and social pillars - need to be addressed through both components as illustrated in the table below.
In order to illustrate the use of water valuation metrics, several case studies are summarized below. All of them have been presented within a session held at the World Water Week (WWW) 2015 which explored the potential of these new metrics for improved decision-making. Approximately 90 water professionals and sustainability executives attended the session, chaired by Valuing Nature. A special focus was put on the identification of the “business case” behind water stewardship (or good water management) bringing into light solutions that make economic sense. The connection of these metrics with our economy is key, as most of the solutions cannot exclude new innovative financing mechanisms and institutions. The presented case studies were the following:
The World Resources Institute illustrated future value at risk in the agricultural and energy sector in the US, linked to water related issues. It showed that in the US, 1.2 billion USD worth of corn, soy and wheat crops are threatened due to high levels of agro-industrial water conflicts. Similarly, 21 billion USD worth of electricity sales could face water risks. The link to our economy is well illustrated in this case study, setting the scene for concerted mitigation plan involving the private and public sector.
Forest Trends, a small NGO based in Washington DC, illustrated the return on investment of investing in green infrastructure to complement grey infrastructures for water provision for the town of Lima, in Peru. It calculated the infrastructure costs per cubic meter of water supply of different types of green and grey infrastructures. Specific types of green infrastructure were found to be much more efficient than grey infrastructure solutions. A portfolio of green and grey infrastructures for water provision in Lima would lower its costs by almost 20% compared to a mostly grey infrastructures project involving water desalination.
Engie, a multi-national energy company, showed how to account for the full value of water related to a wastewater recycling project in a highly scarce area near Perth, Australia. The recycling project showed a clear benefit for both Engie and for the local communities and ecosystems. The estimated benefit reached 3.27 AUD/m3 for the different stakeholders, a significant part of it benefiting local communities.
Valuing Nature illustrated how it helped a local NGO in Bolivia to measure the value that the agricultural sector derives from local forests, through its water related services. The study calculated that the marginal value of rain and freshwater provision services, which are worth 0.05 and 0.5 USD/m3 respectively. Those values were used to test future scenario for the agricultural sector in Santa Cruz including the deforestation potential and climate change. This sector might face lower yields and revenues in the future if deforestation continues. It founds that the cost of protecting the forest is far lower than the impact on the revenue of the agricultural sector, setting a clear business case for an action from the private sector to protect local forests.
Finally, the WWF presented a new framework to analyze water valuation, defined along two axes: the certainty and the recipient of its value. A review of existing case studies, within the private sector in particular, revealed that most of the organizations are only focused on their own benefits at short or medium term. However, a more comprehensive view across stakeholders and at longer term will guide solutions towards higher benefits, both for the private sector and for the society.
The WWW session further explored where water valuation can be the most useful in our daily work; cost benefit analysis studies, operational and investment decisions, business strategy and awareness raising were identified as the areas which could benefit most from water valuation. Current challenges with regard to water valuation were also discussed, whish showed that the integration of such metrics in decision making processes remains a challenge and that additional business cases need to be developed and communicated. Standardization and internal knowledge gaps in organizations were also seen as important challenges.
In conclusion, the session helped to set the stage for more powerful and successful actions to solve the water crisis using water valuation metrics to improve decision making. Going beyond water scarcity measures and adopting water valuation metrics is just the next step you should be taking in the near future.