GWSP Archive: Water Use and Economic Growth in the Anthropocene

The Anthropocene is characterised by growing water demands and declining supplies. Water use has increased significantly since the industrial Revolution, and most rapidly over the last four decades. And demand is expected to continue to grow rapidly, in part as a result of continued population growth, and as such is concentrated in Africa. The medium variant of the United Nations’ population projections indicates that Africa will account for nearly half of global population growth between 2010 and 2050 more than doubling the total population on the continent. however, other regions and other stresses on both the supply and demand side of water also contribute to growing scarcity. Other key factors include economic growth, which drives increases in water demand for household, industrial, and agricultural uses as well as urbanisation, which, in turn, contributes to dietary changes, with a general trend toward more water-intensive diets. Over the last decade, water has also been increasingly used for the production of first-generation biofuels. The production of biofuels affects water resources in two ways: directly through water withdrawals for irrigation and the industrial processes of feedstock conversion; and indirectly by increasing water loss through evapotranspiration that would otherwise be available as runoff and groundwater recharge. Climate change is increasingly impacting water availability and use through increasing temperatures and changes in the timing and distribution of rainfall as well as more frequent and severe flooding and droughts in many regions. Finally water quality, hitherto the key water-related challenge in the industrialised world, is becoming a or the constraint in emerging Asian economies.

Boy with bucket on head, sourcing water

Are we limiting options for growth through poor water management and investment? While linkages between growing water scarcity and environment outcomes are somewhat established, links between water scarcity and economic growth are less clear. Thus, as we are surpassing thresholds of water stress through aggressively exploiting water resources, we might well compromise our future ability to continue to grow and improve human well-being outcomes. Past analyses linking water and economic growth have focused on the impact of economic growth on water use, generally trying to assess the existence or not of an Environmental Kuznets Curve, assuming an inverted u-shape relationship between per capita income and the use of natural resources. Results of these studies have been mixed inconclusive and that is, depending on the variable, data and method used, water use increases, decreases or shows little change with increasing national incomes. However, water use and availability also directly affect economic growth, with growing water scarcity limiting desirability or potential for investments. To assess this latter linkage-will growing water scarcity affect a country’s economic growth, and if yes, how far can water productivity improvements reduce water-overutilization and thus sustain economic growth-alternative development pathways can be developed and assessed at various levels of economic growth. The well known criticality ratio or water stress index, the ratio of water withdrawal to internal renewable water resources can then be used to identify development outcomes that put both populations and economic development at risk from water stress, with high criticality ratios (values above 40 percent) signifying severe water stress.

Three key alternative development pathways assessed include business-as-usual (Bau), postulating currently projected improvements in water productivity, which is used as a reference scenario. Under Bau, the domestic sector shows moderate improvements in water productivity (and energy efficiency) gains across domestic, industrial and irrigation uses. the “Grey” scenario focuses on production increases at all costs, without investments in efficiency improvements. Under this scenario, no water productivity improvements are achieved and energy efficiency gains are minor. Finally, the “smart blue” scenario focuses on high water use efficiency gains (and corresponding energy efficiency gains) across all water-using sectors. Under the smart blue scenario, the domestic sector shows high improvements in leakage reduction and water efficiency gains, with the majority of total water productivity potential achieved in the industrial sector. These three development pathways were simulated at three different economic growth assumptions using IFPRI’s International Model for Policy Analysis of Agricultural Commodities and Trade (IMPACT). Changes in the criticality ratio for the various economic growth and development scenarios are shown in Figure 2 for one example, Brahmani river basin in India. The “grey” water productivity scenario at medium economic growth, focusing on growth “at all costs” without accompanying investments in water use efficiency, results in a significant increase in water stress compared to business-as-usual with an additional 450 million people and 5.6 trillion GDP (at 2000 prices) being at risk by 2050. In a “blue” water productivity scenario, on the other hand, where countries invest in additional water productivity enhancements, economic growth is much more sustainable with ~1 billion people and ~US$17 trillion GDP less at risk due to high water stress as compared to business-as-usual by 2050. The “blue” productivity scenario helps both developing and developed economies reduce risk by moving towards sustainable water stress levels. For other growth regions like India, “blue” productivity is important, but not sufficient to mitigate unsustainable water uses – These countries will face difficult choices on priorities for water allocation. A smart blue world will also be key to enable the high growth needed to reduce today’s malnutrition levels; and a medium growth blue world offers the best balance for sustainability.

How can we get there? Irrigation is, and will remain, the largest single user of water, but its share of world water consumption is projected to decline. As such, large gains can be made from saving water in irrigated agriculture. However, productivity improvement in domestic and industrial sectors can also make significant contributions in reducing the share of population and GDP at risk of water scarcity and should continue to be pursued. Particularly the industrial sector has been able to reduce water depletion levels considerably over the last years in the group of industrialized countries. These developments have shown that, while costly, large water savings in industry (and the domestic sector) can be achieved if the right incentives and regulations are put in place. Achieving water savings in irrigated agriculture, on the other hand, is more difficult, but there many options have yet to be explored in most developing country settings. Key among these are economic incentives, such as paying farmers for using water more efficiently, enhanced management of irrigation systems, removal of distortionary agricultural input and output price subsidies, judicious investments in new storage, and continued agricultural research toward increased crop per drop, including biotechnology research. A smart blue or high water productivity scenario not only de-risks economic growth, but also contributes to the Millennium Development Goals and Green Growth: Water savings across sectors and increased availability and use in water-scarce countries will increase food production and thus increase food affordability for the poor, directly contributing to reduced hunger. On the other hand, a grey development pathway would increase the economies and people at risk of water stress significantly, reducing water availability for food and the environment. Going “blue” should thus be part of the global and local development agendas to help ensure that all people on our planet have a chance at leading productive and healthy lives.

By Claudia Ringler
Deputy Division Director of the Environment and Production Technology Division at the International Food Policy Research Institute