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Industry’s approach to water use – Is now the time for significant change?

The pressure on water resources will ultimately result in a change in how water is priced, regulated, and perceived.

by James Assem

Technical Director, London

27 April 2018
water wave graphic

Water is recognised by all as a critical resource for life; whether it’s for personal consumption, growing food, energy production, ecological services or industry. There is also mounting appreciation that this vital resource is under pressure from a growing population, increasing demand, uneven distribution of resources, and climate change impacts.

The consequence of these pressures is likely to be significant at a national or regional level, and devastating at a local or business level. It is estimated that more than 50% of the global population will be living in an area of water scarcity by 2050.1 Increases in demand for water are estimated at 40%-50% across the food chain, 50%-70% for the municipal and industrial sector, and by 85% for the energy sector.2 Further, the World Bank indicated that water scarcity, exacerbated by climate change, is so significant that it has the potential to cost some regions up to 6% of their GDP.3

Despite the apparent awareness of the pressures on a critical resource, and the potential economic impact these bring, water still appears to be underappreciated and undervalued. How much we pay for water (the market price) is generally disconnected from its value, and does not consider water availability, sustainability, or the benefits water provides to communities or ecosystems. More often than not, water is cheapest where it is most scarce, which only incentivises poor practice.

In 2017, the World Business Council for Sustainable Development's (wbcsd) release of the business guide to circular water management, which centered on reduce, reuse and recycle, suggests that businesses are starting to develop strategies that respond to challenges of water availability. Investors are also becoming aware of threats and opportunities associated with water, as shown by the recent article on liquid assets in the 2018 summer issue of Rathbones Review. The focus across the business and investor community is circular water management (termed the 5Rs by wbcsd- reduce, reuse, recycle, restore and recover), with a strategic approach that targets water reductions and reuse, defining objectives and implementation plans that accomplishes both.

The importance of water to business and industry is not a new concept. Leading hydrocarbons and mining companies, industries that are substantial water users at a local scale, have included strategic targets for water use as part of their business planning and risk management for many years. However, dramatic, wholesale shifts in approach to water use and management across industry are unlikely to occur without shock events to change behaviour, such as the Cape Town water crisis. Behavioural change will be difficult while water remains at a relatively low cost, and greater financial savings can often be realised by making changes elsewhere. This will inevitably change as pressure on water resources grows and becomes reflected in the pricing, and the high economic dividends from good water stewardship become recognised.

The International Monetary Fund highlighted the need for Governments to reform policies on water to realign incentives and pricing to better manage supplies.4 Saudi Arabia recently took steps to cut subsidies for water to help alleviate the budgetary fiscal gap associated with the low oil price, although the resulting public complaint and subsequent dismissal of the Water and Electricity Minister clearly shows the sensitivity of the issue, and the need for careful planning and implementation of such a significant change.

In the future, possibly in the next decade, water will be treated as a commodity. 

In the future, possibly in the next decade, water will be treated as a commodity.

Trading will be the norm for industry and will provide a mechanism to address inefficiency in water tariffs and develop water pricing relative to supply and demand.

The pressure on water resources will ultimately result in a change in how water is priced, regulated, and perceived. Industry can benefit now by taking a proactive approach to their water use and management to ensure water security, reduced costs, and enhanced reputation for their business.

See how we’ve created extraordinary outcomes to address the challenges posed by water scarcity and increasing competition for available resources around the world.

References

  1. United Nations World Water Development Report 4. Volume 1: Managing Water under Uncertainty and Risk, 2012

  2. www.WBSCD.org accessed 2018

  3. World Bank Group. High and Dry – Climate Change, Water, and the Economy. Water Global Practice. 2016.

  4. IMF Staff Discussion Note. Is the Glass Half Empty or Half Full? Issues in Managing Water. June 2015. SDN/15/11.  

Topics

James Assem

Technical Director

James is a Technical Director with Advisian working primarily in in the Water Sector. He has provided water management expertise on several major projects in Europe, the Middle East and Africa, where he has lead studies assessing water resource, distribution and wastewater. He was also the principal author for developing the IPIECA international guidance on Efficiency in Water Use for upstream oil and gas operations. Prior to joining Advisian, James worked as a hydrogeologist for Arup and before this Atkins. In his previous roles he was involved in major infrastructure projects, such as Brisbane Airport Link, CTRL, ThamesTideway and Crossrail, as well as working on climate change resilience and renewable energy designs.

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