Routledge Handbook of Water Economics and Institutions

Kimberly Burnett, Richard Howitt, James A. Roumasset, Christopher A. Wada, Kimberly Burnett, Richard Howitt, James A. Roumasset, Christopher A. Wada

• Publisher: Routledge
• Year: 2014
• ISBN:
  9781317916246
• Edition: 1
• Topic: Économie
• Subtopic: Économie de l'environnement

Growing scarcity of freshwater worldwide brings to light the need for sound water resource modeling and policy analysis. While a solid foundation has been established for many specific water management problems, combining those methods and principles in a unified framework remains an ongoing challenge. This Handbook aims to expand the scope of efficient water use to include allocation of sources and quantities across uses and time, as well as integrating demand-management with supply-side substitutes.

Socially efficient water use does not generally coincide with private decisions in the real world, however. Examples of mechanisms designed to incentivize efficient behavior are drawn from agricultural water use, municipal water regulation, and externalities linked to water resources. Water management is further complicated when information is costly and/or imperfect. Standard optimization frameworks are extended to allow for coordination costs, games and cooperation, and risk allocation. When operating efficiently, water markets are often viewed as a desirable means of allocation because a market price incentivizes users to move resources from low to high value activities. However, early attempts at water trading have run into many obstacles. Case studies from the United States, Australia, Europe, and Canada highlight the successes and remaining challenges of establishing efficient water markets.

Part I
Principles and overview

1
Global Outlook for Water Scarcity, Food Security, and Hydropower

Mark W. Rosegrant

Introduction

Water is essential for growing food; for household water uses, including drinking, cooking, and sanitation; as a critical input into industry; for tourism and cultural purposes; and in sustaining the earth’s ecosystems. But this essential resource is under serious threat. Increasing national, regional, and seasonal water scarcities in much of the world pose severe challenges for national governments, the international development community, and, ultimately, for individual water users. The challenges of growing water scarcity are heightened by a) increasing costs of developing new water; b) rising energy prices that increase costs to deliver clean groundwater but also generate interest in hydropower dams; c) degradation of soils in irrigated areas; d) depletion of groundwater; e) water pollution and degradation of water-related ecosystems; and f) wasteful use of already developed supplies, often encouraged by subsidies and distorted incentives that influence water use.

With global population projected to rise to 9 billion in 2050, farmers need to increase food production to assure its availability for the growing populace. In order to enhance agricultural production, sufficient agricultural inputs—such as land, water, fertilizer, pesticide, seed quality (or high-yielding varieties), and management technique—should be accessible to the farmers. Of all these agricultural inputs, water availability is vital for crop growth, especially in arid and semi-arid regions of the world. The multiplicity of uses of water leads to competition among all agriculture, environment, energy, industry and domestic users. Agriculture is the highest user of freshwater among all sectors, accounting for 71 percent of water withdrawals, followed by industrial use at 20 percent, and domestic use (including household, drinking water, and sanitation) at 9 percent (Wada et al. 2011).

Growing water scarcity and water quality constraints are a major challenge to future outcomes in food security, especially since agriculture is expected to remain the largest user of freshwater resources in all regions of the world for the foreseeable future, despite rapidly growing industrial and domestic demand. As non-agricultural demand for water increases, water will be increasingly transferred from irrigation to other uses in many regions. In addition, the reliability of the agricultural water supply will decline without significant improvements in water management policies and investments. The intensifying sectoral competition and water scarcity problems, along with declining reliability of agricultural water supply, will put downward pressure on food supplies and continue to generate concerns for global food security.

This chapter provides an overview of the challenges for future water resources and discusses policy reforms to address these challenges as they relate to food production and food security. Over the next four decades, water scarcity is projected to grow and have significant consequences for food production. An assessment presented in this chapter compares potential outcomes for water scarcity and food security in 2050 generated by two different paths. The first path is a baseline scenario called Business As Usual (BAU), which assumes continuation of current trends and existing plans in agricultural and water policies and investments in agricultural productivity growth. The second is a constructed alternative path called the Green Growth Scenario, which assumes more efficient global water use, earlier adoption of second generation biofuels, and other changes consistent with more sustainable resource use.

One feature of the Green Growth Scenario is an assumed increase in the use of hydropower for energy generation and irrigation water use. Hydropower is examined in detail in this chapter for its potential to meet energy challenges while expanding irrigation water supplies and food production potential, thereby enhancing global food security. For several reasons outlined below, hydropower has become a relatively forgotten part of the water security picture that deserves renewed attention, particularly given simultaneous concerns with energy supplies, water scarcity, and general food security. Unlike a major competing form of renewable energy—biofuels—hydropower does not consume energy nor reduce food availability. As a result, development of hydropower could complement food production by developing structures (and power) that also provide irrigation water and support its distribution for growing food crops. Hydropower can have environmental and social impacts that need to be considered as well.

The last section reviews more general strategies for addressing challenges for food security stemming from water scarcity, including investment in infrastructure and water supply, water management and policy reform, and improved crop productivity and water use.

