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------------------------------------------------- Why is water a scarce good' ------------------------------------------------- Master of Business Administration (MBA) Module Economics Assignment 1 Course Instructor Prof. Dr. G. Mann Author Gundula Artmann Student ID Number 266 342 1st Academic Semester 2010/2011 Place, Date Gauting, 31.10.2010 Table of Content 1 Introduction 3 2 The Nature of Water 4 2.1 Total Water versus Freshwater 4 2.2 Water: Public versus Private Goods 5 3 Summary on Economics of Demand and Supply 6 4 Demand Drivers 8 4.1 Population Dynamics 8 4.2 Growth of agricultural Production 9 4.3 Use of Freshwater in Production 10 4.4 Climate Change 10 5 Supply Drivers 11 5.1 Pumping Surface Water 11 5.2 Aquifers 12 5.3 Desalination 12 5.4 Uneven Distribution of Freshwater 13 6 Some Measures against the Disparity of Freshwater Demand and Supply 15 6.1 Agricultural Optimisation 15 6.2 Water saving budgetary Measures 15 6.3 Closed Water Cycles in the Industry 16 6.4 Freshwater and Sewage Treatment 16 7 Conclusions 17 7.1 Disparity of Water Demand and Supply 17 7.2 Water Scarcity as a Part of complex Resources Management 18 Bibliography 20 Figures 22 1 Introduction In our first economics lecture Prof Mann told us that water is one of the public goods available for all. In that context I remembered our visit at Lake Mead, which is the biggest artificial lake of the Colorado River that rises behind Hoover Dam. The declining water level from under less run off, high evaporation rate and over pumping exposure (compare Dürand et al. 2007). It inspired me to learn more about freshwater systems and I ask the question whether freshwater is a public good or a scarce resource. Freshwater of adequate quality is a vital need of human society and natural ecosystems. Humans use freshwater directly and indirectly by consuming and purchasing products, which need freshwater for their production. Freshwater cannot be substituted by any other substance. On 28 July 2010 the UN has declared the access to water and sanitation as a human rights. The resolution has more political than legal significance. The General Assembly reaffirms that one of the Millennium Development Goals, according to the proportion of people without access to safe drinking water and sanitation should be halved by 2015. (Compare Informationsplattform humanrights.ch 2010) 2 The Nature of Water Water scarcity occurs when the demand for water cannot be satisfied. Depending on the region it can be a major issue or no problem at all. Demand for water has social, economic and historical backgrounds. “Countries are considered low in water, when the annual self-renewing supply of water is less than 1000 m3 per capita. With less than 500 m3 per capita, one speaks of absolute water scarcity. In 2000, water scarcity affected 26 countries The worst hit were North Africa, the sub-Saharan Africa and the south of the Middle East.” (Gmelch 2007) 2.1 Total Water versus Freshwater More than 70% of the earth surface is covered by water. The total amount of water is 1.4 billion km3. But it only seems to be a surplus of it. Just 2.5% of the water belongs to freshwater (36 million km3) the rest belongs to seawater. And only 0,77% of this freshwater (eleven million km3) is available for humans, the difference is locked up in glaciers, polar ice and under blankets of snow. Freshwater can only be restored by rainfall and this means only 34,000 km3 a year (Bardow et al. 2003:19). This hydrological cycle is a close system. The sun heats water from lakes or oceans. Water evaporates into the air or ice sublimate. The vapour rises with the air up to atmosphere and builds clouds. When it cools down or becomes too heavy water falls out as precipitation into the ocean or onto land. The water runs off as surface water. A part of it infiltrates into the ground as river-bank-water as underground water (refill rate: decades) or refills aquifers. Aquifers are deep caves in the underground (refill rate: centuries and longer). After a while river water and under groundwater will reach the ocean and the cycle starts again. 