The report emphasizes three ways to mitigate the problems. The first is "better planning and incentives." This involves things like using water prices and permits wisely to ensure water is used for "higher-value" purposes. The authors say that paradoxically, in societies where water is considered free, the poor end up paying more for it.
Second, they advise expanding "water supply and availability," through more dams, water recycling and even sometimes desalination.
They finally advise " 'water proofing' economies" to economic shocks. They advocate crop insurance for farmers and building walls and levees to protect cities from floods.
Richard Damania led the team that wrote the report. He joined NPR's Michel Martin from Colombo in Sri Lanka, a country that has recently experienced water problems of its own, in the form of torrential rain and flooding. He talked more about what the report shows, why economies need water and why pricing water may be better for the world's poor.
Interview highlights contain some extended, Web-only answers.
On what the report shows
I think there are two important things that this report highlights. The first is that ... the major impacts of climate change are felt through water — through the hydrological cycle. Through things like more intense rainfall, droughts, cyclones. Indeed, I'm here in Colombo and it's pouring with rain and there's a threat of floods. There's intense bouts of rainfall which are unseasonal and unexpected. That's one impact of climate change and that's one of the things that the report highlights.
It also highlights that if you happen to have, in some senses, the misfortune of living in an area that's dry, most likely you're going to get even drier because of climate change.
Another important point: We all know that we need water to live. But seldom do we recognize that the economy also needs water. So when you have insufficient water, this also acts as a drag on economic performance and therefore a drag on growth as well.
On how they determined that climate change could cost some regions up to 6 percent of GDP
We combined a model of climate change with a hydrological cycle and fed the results of that model into a very standard economic model — the sorts of economic models that are used routinely by economists. And we had water in that economic model. In most economic models water is actually ignored — we introduced water into it.
And then we fed through what would be the likely consequences of climate change shrinking, shriveling supplies of water on economic growth. If you don't have the water and your business needs water, of course this is going to increase your costs. Costs go up, therefore growth tends to be affected by it. So it's quite logical.
On why many researchers haven't studied water access economics before
I think that's partly because we tend to take water for granted, because we assume that it's so abundant. Once upon a time water was very abundant. Today the world in which we live in, water is no longer terribly abundant.
So all over the world, you have growing populations, growing demand for water. Combine that with more heat, more evaporation of the water, climate change changing the cycle, and we really are set for a somewhat different world to what we've been experiencing in the past and today.
On transferring water from places that have too much to places with too little
What the report tries to emphasize is the following: That, if you have a shortage of water, there's really only three things that you can do. You can try to increase the supply of water, but that's dreadfully expensive, because all of the easy locations for water storage have been used up.
Or you could go to really expensive solutions like desalination or water reuse.
But a lot more effort needs to be spent on managing demand. And we need to manage the demand for water in two ways. One, to be more efficient in how we use water — in other words, not to waste water. And secondly and related to that, we need to find ways of trying to allocate water from low-value-added wasteful uses to more higher-value-added uses that generate more growth and generate more employment.
To put this into context, let me try to give you a list. There's a couple of examples. Today in a lot of countries that are water-scarce, more water is lost through leaking pipes than is actually delivered to people in their taps and in their faucets. I mean, it's quite obvious we need to fix those leaks, though they're quite expensive to fix, but it clearly pays for itself in the long run.
We also observe that in a lot of countries that are awfully dry, we provide them with, say, irrigation, and they tend to grow rice and water-thirsty crops — where really in deserts and arid regions one really shouldn't be growing those water-thirsty crops. And one reason why that happens is because of the allocation of water. So rather than, say, allocating that water to a higher-value crop or a higher-valued industrial use or the city, it goes to something of lower value with lower yields.
So these are the kinds of shifts that need to actually happen. Some are easier to make than others, but they are long-term shifts and we need to start preparing and making them.
On the report's finding that "free water" actually costs the poor money
Let's step back a little. Water is a human right and there's a United Nations resolution about it which declares water is a human right, and requires that water is provided at an affordable price for everyone.
But in a lot of countries where water is provided free, when water is free it tends to be served to those that have the political clout. And as a consequence ... usually the people that have the political clout are the ones that are rich. So the poor are unserved, and they have to go to water vendors. And they typically pay three to four times the price per drop of water than would the person who's either getting the water free or getting the water subsidized.
So we get these perverse effects that occur when no price is attached — at least to water that's delivered to rich homes or to industrial users. It's quite reasonable I think to suggest that as you pay for all inputs when you produce something and make a profit, it's reasonable to also pay for water if you use that as an input into production and make a profit out of it.
On the other hand, we need to be extremely cautious and ensure that everyone gets adequate supplies of water, and there's adequate flows for the environment as well.
What are some examples of countries where this happens?
You can literally pick your country on the map where we have informal settlements — for example, where we have slums. And typically, there are no pipes to the slums — in most cases, nine times out of 10 I don't have to name any country. And you will find that those people in the poor quarters of the city don't have pipes and are unserved or underserved. Even if they have pipes, there's no water being delivered into those pipes. What do they have to do? They have to go to vendors and they have to buy the water.