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What is causing the World's Water Scarcity Crisis?

Topic: Natural capital
by Emily, 2020 Cohort

The Lens of Nat Cap#

Natural capital is a lens that sees potential benefits in the natural world and says “ah! value can be created from this!” The value is then used to quantify the resource or process. Put simply, it is a way of looking at the world and separating what can make us money from what cannot. Definitionally it is a form of the economic notion of capital, that is: resources which enable the production of more resources. But how does this apply to a real-world issue?

Half Application#

Irrigation is an example of a natural capital resource (water) being used to create other resources (food crops). But freshwater is a finite resource growing scarce amongst competing human needs, with demand expected to outweigh supply by 2030. An estimated 70% of global water used to irrigate 25% of the world’s crops. Consider these numbers. They don’t quite line up. One of the reasons that the use disproportionately outweighs the goods here is because flooding is used as the main irrigation technique in 95% of cases. So how can the most inefficient irrigation method remain the most popular if water is scarce?This case-study suggests that one of the tenets of natural capital, seeing value, has been applied (70% of water is being used to grow crops). But the other, appropriately quantifying the value of the resource has not. You might think: I pay a water bill, so it must have been quantified? But freshwater is such an under-priced resource due to government subsidies and a lack of an efficient market, that there is little financial incentive to use water sustainably or for more efficient infrastructure to be built. This is part of what creates a shortage. In this model, the half-application of natural capital is harming attempts to combat water scarcity.

Full Application#

If we fully apply the principles of natural capital, and quantify the value of water ($X/L), an expense would be levelled at both water use and water wastage. The water in everything would cost more, and it would be felt by consumers in the second stage of capital: the resources that the water produces. Food prices would skyrocket because currently the true cost of water doesn’t end up in the cost of the product. It takes 790 litres of water to grow a kg of bananas. Our wallets are saved by the half-application (valuing without quantifying) of natural capital principles.But a full application would discourage the use of inefficient irrigation methods and the production of water-intensive crops in arid regions because these techniques simply wouldn’t make economic sense. Governments and corporations would see more merit in investing financial resources to build and maintain water infrastructure. If efficiency of use was improved, fewer dams would have to be built and natural freshwater sources could be better protected. The price of bananas would be higher, but $X/L could save us from the loss of freshwater for future generations, conflict, and environmental damage that comes with this water scarcity crisis.

Explore this topic further#

• Wikipedia entry on Natural Capital{.link-ext target=”_blank” }
• Hawkin, Lovins and Hunter Natural Capitalism, Chapter 3{.link-ext target=”_blank” }
• Voork, V., and H. Venema, The Natural Capital Approach A Concept Paper{.link-ext target=”_blank” }

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Disclaimer#

This content has been contributed by a student as part of a learning activity.
If there are inaccuracies, or opportunities for significant improvement on this topic, feedback is welcome on how to improve the resource.
You can improve articles on this topic as a student in "Unravelling Complexity", or by including the amendments in an email to: Chris.Browne@anu.edu.au

The Lens of Nat Cap#

Natural capital is a lens that sees potential benefits in the natural world and says “ah! value can be created from this!” The value is then used to quantify the resource or process. Put simply, it is a way of looking at the world and separating what can make us money from what cannot. Definitionally it is a form of the economic notion of capital, that is: resources which enable the production of more resources. But how does this apply to a real-world issue?

Half Application#

Irrigation is an example of a natural capital resource (water) being used to create other resources (food crops). But freshwater is a finite resource growing scarce amongst competing human needs, with demand expected to outweigh supply by 2030. An estimated 70% of global water used to irrigate 25% of the world’s crops. Consider these numbers. They don’t quite line up. One of the reasons that the use disproportionately outweighs the goods here is because flooding is used as the main irrigation technique in 95% of cases. So how can the most inefficient irrigation method remain the most popular if water is scarce?This case-study suggests that one of the tenets of natural capital, seeing value, has been applied (70% of water is being used to grow crops). But the other, appropriately quantifying the value of the resource has not. You might think: I pay a water bill, so it must have been quantified? But freshwater is such an under-priced resource due to government subsidies and a lack of an efficient market, that there is little financial incentive to use water sustainably or for more efficient infrastructure to be built. This is part of what creates a shortage. In this model, the half-application of natural capital is harming attempts to combat water scarcity.

Full Application#

If we fully apply the principles of natural capital, and quantify the value of water ($X/L), an expense would be levelled at both water use and water wastage. The water in everything would cost more, and it would be felt by consumers in the second stage of capital: the resources that the water produces. Food prices would skyrocket because currently the true cost of water doesn’t end up in the cost of the product. It takes 790 litres of water to grow a kg of bananas. Our wallets are saved by the half-application (valuing without quantifying) of natural capital principles.But a full application would discourage the use of inefficient irrigation methods and the production of water-intensive crops in arid regions because these techniques simply wouldn’t make economic sense. Governments and corporations would see more merit in investing financial resources to build and maintain water infrastructure. If efficiency of use was improved, fewer dams would have to be built and natural freshwater sources could be better protected. The price of bananas would be higher, but $X/L could save us from the loss of freshwater for future generations, conflict, and environmental damage that comes with this water scarcity crisis.