2.2 Water: Public versus Private Goods In literature there are different definitions of public and private goods. A private good is excludable and rivalrous and it is made to be trade on the market for profits. A public good is the opposite and is therefore non-excludable and non-rivalrous. According to non-excludability: worldwide over 1 billion people have no access to drinkable freshwater. The criterion is not met anywhere in the world. According to non-rivalry: if freshwater is used too extensively, it is of poor quality and has to be treated (6.4 Freshwater and Sewage Treatment.) The next criterion is also not applicable everywhere. In some areas, freshwater is sold in large quantities and transported via pipelines or with large tankers. Then it is traded as a private good with profit. As an example Sitka, Alaska is going to sell 80 million gallons of Blue Lake water to a bottling facility near Mumbai (compare Interlandi 2010: 41) 3 Summary on Economics of Demand and Supply “Demand” expresses how much of a product customers want to purchase, at a certain price in a certain time period. Because of usually limited resources, they have to decide if they are willing or able to purchase the product. While demand explains the consumer side of purchasing decisions, supply relates to the producer’s desire to make profit. “Supply” expresses the amount of products that can be offered from the supplier at a specified price points during a certain time period. Both expressions can be visualised as graphs with a function for demand and for supply. When the quantity demanded equals the quantity supplied this point is called Equilibrium. A shortage occurs when demand is greater than supply – mostly when the price is too low. A surplus occurs when the price is too high, then consumers don’t want to buy the product. It is difficult to define a price for freshwater. In economic terms “water” is defined as a public good (2.2 Water: Public versus Private Goods), which has no price and should be accessible for everyone’s usage. But if freshwater cannot be derived directly from a source, it always has at minimum a logistic related price. This price will depend on the presence of existing infrastructure. Because of the complex infrastructure of freshwater usually only one provider is available, so there is a monopolistic market. Almost all fresh water providers are in the public sector. Freshwater does not follow any public market law. There are competing goals between Freshwater resource protection and the rules of a free market. There were and are several projects, where the public water supply (freshwater and sewage) was privatized. Looking at these projects (e.g. Cochabamba in Bolivia; Valencia in Spain (Barlow et al. 2003:123)), some seems not to be successful. The private water works were in some instances returned to the public authorities again. 4 Demand Drivers Factors, that increase the demand for freshwater. 4.1 Population Dynamics “In the 20th century the worlds population grew threefold and water use six fold - although one billion people have no access to safe drinking water and about 3 billion have no appropriate sanitation” (Serageldin 2001:58). We have the largest population growth especially in arid areas. Additionally there is a tendency to urbanisation. Some of the megacities in the arid areas (e.g. Mexico City (Barlow et al. 2003:35)) have problems to deliver freshwater to the billion of inhabitants. The manner, in which people traditionally develop land, interferes with the natural hydrological cycle. By covering big areas with impervious material, water cannot soak back into the ground and refill surface or groundwater. Not only the population will going to grow also the per capita consumption will increase. Enhancing prosperity in developed countries also leads to increasing freshwater consumption. The more products the residents consume or possess, the higher is their freshwater demand. Notably luxury tourism leads to paradoxical situations. Flowering parks are created in Las Vegas in the desert of Nevada and an evergreen golf course is situated in the middle of Death Valley. 4.2 Growth of agricultural Production At the moment irrigated agriculture is responsible for 70% of all abstractions by humans. To feed the growing population, agriculture has to be more productive and if land is used intensively, freshwater demand increases. The intensive use usually means monocultures and attracts the use of pesticides and insecticides. Both pollute the freshwater and lead to contaminated water. A lot of agricultural practices are still inefficient. Water intensive crops are planted in dry regions (e.g. Spain produces water intensive tomatoes, Burkina Faso cultivates cotton, which also needs a large amount of water for its production). The fields are often irrigated at inappropriate times or with old inefficient systems with a surplus of water (e.g. freshwater is pumped onto crops during the heat of the day) and this leads to salination. For better agricultural management of large areas, parts of landscapes were cut down, rebuilt and recreated (deforestation and Patio cultivation). The result has been soil erosion and loss of topsoil. Additional to that, the remaining soil can no longer bind freshwater and the additional income of agricultural products is decreasing. 