'We still operate the world economy with freshwater largely as a free resource. That's a market failure.'
, the small scale of existing water markets and “the absence of standardized approaches to valuation leads to considerable divergence in water values,” which undermines their impact on water efficiency.
In 2014, a group of U.S.-based economists said that a regional water trading system was the key to dealing with increasing water scarcity in the American West. They pointed out that, despite that year’s punishing drought, growers of alfalfa—“a low-value and high-water-use crop”—had produced enough crops to export millions of tons to Asian countries, while producers of higher value crops had been forced to leave hundreds of thousands of acres of land fallow.
Water is also used in an international way; countries already “virtually” trade vast amounts of water embedded within products. Chile, for example, uses lots of water to grow avocados, which it then ships to the U.K., while denim makers in China use up water to process jeans before sending them to India. The volume of water virtually traded doubled between 1986 and 2007.
It would be controversial to put a price on those virtual water flows. If industries pay more for water, they will pass that cost increase on to consumers in the form of higher prices. This would particularly impact food, the production of which accounts forAny water market mechanism would need to find ways to shelter poorer countries, and poorer people in wealthy countries, from the impact of such price increases.
Despite the complications, Rockström says that failing to overhaul the economy’s relationship to water will cost us more in the long run. The World Bank estimates that a “business as usual” water management scenario will trigger GDP losses of“As long as we have these market failures, we will continue to destroy the functioning of the Earth’s system. And in the end, we will have so much water scarcity that we will have increasing food prices anyway,” Rockström says.
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