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Should We Put a Price on Water?

The convergence of climate change and growing demands from agriculture, industry, and an expanding population have led to a looming global freshwater crisis. Yet innovation in this space trickles slowly through a complex regulatory and policy environment. Jim Matheson, CEO of Oasys Water, discusses how putting the right price on water could help ensure that a growing world population has access to this most essential resource.

Water is critical to sustaining life, but markets aren’t pricing it accordingly. “Water is a priceless asset in the sense that it is invaluable—you can’t live without it,” said Jim Matheson, president & CEO of Oasys Water, Inc. “But it is also without price in that we haven’t figured out how to price water relative to the value of the water.”

That may, necessarily, change as the limits of global freshwater sources become increasingly clear. A NASA study of new satellite imagery shows 21 of the 37 largest aquifers on the planet are being depleted at unsustainable rates, according to the Washington Post. “The situation is quite critical,” said Jay Famiglietti, NASA’s principal investigator on the project. “There’s not an infinite supply of water.”

Freshwater scarcity is only expected to get worse as climate change, energy, food, and water interact in complex and potentially destabilizing ways. The World Economic Forum has assembled a scary list of water worries. Roughly 2.7 billion people—36% of the world’s population—currently face water shortages of at least a month every year. By 2050 some 4 billion people may be living in water scarce areas. At the same time, growing population and rising demand for meat are only expected to increase the water needs of agricultural production. The current trajectory has water demand exceeding sustainable supply by 40% in 2030. The World Economic Forum’s annual risk report for 2016 highlights the interconnection of possible impacts including large-scale involuntary migration driven by climate change and water scarcity.

Today, less than 1% of the world’s water is fresh and accessible, so new technologies that expand usable freshwater sources could be transformative. In a Q & A with the trade magazine Water Technology, Snehal Desai, global business director for Dow Water & Process Solutions, pointed to efficiency, recycling, reuse, and desalination as important currently existing options. “Since we don’t have a replacement for water, we have to focus on the scarcity side of the picture,” he said. The long-term solution is to build a “circular” water economy, in which water, a non-renewable resource, returns to the system to be used again and again.

Yale Insights talked with Jim Matheson, whose company creates desalination technology for industrial use, about the challenges of changing how societies handle their water. One barrier to new technologies, he noted, is a tangle of regulation.  

“The water sector, generally, is a regulatory-driven sector,” Matheson said. In the U.S., he pointed out, there are 45,000 regulatory bodies, including federal, state, county, and municipal authorities. Because of those “kinetics,” Matheson explained, “it is an area where innovation, new ideas are slow to bloom.”

But imminent scarcity is starting to prompt a sense of urgency. “The water industry and the water question is in transition. Folks are thinking deeply about water and its relationship not only to the resource scarcity or abundance but also water’s relationship to societal stability,” Matheson said. “This connection is being focused on appropriately and significantly.”

Putting the cost of water at levels that consider long-term stability can have a real impact, he said. “If you start to create a little bit more of a strong drive on the demand side through price, you start to create a slightly less tortured path from innovation out into the marketplace.”

“Getting societies to think differently about water is a challenge,” Matheson acknowledged. But he offered reason for hope in two nations that designed their water systems with scarcity in mind. Israel and Singapore were both “water starved” from their start, and each set up a single regulator to allow for efficient policy. “Their reuse rates are in the 90 percents,” said Matheson—a rate approaching a circular economy. “If you look at the U.S. and the rest of the world, it’s low teens into single digits. We have two great examples of what’s possible.”

Department: Video