This report addresses the fundamental question of how to share water when there is not enough to satisfy all needs for people and nature. Water scarcity touches the lives of nearly half the people on this planet. Half of all large cities and three-quarters of all irrigated farms are already experiencing recurring water shortages. Today, more than 90 percent of water consumption in water-scarce regions goes to irrigated agriculture, and – from Pakistan to Kenya, from the United States to China – a changing climate and increasing demands from a growing global population are testing the limits of what scarce water supplies remain. For many communities suffering from water scarcity, the option of building additional, often expensive, supply infrastructure is not available. And while we face the consequences of increasingly limited resources, water diverted for cities, industry and crops often comes at the imperilment of freshwater ecosystems.
The fundamental challenge is to do more with less – to efficiently allocate water to the most productive uses. Water markets are institutions designed to do just that. If constructed and regulated well, they can help increase the efficiency of water allocation, and by revealing the value of water to different users, drive greater efficiency. Of course, water markets are not a solution to all scarcity situations, but they are a powerful regulatory construct to manage limited resources.
While they offer a way of mediating scarcity for commercial and public uses of water, their inability to account for environmental needs is often perceived as a critical flaw of these constructs. This report shows that through new approaches to water markets, we have an opportunity to shift water back to the environment while increasing the productivity of irrigated agriculture and meeting the needs of cities. In many regions, a well-functioning water market can provide the institutional framework for users willing to consume less to be rewarded by those needing more or wanting to return water to the environment.
Recognizing the potential for water markets to alleviate water scarcity around the world, including the needs of
nature, The Nature Conservancy launched a new model called Water Sharing Investment Partnerships. WSIPs rely on investment capital to acquire a pool of water-use rights within existing markets. Those rights can be used to reallocate water to the environment, provide ongoing water security through lease agreements to users in the community and generate financial returns to investors.
Today, at least 37 countries in water-scarce regions have established water allocation systems based on the issuance of water rights. These countries are potential candidates for WSIPs. The research described in this report shows that if fully scaled, WSIPs – or other creative financing solutions to water scarcity – could mobilize USD$13.4 billion per year in transaction value to reallocate water, corresponding to an underlying assets value of USD$331 billion. Therefore, models such as WSIPs, when enabled by high-functioning water markets, can help provide a more water-secure future for cities, agriculture, industries and essential ecosystems.
Doing this will not be easy. Unleashing the full potential of the water market solutions discussed in this report will require policy and regulatory reforms, mobilization of unprecedented levels of public and private investment and inspired leadership from both non-governmental organizations and political decision-makers. It will require transforming the way we think about water management in the 21st century. By working together, farmers, lawmakers, investors, conservation groups and water managers can set a path to more responsible water management that meets the needs of both people and nature.