4.3 Use of Freshwater in Production Freshwater is used in the manufacturing process as a raw material. It is also used as a solvent for the chemical industry to cool power plants and to leach elements out of different materials (e.g. to get aluminium out of bauxite). With the increase of the industrialisation, the use of freshwater increases too. When it returns to local water systems, it may be of poor quality and needs treatment. Unless adequately treated it threatens the surface and groundwater resources into which it is discharged. 4.4 Climate Change Climate change may increase the problem of regional water scarcity. In arid areas dry seasons can last longer and the average temperature will increase. In the water-rich areas there will be more heavy rainfall and frequent floods. The extremes in both directions will increase. “Also, the melting of glaciers in many parts of the world including the Alps, the Himalayas and the Rocky Mountains is a further water shortage help: Although lead the rivers that are fed by glaciers, first by the melting of more water, but if the glaciers are gone, the water levels will drop dramatically.” (Gmelch 2007) 5 Supply Drivers Factors, which are able to increase the supply of water 5.1 Surface Water Freshwater can also be prepared directly from surface water resources like rivers, lakes and streams. Usually surface water has to get more purification steps than groundwater to become drinkable. Freshwater that is open to the atmosphere can be contaminated with different pollutant. 5.2 Aquifers “Freshwater found beneath the ground is known as an aquifer. (…) The top level of an aquifer is the water table.” (Marks 2009: 47) It is a giant storage basin, placed in different depths. Close to the surface it is able to replenish itself. But there are also prehistoric aquifers build in the Ice Age. They cannot be refilled again. Up to now both types of Aquifers are claimed too strongly. In some coastal areas, intensive pumping of fresh groundwater out of the aquifer has caused salt water to intrude into freshwater aquifers. In the future these water sources of supply will be exhausted. 5.3 Desalination Seawater with different salinity is filtered through coarse gravel and sand filter suspended matter from the seawater. Afterwards a substance, that prevents later minerals fall out like lime and block the membrane pores of the return osmosis units. A high-pressure pump raises pressure of the seawater up to 60 bars. The higher the salinity of the seawater is, the more pressure is necessary. Now chlorine disinfects the water, and sodium is added to raise the low pH factor. Moreover, minerals are added again. A turbine drives the salty concentrate, which stands still under high pressure. The energy generated in the turbine is used for the impulse of the high-pressure pump, which thereby saves electricity. The salty concentrate mostly is led directly in the sea. Then here it may occur to local higher salinities. The procedure is thereby and by the high-energy expenses limited. Mostly it is carried out in areas with a lot of renewable energy. 5.4 Uneven Distribution of Freshwater The distribution of water was always unevenly and it is still. So we differ worldwide between arid, semi-arid and humid areas. The arid and semi arid areas are different in terms of landscape, soil structure, flora and fauna. For a classification a climatic aridity index is used. (compare FAO 1989). “Aridity is usually expressed as a function of rainfall and temperature. A useful “representation” of aridity is the following climatic aridity index: p/ETP where P = precipitation, 
