$26 Trillion

You don’t see numbers of that size written out often. Any guesses what that is? Hint: it’s related to our most valuable resource. Something that we can’t live without. Yet something so plentiful we think of it as free and can’t trade it for anything — Water.

Water is everywhere. It covers two thirds of the earth’s surface. It falls out of the sky. It’s not used up when consumed, it just recirculates all over the planet. 97% of it is salty. Rainfall and underground aquifers store almost all our freshwater.

Problems

So why do 1/3 of people today live in ‘water stressed’ areas, and why will 2/3 do so by 2050? One reason is that as countries grow richer, they use more water. We only need to drink a few liters a day to survive. But things like grain and meat takes thousands of liters of water per pound to produce. Farming accounts for about 70% of our water use. And remember that we waste around one third of food produced. It never even gets to the table. Manufacturing and electricity generation use up most of the rest. Industrial runoff pollutes much of our freshwater. And America uses over 40% of its water to cool power stations.

Another reason for water stress is climate change, which accelerates weather cycles. Wet places get wetter and dry places dryer. Droughts, flash floods and sediment runoff get worse. As soil loses moisture it becomes less capable of storing water during storms. It’s also less capable of sequestering carbon. Aquifers lose capacity when they’re damaged during dry periods. Warmer air also holds more water in the atmosphere. And less snow means places such as California that rely on meltwater suffer more.

But one of our biggest problems is that we’re simply terrible at managing water. We don’t price it properly. Politicians won’t police something viewed by many as a fundamental right. Farm and factory lobbyists make sure policy doesn’t budge. Consumers have no incentive to conserve it. There is minimal cost imposed on those who pump aquifers dry.

$26 trillion. That’s the size of the hole we need to fill for water infrastructure spending by 2030, says the World Economic Forum. Efficient distribution, along with lower and generally more efficient use, are our only ways out.

Solutions

Farming first. Precision planting and drip irrigation can cut use 30–70%. Harvesting rainwater can help. Recycling waste water is also huge. Israel recycles 86% of its sewage for agricultural and human use. Spain is the next highest, at only 20%.

City water infrastructure is also key. It’s estimated that London loses 30% of its water through leaky pipes. The number in some Middle Eastern and Asian cities climbs to 60%. New cities in poor countries need water infrastructure period. They must build it with scarcity modeling in mind. We should take both changing water storage volumes and annual volume variability into account. Knowing when these variations might occur will help determine the timing of preemptive infrastructure investment.

$26 trillion might seem huge, but there’s plenty of private money to be had for water investment. Assuming of course that politicians help price it appropriately and create tradable, storable water rights. Australia uses this model to great effect, establishing a reasonable usage baseline with zero-sum accounting. More water for one person implies less for another. This encourages conservation, helps balance competing claims, and encourages a transparent water market. Tellingly, the average price for water on the Australian market is $1.75 per cubic liter. Elsewhere in the world, it’s around 4 cents. But creating a market for water has been lucrative for those who manage their rights well. The average rate of return on water shares is around 15%.

The WEF puts water crises at the top of its list of global threats. That’s above climate change, war, financial crises, disease, and social instability. Applying simple economic thinking, including pricing, ownership, and cooperation, will go a long way towards addressing this problem. But we need to start now.