ABSTRACT
Water systems are under pressure from steadily growing agricultural, industrial, and urban demand. Many countries currently experience permanent water stress, defined as less than 1,700 cubic meters per capita available supply. Shortages will become more serious as population grows and climate change affects precipitation patterns and glacial runoff. Human activity relies on water consumption as a fundamental input.
The concept of virtual water takes into account both direct and indirect uses of water to create goods and services. This concept can be used to calculate a “water footprint” for an individual, community, corporation, city, or country. Trade in virtual water allows water-scarce countries to import goods that are water-intensive, but some water-scarce countries are depleting their scarce water resources through water-intensive exports.
Increasing supply by pumping from aquifers has led to groundwater overdraft in major water-scarce areas throughout the world. Construction of dams also increases available supply, but most major dam sites are already being exploited, and new dam construction often involves major environmental and social costs. Desalination offers the potential to tap into a virtually unlimited supply of ocean water, but it 604is energy intensive and expensive. Innovative methods of collecting rainwater and protecting watersheds and waterways offer a new paradigm of water management, which restores natural processes of replenishment of local water cycles.
Proper water pricing can promote conservation and encourage technologies for efficient water use. Government policies, however, often subsidize water, thereby encouraging overuse. Higher prices will reduce demand, but since water demand is inelastic, relatively large price increases are necessary to induce significant conservation. Well-designed price structures, such as increasing block pricing, can also promote conservation.
In theory, water markets can increase the economic efficiency of water allocation by allowing transfers from low-valued uses to higher-valued uses. Water markets can also be used to meet environmental objectives, although the results have been mixed. Privatization of water supplies has also produced mixed results, expanding affordable access in some situations while leading to dramatic price increases and reduced access in other cases. The evidence indicates that while both the private and public sectors have a role to play in meeting water challenges, appropriate regulation and institutions are needed to ensure that water is sustainably managed, including management of water both as a marketed and as a common property resource.