ETP = potential evapotranspiration, (…) taking into account atmospheric humidity, solar radiation, and wind.” (FAO) Also in normally water rich areas there are regional differences, like USA, Russia and Brazil, that have more than 60 % of the worldwide water resources (Compare Csizi:1). The uneven distribution makes the water management substantially more difficult, especially if freshwater seems in vast amounts (e.g. strong rainfall with following floods). Freshwater is to be transported logistically expensive, if there is no available infrastructure. It is heavy and it cannot be compressed. With every final withdrawal out of its watershed, this water is absent in the circulation and the groundwater table will fall. Freshwater can also occur only periodically (e.g. monsoon) and than it is only temporarily in short supply. Since the demand is more evenly distributed, it must be stored for a regular use and processed if necessary. If water is dammed or held in reservoirs, there will be a change in landscape and a loss of vegetation and biodiversity, so in next time the rainfall could take a different course and lead to another regional freshwater scarcity. 6 Some Measures against the Disparity of Freshwater Demand and Supply 6.1 Agricultural Optimisation Farmers can optimise irrigation. Israel has strongly reduced with drip-irrigation the water consumption compared with conventional methods (Damast 2010). The choice of the plantation should be directed after the region and its natural water capacity. Measures should be taken against wide soil erosion (e.g. hedges), then humidity can be held longer in the soil. 6.2 Water saving budgetary Measures Although the private household puts out only approx. 8% of the general water demand, there can be savings. There are e.g. modern toilets, which needs only a fraction of an older model. Flow regulation can be used in taps. Shower in diminished time can substitute proper baths. According to region the garden is invested with undemanding plants and special grass. 6.3 Closed Water Cycles in the Industry Close water cycles are able to use the same water again and again. This water can be cleaned for the production with circulatory water-layout of treatment. This layout exists of three reactors. The loaded water is fermented first in a special tower reactor without air and is thereby cleaned, afterwards decalcified in ventilation reactors. Special attraction: the fermentation gas, which originates with the fermentation in the tower reactor, should supply the layout in future with energy. 6.4 Freshwater and Sewage Treatment “Freshwater resources are further reduced by pollution. Some two million tons of waste per day are disposed of within receiving waters, including industrial wastes and chemicals, human waste and agricultural wastes (fertilizers, pesticides and pesticide residues).” (UNESCO 2003:9) Freshwater is to be received importantly in good quality. This avoids consequential costs in the ecology environment as well as in the health service. With insufficient freshwater processing different man-made pollutants (macrobiotics, pesticides, herbicides, inorganic and organic chemicals and radioactive material) gather in the water, accumulate and contaminate the water pipes. But also the sewage preparation is an important factor. The more cleanly water or sewage is dismissed in the environment the faster and more thoroughly it regenerates in the hydrologic circle. Even in Europe, not all cities have sewage treatment plants at the moment. In developing countries, the purification of water is a major challenge to the respective governments. The problem of disease transmission through contaminated water is also to be considered. 7 Conclusions 7.1 Disparity of Water Demand and Supply Freshwater is a regional in short supply because there are and there will be problems to satisfy everywhere demand for freshwater. So scarcity of freshwater is a local phenomenon with consequences for the whole world. Also climate change will give more pressures on the availability of freshwater. But the most important drivers are demographics and the increasing consumption that occur with rising wealth of the developing and threshold countries, which are mostly in the arid and semi-arid areas. Therefore, freshwater, depending on region, time, and required quantity in an appropriate quality is a scarce good. 7.2 Water Scarcity as a Part of complex Resources Management Water shortage in arid and semi arid areas with high population density has also a lot of other problems. Mostly there is an insufficient water infrastructure. The food situation is problematic with hunger and malnutrition. For expensive water treatment money and know-how is missing. The recovery of water in deep wells is depending on enough electricity, especially when