Water scarcity and food security

Rising global population will intensify competition for water. More than one-third of the global population—approximately 2.4 billion people—already live in water-scarce regions, i.e., river basins with annual water withdrawals greater than 40 percent of total renewable water, and 22 percent of the world’s gross domestic product (GDP) (US$9.4 trillion at 2000 prices) is produced in water-short areas (Ringler et al. 2015). Moreover, 39 percent of global grain production is not sustainable in terms of water use, and expected levels of water productivity in the coming years will not be sufficient to reduce risks and ensure sustainability. By 2050, just over one-half of the global population (52 percent or 4.8 billion people), 49 percent of global grain production, and 45 percent (US$63 trillion) of total GDP will be at risk due to water stress, which will likely impact investment decisions, increase operation costs and affect the competitiveness of certain regions (Figure 1.1).

Figure 1.1 Projected water stress level in different regions of the world by 2050 (source: adapted from Ringler et al. 2015)

Note: Water scarce areas are river basins with annual water withdrawals greater than 40 percent of total renewable water.

For China and India and many other rapidly-developing countries, water scarcity has already started and is already widespread—in these two countries alone 1.4 billion people live in areas of high water stress today (Ringler et al. 2015). In 2005 per capita water availability in the most populous countries—China and India—was fairly low, at 1,691 and 1,101 cubic meters respectively. In contrast, per capita water availability in Brazil (ranked fifth in terms of population) was 32,525 cubic meters and in Russia (ranked seventh in terms of population), 28,259 cubic meters. As a result of demographic changes in China and India, water availability is expected to decline to 1,507 and 856 cubic meters per capita respectively by 2030.

Furthermore, the ultimate outcome of climate change and its effect on water availability are not known with precision. Unknowns include geographic location, direction of change (less/more precipitation), degree of change in precipitation (low/high), change in precipitation intensity (low/high), and timing (within next five years or over multiple decades). Shifting precipitation patterns and warming temperatures could increase water scarcity in some regions while other areas may experience increased soil-moisture availability, which could expand opportunities for agricultural production (Malcolm et al. 2012; Rosegrant, Ringler and Zhu 2014).

Although water resources may improve in some areas, the World Bank expects climate change will make it more difficult to manage the world’s water because it affects the entire water cycle (World Bank 2009, p. 137). Warming speeds up the hydrological cycle, increasing precipitation in some areas and for the world as a whole. Nonetheless, the report concludes that increased evaporation will make drought more prevalent across wide swaths of the world by the middle of the twenty-first century, as shown in Figure 1.2. Many of these regions are already net food importers, such as much of Africa, the Middle East, and Central America. Other areas where average annual runoff is expected to decline sharply include major agricultural producing regions, such as much of Europe, and parts of South America, North America, and Australia. The average number of consecutive dry days could increase by up to 20 days in many of these regions (Figure 1.2). Moreover, intensity of precipitation is expected to rise in almost all areas, regardless of whether total precipitation is decreasing or increasing. Increased intensity will likely pose challenges for agricultural and other users of water when trying to capture and manage available water supplies.

Figure 1.2 Percentage change in average annual runoff across the regions of the world (sources: Milly et al. 2008; Milly et al. 2005 in World Bank 2010)

International Model for Policy Analysis of Agricultural Commodities and Trade Scenario Assessment

In the coming decades, increasing water scarcity is expected to contribute to a slowdown in agricultural growth and rising food prices. A scenario assessment is used here to determine whether enhancements in key aspects of water use could make significant improvements in food and water security. The analysis uses the International Model for Policy Analysis of Agricultural Commodities and Trade (IMPACT) model: a partial equilibrium, multi-commodity, multi-country model which generates projections of global food supply, demand, trade, and prices.¹ IMPACT covers over 46 crops and livestock commodities and it includes 115 countries/regions where each country is linked to the rest of the world through international trade and 281 food producing units (grouped according to political boundaries and major river basins). Demand is a function of prices, income, and population growth. Crop production is determined by crop and input prices, the rate of productivity growth, and water availability.

The analytical starting point is a BAU scenario for agriculture and water, which assumes a continuation of current trends and existing plans in agricultural and water policies and investments in agricultural productivity growth. Population projections are the “Medium” variant population growth rate projections from the Population Statistics division of the United Nations (UN 2011). The population numbers for the countries in the UN data have been aggregated to be in sync with IMPACT’s regional definitions which comprise 115 economic regions. GDP projections are estimated by the authors, drawing upon the Millennium Ecosystem Assessment (Millennium Ecosystem Assessment 2005).

Under the BAU scenario, food prices rise, and there is only a slight improvement in food security because of the growth in demand and the constraints on both crop productivity (and area) and expansion of livestock production. BAU projects rising prices for cereals between 2010 and 2050, with the highest projected increase for maize (55 percent), followed by wheat (40 percent) and rice (33 percent). Price increases for millet, sorghum, and other grains range between 10 percent and 31 percent. For meat prices, the greatest increase between 2010 and 2050 is for pork (54 percent), followed by poultry (48 percent), beef (20 percent), and lamb (2 percent).

Because of the rising prices for major commodities, the number of persons at risk of hunger remains relatively high but declines modestly in developing countries, from 875 million in 2010 to 700 million in 2050, and in South Asia from approximately 320 million to 210 million. For Sub-Saharan Africa, though, the num...