Seeing the Unseen: The Value of Water

by Aude Farnault and Xavier Leflaive, Water Team, OECD Environment Directorate

Although extreme heat, droughts, and floods have been recurrent in recent years, weather patterns this summer have reached unprecedented limits: the continuation of catastrophic drought in Western States in the United States and in East Africa, record low levels of water in Europe, and catastrophic floods in Pakistan. This week, the 2022 Stockholm World Water Week took place in this very critical context, with a particularly timely theme: “Seeing the Unseen: The Value of Water”.

The ‘unseen’ refers to groundwater, which provides not only almost half of the world’s drinking water, but also about 40% of the water used for irrigation and about a third of the supply needed for industry (UN, 2022). Yet this precious water source lacks explicit consideration from the water community, and it is poorly assessed and regulated. Beyond the discussions in Stockholm, the ‘unseen’ can also refer to ‘green water’, such as vapour and humidity in the air, soil moisture, which is much less visible than rivers and lakes. Green water is an important condition for livelihoods and determines crop yields, yet the ‘green water planetary boundary’ was recently reported as already being surpassed by the Nature Reviews Earth & Environment.

Valuing water is key to solving water challenges

The widespread undervaluing of water is one of the fundamental causes of its mismanagement and of the lack of investment in water-related services, infrastructures and practices. The Valuing Water Initiative, initiated by the government of the Netherlands, has clearly established that water values are multifaceted with sociocultural, economic, and religious associations. Still, traditional economic assessments tend to restrict the value of water to the price or cost of water recorded only in economic transactions. There is no clear relationship between the price and the value of water. Water is priced as consumers are charged for using it, but the price often reflects the intention to recover some of the costs of service provision and not the full value of water.

It is striking that valuing and financing water have only become prominent relatively recently in the international water agenda, whereas they were almost absent of international conferences a few years ago. These topics resonate strongly with the work underway at the OECD Environment Directorate, including the Roundtable on Financing Water, the Economic Aspects of Implementing the EU Water Framework and Floods Directives, the support to the Valuing Water Initiative and to the Global Commission on the Economics of Water and several national policy dialogues.

What were some of the key takeaways from this year’s Stockholm World Water Week?

1. Recognising that water resources are at the heart of our economy is essential to better protect and manage them. As Ralph Chami, Assistant Director of the IMF, pointed out, measuring the value of natural resources (including water) and recognising them as a new class of assets (natural capital) can help to recognise that they are incredibly valuable to our economy and to better protect them. For instance, seagrass is worth over a trillion dollars in terms of carbon sequestration services, another trillion in terms of flood control, and more in terms of food security. Similarly, the value of oceans in terms of carbon sequestration is over $30 trillion, at today’s carbon price. Some countries have started to develop legal frameworks to protect natural resources, including water, to shift from an extractive to a regenerative approach to these resources.
2. The gaps between intention and action, and the drivers for moving from individual to collective action, may help to explain why we are continually lagging behind on SDG 6 to deliver “clean water and sanitation for all”. According to Juan Velasquez, researcher at Linnaeus University, social norms can explain the difficulty of aligning thoughts and actions, and the limitation of some economic instruments in providing incentives for water saving. The role of adequate incentives and motivation in driving behaviour and social change is essential. The tricky thing, from a policy perspective, is that we know social norms change and can change fast. Several drivers contribute to such changes, which are difficult for institutions to control.
3. While the importance of economic instruments, such as tariffs, charges and subsidies, in valuing water should be recognised, it is also crucial to acknowledge their limitations and weaknesses. For instance, water charges on agricultural water implemented in South Africa during land reform, have led to inequity for ‘emerging’ farmers, in turn negatively affecting the benefits of the land reform. Several approaches can potentially overcome some of these limitations. One such approach would be to focus on the process through a consultative approach, as Ricardo Burg Mlynarz, Program Leader at Fundação Renova, pointed out. Another would be to enhance data sources to improve the design and implementation of economic instruments, as done by Dynamic World, which provides free near-real-time data on land use across the globe, a tool developed by Google and the World Resources Institute presented by Alex Money, Program Director at the University of Oxford. But participants pointed out that the question remains as to whether these new developments would be sufficient and whether the afore-mentioned limitations stem from principles not fully compatible with the valuation and protection of water resources, such as property rights. A variety of communities like the Māori in New Zealand manage water in radically different ways. Could these examples be a source of inspiration for the water community?

The upcoming UN Water Conference in March 2023, the first in almost 50 years, will be an important step to shift the dial on these fundamental issues and move beyond traditional economic thinking. This is the ambition of the Global Commission on the Economics of Water and a main objective of the two Roundtables on Financing Water planned for 2023.  In March, the Roundtable will hold a meeting in Geneva ahead of the UN Water Conference, in coordination with UN Water, and a regional meeting on Africa later in the year, to analyse regional specificities and catalyse action. Our Water Team at the OECD Environment Directorate is looking forward to this once-in-a-life time opportunity.

Further reading

OECD work on water

OECD events at Stockholm World Water Week 2022