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Water: at What Cost?

AUTHOR: Chilombo (Olga) Priscila EconomicResearcher/Statistician@ RDJ Consulting

The debate over whether water should be considered a public good remains contentious A public good is defined as one that is available to all individuals irrespective of payment. Given that water is a fundamental necessity for human survival, many advocate for its universal availability without cost barriers The United Nation has also since April 2011 proclaimed access to safe drinking water and sanitation as a human right On the other hand, others argue against categorizing water as a public good due to its finite nature and the fact that its use by one individual eventually affects the next person.

In a market economy, the allocation of scarce natural resources such as coal, oil, fish, crops, and timber is typically determined through commercial market trade However, water possesses unique characteristics that make traditional market mechanisms potentially inefficient and inequitable in its allocation. This further raises critical questions about whether water should be classified as a public or private good

Factors Influencing Water Cost

Regardless of its classification, water resources are finite and increasingly scarce in many regions This scarcity challenges the notion of water as a public good Moreover, the supply and management of water requires funds, and this justifies costing water. Below are a few factors that influence the cost of water supply, each playing a significant role in determining the overall expense of delivering clean, safe water to consumers

Infrastructure: Building and maintaining water supply systems such as reservoirs, treatment plants, and distribution networks, require substantial capital investment.

Geographic Variability: The availability of natural water sources varies. Regions with abundant freshwater sources have lower costs compared to arid areas where water must be transported over long distances

Quality and Treatment: The quality of raw water affects the extent of treatment needed to make it safe for consumption. Higher contamination levels necessitate

Economic Policies: Subsidies, tariffs, and government policies play significant roles in determining water pricing, reflecting differing priorities and economic conditions across regions

Water Pricing Differentials Between Urban and Rural Areas

In urban areas, water supply is typically managed by formal utilities operating under municipal or national jurisdictions Urban water pricing mechanisms are often well structured, characterized by metered billing, tariff structures, and subsidies. This is why it is standard to find urban water supply to be more expensive due to the cost of withdrawal, treatment and transportation of water to supply consumers In cases where countries undergo a period of water scarcity or drought, restrictions on daily usage are implemented by the respective water utilities or regulatory bodies via increased tariffs, prohibition of water usage for activities such as irrigation or car washing, and other methods.

An example of this is Tunisia After five years of drought, the country raised its drinking water prices by up to 16% as of March 2024 Small consumers were not affected by this, however, those whose consumption exceeded 40 cubic metres faced about 12% increase (1.040 Tunisian dinars or $0.33 equivalent) per cubic metre, and those whose consumption ranged between 70 and 100 cubic metres per quarter paid 13 7% more (1 490 dinars equivalent) per cubic metre Meanwhile consumers who exceeded 150 cubic metres (including tourist facilities) faced up to 16% price increase per cubic metre (2 310 dinars equivalent).

In contrast, rural water supply systems are often less formalized and more community-managed, requiring minimal fees for maintenance These systems may involve community-based management, flat fee contributions per household, or subsidized/free water supply Rural residents frequently fetch water directly from sources like rivers, wells, or boreholes, incurring little to no cost.

For this, let us take the example of rural areas in Ghana where community-managed water systems supported by NGOs and government initiatives are common In these areas, water pricing is minimal, primarily covering maintenance costs Back in 2010, case study was carried out to find out the average cost of supplying water especially in rural areas of the country. The results showed that “the average annual cost (CapEx, OpEx,

CapManEx, and ExDS) for delivering water services from small town piped water systems ranges from US$ 10 to 14 per capita per year while that for water point sources is about US$ 4 per capita per year. The study revealed that CapEx per capita for the piped water systems is twice that of the boreholes with handpumps when a design population of 300 is used However, for piped schemes, the OpEx per capita increases by a factor of ten (10) and CapManEx by a factor of 100 compared to a borehole with a handpump The cost of water per m3 delivered by the water point source ranges from US$ 0 01 to 0 14 whilst that for the small towns water systems ranges from USD 0 05toUSD1 51”

Conclusion

The debate over whether water should be considered a public good is complex While the ethical argument for universal access is strong, practical considerations of scarcity and economic sustainability pose substantial challenges Effective water pricing strategies must balance affordability, cost recovery, and sustainability. Urban areas require well-structured tariff systems that protect vulnerable populations while ensuring utilities can maintain and expand services. The conversation continues.

