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The concept of a “price for water”

22 November 2018 Myra Knoesen
Andy Howard, Head of Sustainability at Schroders

Andy Howard, Head of Sustainability at Schroders

“A global water crisis is looming. In many places around the world, it is at the doorstep rather than the horizon, exacerbated by a growing global population and accelerated climate change,” say the authors of world report, The Forest and Water on a Changing Planet: Vulnerability, Adaptation and Governance Opportunities.

According to the World Wildlife Fund for Nature, two-thirds of the world’s population may face water shortages by 2025. Already, 1.1 billion people around the world lack access to water, with a total of 2.7 billion finding water scarce for at least one month of the year.

Future challenges

According to Santam’s Integrated Report 2017, climate change is altering weather patterns and water distribution and availability around the globe with major parts of the world experiencing shortages and droughts, floods or rising sea levels, which are disrupting ecosystems and leading to more extreme weather events. 

Moreover, the report states the world is undergoing the largest wave of urban growth in human history. The United Nations reports that the current world population of 7.6 billion is expected to reach 9.8 billion in 2050. Cities, industry and other users exploit increasingly greater volumes of water, energy and land resources. (Source: World Population Prospects: The 2017 Revision). 

According to the Integrated Report, the World Economic Forum recognised the world water crisis, in 2016, as the most impactful global risk. One example, the report states, is the evolving and intensifying water crisis in the Western Cape.

The report further highlighted that the food-energy-water nexus is a challenge for Southern Africa as the population is still growing rapidly, thereby driving up the demand for water and food, while there is a concomitant and sometimes conflicting need for energy to power the industry.

Cities, according to the report, will increasingly have to deal with water shortages and climate change as inhibitors for the development of optimum conditions for future generations. Catastrophe events related to urban growth and insufficient infrastructure development have a severe impact on insurance loss ratios.

The price of water

With this, FAnews spoke to Andy Howard, Head of Sustainability at Schroders about the current situation. 

“The concept of a “price for water” is a tricky one. The cost varies hugely depending on where it is located, in what form it is delivered and who is buying it. Given the price of crude oil is currently about 50 cents per litre, petrol is roughly $1-2 per litre and bottled water can be far more expensive, that shift has already happened. However, in global terms, there is still a wide gap between the prices companies or households pay for either liquid,” says Howard.

“We would be surprised if the price of water does not continue rising more quickly than the overall price levels. Making better use of the water resources we have requires investment, and investment requires a price signal in most cases. However, we need to think of water prices differently and separately to oil prices – they are not substituting and it is difficult to combine them into a single analysis,” continues Howard. 

The impact of the water crisis

“Water shortages are a challenge for all industries because they either rely on water directly in their business, because their supply chain needs water or because they operate in economies facing threats. It reflects the growing connection between the corporate world and the physical and social environments in which they operate. Water scarcity is a BREAK new source of risk for companies of all types; companies which can model, measure and manage that risk effectively will be well placed,” says Howard. 

“Long term risk management has to consider the impacts of growing social and environmental challenges, of which water shortages are clearly an important part. Long term planning is no longer about forming a view of the future and driving toward it (if it ever was) and is increasingly about understanding the widening range of potential risks and opportunities companies might face and keeping a firm eye on updates,” continues Howard. 

Could things get worse or improve?

“Over the long term, it is hard not to expect the challenges to grow. Unlike most commodities, water supply is fixed – there is a certain amount of water in the world’s atmosphere which is simply moved,” says Howard. 

“More people, with heavier consumption demands and increased global interconnectedness will all add to the pressures on that finite supply. We may see the investment in infrastructure that could avert the worst impacts but so far progress has been slow,” emphasises Howard. 

Editor’s Thoughts:
Only time will tell what the future holds. What remains certain though is that water is becoming a scarce commodity in some places, thereby driving up the demand for water. As Howard says, it would be surprising if the price of water does not continue rising more quickly than the overall price levels. Do you agree? If you have any questions please comment below, interact with us on Twitter at @fanews_online or email me - myra@fanews.co.za

Comments

Added by Peter, 22 Nov 2018
It's not about water! There are just too many people on earth. The global culture of human rights (Including that of unrestricted breeding) will collide with the planet's ability to support us. It took about 300,000 years for our population to reach 1bn (1804.) 123 years to add another billion. (1927) In 1999 we hit 7bn. We are now adding a billion people every 12 years but that number of years is reducing. Either we drastically slow population growth or face complete resource collapse. Water and climate change are merely components of this complex picture. However, it will take very bold leadership to venture down this road.
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