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Water Policy Response to Water Scarcity and Future Climate Change Impacts
by Dr. Ariel Dinar
School of Public Policy, University of California, Riverside, USA


Water Scarcity is a multifaceted phenomenon. The most common measure of scarcity is the quantity of water that is available for consumption per capita. But water scarcity may have several other matrices by which it is measured. For example, polluted water may make it unsuitable for consumption; fluctuation of water supply (e.g., variability of precipitation) may make water planning hard to impossible; and inadequate infrastructure (e.g., lack of storage, deteriorated conveyance system) may lead to losses of water resources that otherwise could be consumed.

While the above measures of scarcity are important both at local and global scale, the facts that the amount of water in circulation is more or less fixed and that the world population increases necessitate some considerations. These two facts are by themselves sufficient to describe the inter-temporal and cross-sectional trends that explain changes in scarcity of water. Figure 1 demonstrates such trends in selected countries and regions around the world.

Figure 1: Total Renewable Water Resources 1950-2100 by continents (Cubic meters per capita).

Trends displayed in Figure 1 speak for themselves. The figures present a simple metric of water scarcity measured by water availability per capita for both water-endowed and water-short countries. Under ‘ideal conditions’ of water resource management, i.e. with no external factors, such as climate change, affecting the variability and availability over time and across landscape, we are still facing a serious problem - increased water scarcity, literally everywhere. This scarcity under ‘ideal conditions’ is by itself devastating. Different regions and countries lost 50-75% of the available water per capita in the past 100 years. Add to that the loss due to mal-management, externality impacts and external climate change shocks, we face a seemingly catastrophic situation, especially in some parts of the world.

Some regions in the world and, in particular, some countries face extreme water scarcity*. Figure 2 presents the inter-temporal trends of water scarcity in two countries, Israel and Singapore, known to face severe water scarcity and another two countries on the no-scarcity range, India and Mexico.

Figure 2: Total Renewable Water Resources 1950-2100 by countries (Cubic meters per capita)

Would water-scarce countries (such as Singapore and Israel) fair less well in economic performance than water-endowed countries (such as India and Mexico)? A study published recently by the World Bank [2] identified water scarcity as a determinant affecting economic performance. Water scarcity, exacerbated by climate change, could cost some countries up to 6 percent of their GDP. It is clear from the analysis in the report that the answer to the question above depends on the availability not only of water but also and most importantly of an effective policy to enable countries to cope with water scarcity and reduce its impact.

Water Mismanagement May be Cured with Appropriate Policy

An effective policy would allow a country to manage its water resources in a sustainable manner, invest in various technologies where needed, and use these technologies. This means that water abundance is not a recipe for well performing economy. What ingredients does a water policy need to include? And how do these policy ingredients help cope with water scarcity?

It can be argued that given the central role of water in the economy, an effective policy has to be based on economy-wide rather than narrow sectoral considerations. Further, given the interactive role of water and other natural mediums in which it is applied and moves, a system-wide rather than a local dimension approach would be more effective for policy interventions. Because water is so scarce and becomes even scarcer over time, can we afford using only part of the water resources, or put it differently, can we afford using water only once without recycling it?

Recognition of the different faucets of water resources by managing them in a conjunctive way necessitates well-functioning policy tools. For example, mis-management of groundwater, a major source for nearly 30 percent of water use for domestic and irrigation purposes in semi-arid and arid regions, leads to their pollution and inaccessibility due to lowering of the water table and significant increase in pumping cost. Based on Ritchey et al. [3], twenty-one of the world’s 37 largest aquifers around the world — extracted more water than was recharged during the 10 year study period ending in 2014. In the case of Mexico, certain policies with good intention led to pervasive impacts and deterioration of many of the major aquifers in the country. Out of the 188 major aquifers in Mexico, 101 have been over-drafted due to mismanagement practices and lack of incentives to use appropriate irrigation technologies [4]. Similar trend is observed in India and Pakistan (the Indus Groundwater Basin). A World Bank report [5] suggests that if current trends continue, in 20 years about 60 percent of all India’s aquifers will be in a critical condition. This is worrisome because India is the largest user of groundwater in the world. It uses an estimated 230 cubic kilometers of groundwater per year - over a quarter of the global total. More than 60 percent of irrigated agriculture and 85 percent of drinking water supplies in India depend on groundwater..

Mis-management of water results in pollution. According to IFPRI and Veolia [6], human activities contribute significant amounts of Biochemical Oxygen Demand (BOD), Nitrogen (N) and Phosphorus (P), which make their way into water bodies around the world and risk various water sources. By 2050, with a predicted drier climate scenario with medium levels of income and population growth projections, it is expected that 1 in 3 people will be at risk of nitrogen (an increase of 173% compared to 2015) and phosphorous (an increase of 129%) pollution; and 1 in 5 people will be at risk of water pollution from BOD (an increase of 144%). For example, a government of India report [7] indicates that organic pollution continues to be the predominant pollution of all water sources in almost all rivers in the country in 2012.