Readings:

https://www ircwash org/sites/default/files/Nyarko-2010-Cost pdf https://www tvcnews tv/2024/03/tunisia-increases-drinkingwater-tariffs-by-16-due-to-drought/ https://www un org/waterforlifedecade/pdf/human right to wat er and sanitation media brief pdf

Africa's Fragile States Are Greatest Climate Change Casualties

International partners must support the continent’s most vulnerable countries to adapt to extreme weather or spillovers could become more disruptive

JihadAzour,AbebeAemroSelassie August30,2023(FirstpublishedasIMFBlog)

Climate change poses grave threats to countries across Africa but especially fragile and conflictaffected states. As the continent’s leaders converge on Kenya for next week’s African Climate Action Summit, it is vital that they come up with solutions to support these vulnerable countries

From the Central African Republic to Somalia and Sudan, fragile states suffer more from floods, droughts, storms and other climate-related shocks than other countries, when they have contributed the least to climate change Each year, three times more people are affected by natural disasters in fragile states than in other countries Disasters in fragile states displace more than twice the share of the population in other countries.

And temperatures in fragile states are already higher than in other countries because of their geographical location By 2040, fragile states could face 61 days a year of temperatures above 35 degrees Celsius on average four times more than other countries Extreme heat, along with the more frequent extreme weather events that come with it, will endanger human health and hurt productivity and jobs in key sectors such as agriculture and construction.

A new IMF paper finds evidence that climate change indeed inflicts more lasting macroeconomic costs in fragile countries Cumulative losses in gross domestic product reach about 4 percent in fragile states three years after extreme weather events. That compares with around

1 percent in other countries Droughts in fragile states are expected to cut about 0.2 percentage points from their per-capita GDP growth every year. This means that incomes in fragile states will be falling further behind those in other countries

The more harmful effect of climate events in fragile states is not only because of their geographical location in hotter parts of the planet, but also because of conflict, dependence on rainfed agriculture, and lower capacity to manage risks.

Conflict undermines the capacity of fragile states to manage climate risks For example, in Somalia, the areas most severely affected by food insecurity and hunger due to the prolonged drought in 2021-22 were under the control of terrorist groups that thwarted delivery of humanitarian assistance.

Conflict and hunger

Climate shocks also worsen underlying fragilities, such as conflict and hunger, further exacerbating the effect they have on the economy and people’s wellbeing Our estimates indicate that in a high emissions scenario, and all else equal, deaths from conflict as a share of the population could increase by close to 10 percent in fragile countries by 2060. Climate change would also push an additional 50 million people in fragile states into hunger by 2060

The higher losses from climate events also reflect the dependence of fragile states on rainfed agriculture Agriculture represents close to one-quarter of economic output in fragile states, but only 3 percent of cultivated areas are irrigated with canals, reservoirs, and the like. Rainfed farms are especially vulnerable to droughts and floods Where irrigation infrastructure does exist, it is often poorly designed, left to crumble, or damaged by conflict

In central Mali, for example, floods along the Niger river are partly caused by farmers fleeing fighting and drainage ditches falling into disrepair Sudan’s Gezira irrigation scheme once covered 8,000 square kilometers of fecund farmland but has shrunk to less than half that area owing to poor maintenance

Finally, the higher losses from climate shocks are also because of the lack of financial means. With the financing needed for climate adaptation well beyond what fragile and conflict-affected countries can afford on their own, sizable and sustained support from international development partners both concessional financing and capacity development is urgent to avoid worsening hunger and conflict that can fuel forced displacement and migration.

Policy considerations

For policymakers in these countries, critical interventions include policies to facilitate immediate response to climate shocks, such as building buffers through more domestic revenues, lower public debt and deficits, and higher international reserves The paper indeed finds that fragile countries with such buffers see a faster recovery from extreme weather events. Strengthening social safety nets and leveraging insurance schemes are also key to financing recovery in the case of catastrophic events In addition, fragile countries need to implement policies to build climate resilience over time, including scaling up climate-resilient infrastructure investments

The IMF is stepping up support to fragile states dealing with climate challenges through carefully designed policy advice, financial assistance, and capacity development. Our strategy promotes a deeper understanding of the drivers of fragility, tailoring of programs, scaling up capacity development, and synergies with other partners that work in these countries We are also providing financial support through standard facilities, emergency financing and, more recently, our new Resilience and Sustainability Facility.

These efforts by the IMF and other ongoing initiatives by international partners are still a drop in the big effort needed across the entire international community to protect the most vulnerable The Africa Climate Summit could be a step forward towards generating effective solutions for mitigating the devastating impact of natural disasters and droughts on the continent’s people and economies.

This blog reflects research contributions by Laura Jaramillo, Aliona Cebotari, Yoro Diallo, Rhea Gupta, Yugo Koshima, Chandana Kularatne, Daniel Jeong Dae Lee, Sidra Rehman, Kalin Tintchev, and Fang Yang.

IMFBlog is a forum for the views of the International Monetary Fund (IMF) staff and officials on pressing economic and policy issues of the day. The IMF, based in Washington D.C., is an organization of 190 countries, working to foster global monetary cooperation and financial stability around the world. The views expressed are those of the author(s) and do not necessarily represent the views of the IMF and its Executive Board.

