While some countries have attempted to sustainably manage water resources, success has been limited due to the influence of commercial interests and a lack of incentives.
Countries exporting water-intensive goods tend to encourage efficient resource use with sectoral planning, standard-setting and water pricing. However, implementation challenges and concerns about negatively affecting export competitiveness can restrict efforts to improve systems of oversight and development.
The planning and setting of goals for water use depends on the national context. Many countries have plans to boost water and sanitation access for their populations, and they are taking into consideration the need to adapt to climate change. However, less attention has been paid to industrial water use. Coordinating targets and goals for industrial water use across actors and agencies is complicated due to the number of stakeholders and sectors involved from forestry to mining to housing. For example, water that is used for mining cannot be reused for agriculture or human consumption unless it is processed to remove pollutants.
The Introduction of standards and laws can limit pollution (e.g. penalties for discharging into rivers, requirements to treat wastewater) and restrict water withdrawals (e.g. by requiring permits for wells). However, capacity constraints, such as a lack of financial resources and staffing, can impact the monitoring and enforcement of standards. This can lead to opportunities for bribery, as in some places, groups more powerful than law enforcement bodies may control water use and access. Research from the Water Integrity Network suggests that anywhere between 6 per cent and 26 per cent of total water system costs worldwide could be lost to corruption. Many countries with water scarcity issues, including Australia and the US, have documented cases of regulatory capture – whereby the companies that the government is meant to regulate influence regulatory bodies – and corruption.
Pricing schemes are an important element of efficient water use, particularly for covering the costs of treatment and delivery. For piped water, block tariffs with fees for different services can help incentivize efficiency and reinvestment, and potentially enable cross-subsidization to support low-income households. There are different approaches available for pricing the direct use of water from rivers or aquifers. Pricing directly abstracted water can encourage sustainable use, as supported by case studies in the US, China and Australia, which found that the introduction of pricing increased efficiency. Some countries like South Africa protect and reserve sustainable water sources for basic human needs and ecosystem functions, but allow any surplus water to be allocated for commercial purposes. However, in other countries, water markets can be monopolized. For example, in Chile, where ownership of water rights is concentrated and there is a lack of transparency, many locals do not have access to clean water, but virtual water is exported in the form of avocados around the world.
Research into water footprints suggests that water pricing needs to be much more sophisticated than other pricing mechanisms created to improve sustainability, such as for carbon, because water has different values at different times (during droughts versus rainy seasons). It is also necessary to consider that markets prioritize more profitable uses of water, such as industry, over food production or the needs of poor rural households. There are also important cultural associations with water, including spiritual meanings and identity, that make agreeing on a specific price difficult.
Competitiveness concerns – what can water initiatives learn from the case of carbon?
Exporting countries may be concerned that stricter environmental standards will make their goods less competitive. Regulation or higher water prices can result in companies moving operations to less regulated or cheaper countries (offshoring), which would mean that global pollution stays the same or even rises. When it comes to carbon, these concerns have prevented effective action by countries that produce high-carbon goods. The idea that standards or carbon taxes in one jurisdiction will result in ‘carbon leakage’ – increased production in areas with lower climate ambition – has led producers like the EU to provide certain vulnerable industries, such as mining and manufacturing of construction materials and textiles, with free allocations of allowances that enable companies to emit a certain amount of carbon under the EU Emissions Trading System. These exemptions are incompatible with actual decarbonization.
Regulation or higher water prices can result in companies moving operations to less regulated or cheaper countries, which would mean that global pollution stays the same or even rises.
In a similar fashion, countries exporting virtual water may not be incentivized to act for fear of losing their competitive advantage in international markets. For example, if country X introduces or increases prices for water, firms might relocate to country Y where water is free or cheaper. As a result, country X will lose revenues and jobs, while country Y may face increased pressures on its water systems. The key lesson from carbon taxes is that the free allocation of allowances for industry does not incentivize sustainable use.
Persuading governments to tackle the issues of virtual water trade might be more straightforward than efforts to address greenhouse gas emissions, due to the immediate local impacts of water stress from industry including pollution and reduced availability of water. Political pressure for better water governance can emerge because of conflicting interests in society over access to water (from households to agriculture to industry). These pressures have sometimes resulted in societal conflicts, for example in the 1999 Bolivian ‘Water War’, in which privatization of community-built water infrastructure resulted in a popular movement that eventually toppled the government. It would therefore be prudent for foreign companies operating in water-intensive sectors to be proactive in addressing water issues to avoid embroilment in political conflict and further risks in the future.