These are alarming trends in need for policy interventions. Indeed, the difference between countries that can cope with water scarcity, such as Singapore and Israel, and those who cannot is whether or not a solid water policy is in place. For example: policies that price water to reflect its scarcity value; policies that allow trade in water between individuals and regions facing water abundance and those facing scarcity; and policies that enforce and provide incentives to prevent pollution of waterways. In the remainder of this article I will focus on few, representative features: economy-wide considerations, integrating water sources and technology, and supporting institutions.

Water and Economy-wide Considerations

Because of its major role in the economy, water resources are the center of many interventions aimed to affect both demand- and supply-side regulations. Water policies are multi-objective in nature, aiming to achieve several goals, such as benefit equity, food security, environmental and resource sustainability, etc. Naturally, due to its highest share of water consumption (70-90 percent of available water), the irrigation sector is the focus of the most elaborative policy interventions. However, while focusing on policies that target irrigated agriculture may lead to an immediate improvement in irrigation water use, still, other implications, such as job security, and cost of various inputs may negatively affect other water-using sectors such as urban development, rural-to-urban migration, and indirectly also the agricultural sector. This system of cause and effect of policy intervention holds also for the urban water sector, as well as for the industrial and environmental sectors [8].

Integrating Various Water Resources and Technologies

Both the sites for developing new water supplies (mainly reservoirs), and the opportunity cost of such water become very prohibitive. Of the more or less available freshwater on earth (35 million cubic kilometers—km3) about one third is stored as groundwater. In addition, oceans contain 1,365 km3 of saltwater that could be available for consumption after a relatively costly, but affordable to some extent desalination process [9-10].

Certain sources of water and certain types of soils that were inappropriate several years ago for irrigated agriculture are considered now appropriate for use in irrigated agriculture [11-12]. Both treated wastewater and naturally occurring saline water can be used now for a wide range of soils and crops, mainly due to recent development in irrigation technologies, management practices, and crop genetic developments, and with little harm to the environment if properly implemented.

Treated wastewater is a significant source of the fresh water that is consumed by households (10% of the total available freshwater—3.5 million km3), about 330 km3 are generated globally as municipal wastewater [13]. For example, of the 121 million cubic meters (m3) of municipal wastewater discharged nationwide in the USA each day, approximately 45.5 million m3 are discharged to an ocean or estuary—an amount equivalent to 6 percent of total water use in the United States. Reusing this water would directly augment the nation’s total water supply [14], and especially in arid and semi-arid regions.

Another non-conventional source of water is desalination of seawater. The practically infinite amount of seawater and the fact that many major urban centers are located next to the coast, coupled with the fact that recently-developed desalinization technologies make desalinated seawater a feasible next available technology to produce necessary water supplies in many locations.

Role of Institutions

Institutions are the rules by which societies operate. Policies are part of the institutional framework and include in the case of water components such as laws, administrative functions, prices, allocation schemes of water quantities and costs, and standards of permitted pollutions, to name a few. Societies with well-functioning institutions operate better than societies with mal-functioning institutions [15]. How shall institutions be designed to gain most impact? While there are various pre-requisites for meaningful and effective institutions [16], one related pre-requisite is to have the institutional components included in the policy such that they operate in synergy with each other. For example, the efficiency and equity benefits of water markets can be substantially increased when such markets operate within a volumetric water rights system and are also supported well by user-based management and enforcement mechanisms. In the same way, water-pricing policy can be more effective both in terms of cost recovery and in terms of water allocation, when being linked with volumetric delivery and user based allocation system structures. In other words, the packaging and sequencing of policy components and institutions are crucial for the effectiveness of the policy. For example, California is a water scarce state. After the severe drought of 1986-1991, the state supported a water market initiative to allow in periods of severe water scarcity to move water via a market mechanism from regions of abundance to regions of scarcity. With the functioning water right system in the state, some of the major pre-requisites for water trade were in place. However, both the central state government and county-level governments introduced institutions that created impediments to market trade in the form of requirements on the part of the selling and buying parties that add high and impossible transaction costs to the trade. As a result, California doesn’t benefit from the full potential of its water market [17]. We can thus conclude that the level of institutional involvement in the water sector is critical. Overdose of institutions may lead to perverse outcomes, and level of inefficiency in the water sector, as is the case with no institutions.