the water table drops. The solution of the problem will take a long time. Access to drinkable freshwater, the nutrition of the growing world population, adequate sanitation for all and water resource protection are normally contradictory. With the assistance of the UN long-term water projects in developing countries should be planned and implemented. These projects need to be supported by the industrialized nations. But on the other hand there is a strong positive link between investment in irrigation, poverty alleviation and food security. http://unesdoc.unesco.org/images/0012/001295/129556e.pdf page 13 The environment has a natural absorptive, self-cleansing capacity. However, if this is exceeded, biodiversity is lost, livelihoods are affected, natural food sources (e.g. fish) are damaged and high clean-up costs result implement. The potential benefits are so great that the political will to introduce new policies must be found. http://www.foodandwaterwatch.org/water/unmeasured-danger-america’s-hidden-groundwater-crisis/ According to non-excludability: worldwide over 1.8 billion people have no access to drinkable freshwater and according to non-rivalry: if freshwater is used too extensive, it In August 2009 the general secretary of UN, Ban Ki-moon, explained the provision of Global Public Goods (GPGs) (and freshwater is one of them) to one of the most important priorities of the 21st century. (compare is of poor quality. Schubert and Bayer:1) Now for the definition of GPGs it is also important to be valid worldwide or nearly worldwide and to be sustained for the next generation Figure 1 Figure 2: Demand and supply curves Figure 3 Bibliography Bardow, Maude and Clarke, Tony, Blaues Gold. München, Verlag Antje Kunstmann, 2003 Czizi,Veronika, “Blaues Gold”, http://www.tagesspiegel.de/wirtschaft/finanzen/blaues-gold/1573082.html# , 2009, accessed October 2010 Damast, Lisa, “Israel's top ten technologies that are transforming the Web“, http://www.israel21c.org/201008178214/technology/israels-top-ten-technologies-that-are-transforming-the-web , 2010, accessed October 2010 Dürand, Dieter, Hohensee, Matthias, Kamp, Matthias, Sprothen, Vera, Müller, Stefanie. “Wird Wasser bald so teuer wie Öl'”, Wirtschaftswoche webside, 2007 http://www.wiwo.de/technik-wissen/wird-wasser-bald-so-teuer-wie-oel-300969/ , accessed October 2010 FAO “Arid zone forestry: A guide for field technicians” - Conservation Guide N° 20, 1989. Gmelch, Dr Heinz, Bayerische Landeszentrale für politische Bildungsarbeit, “Wasser eine knappe Resource.” Bayerische Landeszentrale für politische Bildungsarbeit website. http://www.km.bayern.de/blz/web/700207/1.asp, 2007, accessed October 2010. Informationsplattform humanrights.ch, http://www.humanrights.ch/home/de/Instrumente/Nachrichten/Diverse_Gremien/idcatart_10124-content.html, 2010 Interlandi, Jeneen. “The new oil”. Newsweek, October 18,2010 pp.40-46 Marks, Susan J., “Aqua Shock – The water crisis in America”, New York, Bloomberg Press, 2009 Schubert, Dr Anja, Bayer, Sarah, „Aktueller Begriff -Globale öffentliche Güter“, http://www.bundestag.de/dokumente/analysen/2010/globale_oeffentliche_gueter.pdf, 2010, accessed October 2010 Serageldin, Ismail, “Global Public Policies and Programs: Implications for Financing and Evaluation : Proceedings from a World Bank Workshop”, World Bank Publications, 2001 UNESCO, „Water for people, Water for Life, Executive Summary“. World Water Assessment Programme“, Unesco Webside 2003, http://unesdoc.unesco.org/images/ 0012/001295/129556e.pdf , accessed October 2010 Figures Figure 1: Earth´s Water distribution http://www.sciencelearn.org.nz/var/sciencelearn/storage/images/contexts/h2o_on_the_go/sci_media/images/earth_s_water_distribution/123106-1-eng-NZ/earth_s_water_distribution_full_size_landscape.jpg, accessed October 2010 Figure 2: Demand and supply curves http://www.bized.co.uk/images/equilibrium.gif, accessed October 2010 Figure 3: Global Freshwater resources http://www.unep.org/dewa/assessments/ecosystems/water/vitalwater/13-freshwater-availabil.htm, accessed October 2010 -------------------------------------------- [ 1 ]. Auch das Abschmelzen der Gletscher in vielen Teilen der Welt, u.a. in den Alpen, im Himalaya und in den Rocky Mountains wird zu einer weiteren Wasserverknappung beitragen: Zwar führen die Flüsse, die von Gletschern gespeist werden, zunächst durch das Abschmelzen mehr Wasser, aber wenn die Gletscher verschwunden sind, wird die Wasserführung dramatisch sinken.