SUSTAINABLE INSIGHT

Constraints to Growth in Water-Stressed Regions - Many More Regions Will Become Water-Stressed, Imposing Substantial Adjustment Costs

Thu 22 Oct, 2020 - 9:55 AM ET

As an inherently local resource, water is subject to a high degree of political and socioeconomic pressure, as well as competition at the local level, which often exacerbates the challenge of managing resources sustainably. As scarcity increases alongside population and economic growth, competition for these resources is likely to increase. As water is rarely priced to reflect its scarcity, this increases the risk of price shocks in the future and is likely to create a hierarchy in those that are better or less able to adapt to a water-scarce world. Governance Issues Compound Scarcity A growing number of regions are facing water shortages that are compounded by governance issues in terms of allocation of water resources. Many historical agricultural abstraction permits have been allocated for political purposes, for example, necessitating large-scale buybacks of water rights in regions. In China, the Yangtze’s supply of clean freshwater may be unable to meet growing demand from export-orientated manufacturing activities as well as domestic and agricultural applications. Adjustment More Severe in South Asia Regions and companies with limited capacity to respond to rising water scarcity and prices are likely to face more severe operational impacts, which could affect the viability of projects and activities. Technical solutions such as wastewater recycling or desalination are often costly and may not be a viable solution for all activities. Fitch Ratings expects desalination demand to rise sharply in the coming decade, particularly in South Asia, as a result of rapid population growth.

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