This article addresses the ongoing trend of increased water scarcity and some of the possible means to cope with it. The serious trends in water availability and level of production in many parts of the world can be halted, or even stopped if we manage to introduce several paradigms shift in policies we employ in water and other water-related issues. First, all water-using sectors including consumptive and non-consumptive ones should be part of policies designed to intervene and address water scarcity situations. Second, all water types, including good and low quality, cheap and expensive, have to be part of the entire resource considered for use by all sectors in all locations. And third, institutions, those rules that society imposes, need to be carefully designed not to conflict with each other. While this article took a relative narrow angle, not addressing many important aspects such as conflicts arising from water scarcity, investment decisions in mega-water projects etc., still this narrow angle is sufficient to make important points: (1) policy matters; and (2) there is a difference between policies and these differences are the key leading to success or failure.

About the Author
Ariel Dinar is a Professor of Environmental Economics and Policy at the School of Public Policy, University of California, Riverside, USA. Prior to his academic engagement (since 2008) he served as a Lead Economist at the World Bank Research Department and Agricultural Policies Department (since 1993), where he led research projects on water policy and adaptation to climate change. At present Dinar’s work focuses on economics of water resources with emphasis on environmental and behavioral aspects of principal-agents strategic behavior, and on management of international water. He is the editor-in-chief for two journals, Strategic Behavior and the Environment, and Water Economics and Policy. His recent books of possible interest (with co-authors/editors) include: Water Pricing Experiences and Innovations (Springer), International Water Scarcity and Variability: Managing Resource Use Across Political Boundaries (University of California Press), and Handbook of Water Economics (Edward Edgar).

There are several indexes used (refer to Ref. [1]). We will mention here the well-used water scarcity index (Falkenmark, 1989), measured in cubic meters of available renewable water per capita per year (CPC). CPC >1,700 indicates no stress. CPC of 1,000-1,700 indicates stress. CPC of 500-1,000 indicates scarcity, and CPC <500 indicates absolute scarcity.


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  2. World Bank Group. 2016. High and Dry: Climate Change, Water, and the Economy. World Bank, Washington, DC. World Bank. https://openknowledge.worldbank.org/handle/10986/23665 License: CC BY 3.0 IGO.
  3. Richey, A. S., B. F. Thomas, M.-H. Lo, J. T. Reager, J. S. Famiglietti, K. Voss, S. Swenson, and M. Rodell, 2015. Quantifying Renewable Groundwater Stress with GRACE, Water Resources Research, 51, 5217–5238, doi:10.1002/2015WR017349.
  4. Muñoz, C., S. Avila, L. A., Jaramillo, and A. Martinez. 2006. Agriculture demand for groundwater in Mexico: Impact of water enforcement and electricity user-fee on groundwater level and quality. Working Paper INE- DGIPEA/0306. Instituto Nacional de Ecología.
  5. World Bank. 2010. Deep wells and prudence: towards pragmatic action for addressing groundwater overexploitation in India. Washington, DC: World Bank. https://documents.worldbank.org/curated/en/2010/01/11899840/deep-wells-prudence-towards-pragmatic-action-addressing-groundwater-overexploitation-india.
  6. International Food Policy Research Institute (IFPRI) and VEOLIA. 2015. The murky Future of Global Water Quality: New Global Study Projects Rapid Deterioration in Water Quality. Washington, D.C. and Chicago, IL: International Food Policy Research Institute (IFPRI) and Veolia Water North America.
  7. Government of India. 2014. Status of Water Quality in India- 2012. Central Pollution Control Board, Monitoring of Indian National Aquatic Resources, Series: MINARS/36 /2013-14, Ministry of Environment & Forests, Parivesh Bhawan, East Arjun Nagar, Delhi-110 032 Website :https://www.cpcb.nic.in.
  8. Dinar, A., 2014. Water and Economy-wide Policy Interventions, Foundations and Trends in Microeconomic, 10(2):1-84.
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  12. Assouline, S., D. Russo, A. Silver, and D. Or, 2015. Balancing Water Scarcity and Quality for Sustainable Irrigated Agriculture. Water Resources Research, 51:3419-3436, DOI:10.1002/2015WR017071.
  13. Hernandez-Sancho, F., B. Lamizana-Diallo, J. Mateo-Sagasta, and M. Qadeer, 2015. Economic Valuation of Wastewater –The cost of Action and the Cost of No Action. Nairobi: United Nations Environment Programme.
  14. National Academy of Science, 2012. Water Reuse: Potential for Expanding the Nation's Water Supply Through Reuse of Municipal Wastewater. Washington DC: National Academies of Science.
  15. Dinar, A. and R. Maria Saleth. 2005. Can Water Institution Be Cured: A Water Institutions Health Index, Water Science and Technology: Water Supply Journal 5(6):17-40.
  16. Saleth, M. R. and A. Dinar. 2004. The Institutional Economics of Water: A Cross-Country Analysis of Institutions and Performance. Cheltenham: Edward Elgar.
  17. Hanak, E. 2015. A Californian Postcard: Lessons for a Maturing Water Market. in Routledge Handbook of Water Economics and Institutions. (Eds.) K. Burnett, R. Howitt, J.A. Roumasset and C.A. Wada. p. 253.

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