Readings:

https://www.imf.org/en/Blogs/Articles/2023/08/30/afr icas-fragile-states-are-greatest-climate-changecasualties

Flooding: Hydro Electricity as a Control Mechanism

AUTHOR: Grace Kangotue ChiefResearcher/Economist@RDJConsulting

Courtesy:Getty Images

Flooding, a natural disaster affecting millions globally each year, poses significant risks to lives, infrastructure, and economies With climate change increasing the frequency and intensity of extreme weather events, the need for innovative and sustainable solutions becomes crucial Hydropower, traditionally viewed as a renewable energy source, is now emerging as a dual-purpose tool, not only generating electricity but also serving as a strategic control mechanism to mitigate flooding.

Despite goals for full electricity access in countries like Kenya and Rwanda by 2030, over 600 million Africans from across the continent lacked electricity in 2022, with 80% residing mostly in rural areas where national grid extensions are costly. For these populations, solar electricity via mini-grids and standalone systems are said to be the most viable alternative

However, recurring floods from known waterways prompt the question: “can these be leveraged for electricity generation?” The answer to this question is yes, through hydropower.

Defined by the International Renewable Energy Agency (IRENA), hydropower is energy derived from flowing water, which depends on the continuous water cycle to generate electricity In 2022, hydropower globally generated about 4,300 Terawatts hours (TWh) and was a leading renewable energy source. The International Energy Agency (IEA) expects hydropower to dominate until the 2030s

There are different types of hydropower systems which can be used to produce electricity Hydropower plants, particularly those with reservoirs, offer a unique advantage in flood control These reservoirs can store excess water during heavy rainfall and release it gradually, thus preventing downstream flooding. By managing the timing and volume of water release, hydropower facilities can significantly reduce the impact of floods on vulnerable communities while producing clean electricity

As a renewable energy source, the use of hydropower to control floods assist countries to achieve their Sustainable Development Goal 7 (SDG 7), which aims to achieve “affordable, reliable, sustainable, and modern energy” for everyone Hydropower deployment as a flood control can also aid to reduce soil erosion and prevent the destructions of habitats Additionally, economically, the reduction in flood-related damages can save billions in infrastructure repair, agricultural losses, and disaster response costs.

Case Studies and Success Stories

Several regions have successfully integrated hydropower for flood management In China, the Three Gorges Dam on the Yangtze River, which become the world's largest hydroelectric power station in 2012, is also a critical flood control structure. During periods of heavy rain, the dam's reservoir absorbs surplus water, protecting millions of people living downstream.

In the United States, the Hoover Dam on the Colorado River demonstrates another successful application The dam's ability to generate electricity and control water flow has mitigated the risk of flooding in the lower basin, serving electricity needs of at least 8 million people while safeguarding agricultural lands and urban areas alike.

The IEA recommends that countries adopt "climateresilient hydropower stations" to achieve uninterrupted electricity supply, development, climate goals, and minimized socio-economic costs from climate impacts like flooding Therefore, investing in improved reservoir and generation efficiency can help African utilities reduce recovery costs and losses from underutilized hydropower systems.

Despite its benefits, the use of hydropower for flood control is not without challenges Reservoirs must be carefully managed to balance water storage for flood control and water release for energy production Additionally, the construction of large dams can disrupt local ecosystems and displace communities. Innovative designs, such as multipurpose dams and small-scale hydropower systems, aim to minimize environmental impacts while maximizing benefits

African countries currently experiencing floods, such as Angola, Burundi, Kenya, Tanzania, and Zambia, can assess their hydropower stations and implement some of the IEA's highlighted hard measures to maximize their station output while making them climate resilient These measures include strengthening and redesigning hydropower infrastructure, such as increasing dam height, modifying canals or tunnels, optimizing turbine types, enhancing spillway capacities to flush silted reservoirs, and increasing flood defences to protect power stations Moreover, they can explore strategies and regulations that will enhance hydropower stations' resilience

In conclusion, the strategic integration of flooding and hydropower as a control mechanism presents a promising pathway for sustainable energy management. By harnessing the natural flow of water and employing advanced technologies, we can mitigate the impacts of floods while generating clean, renewable energy. This dual approach not only addresses immediate environmental challenges but also contributes to longterm resilience and sustainability. As we face increasing climatic uncertainties, such innovative solutions will be crucialinshapingasustainableandenergy-securefuture

Readings:

https://www.cpc.ncep.noaa.gov/products/international/africa/afr ica hazard pdf https://www iea org/reports/africa-energy-outlook-2022/keyfindings https://www irena org/Energy-Transition/Technology/Hydropower https://www energy gov/eere/water/how-hydropower-works https://www.iea.org/energy-system/renewables/hydroelectricity https://www iea org/reports/climate-impacts-on-africanhydropower/measures-to-enhance-the-resilience-of-africanhydropower https://eros usgs gov/earthshots/three-gorges-dam-china https://eros usgs gov/earthshots/big-dam-big-changes https://powerauthority.org/about-us/history-of-hoover https://sdgs un org/goals/goal7