The Economics of Water: connecting the drops

Jan 20, 2025

This week at the World Economics Forum in Davos, Switzerland, the Global Commission on the Economics of Water (GCEW) which I co-chaired alongside Tharman Shanmugaratnam (President of Singapore), Ngozi Okonjo-Iweala (Director General of the World Trade Organisation), and Johan Rockström (Director of the Potsdam Institute for Climate Impact Research, PIK), will be re-launching our final report: The Economics of Water: Valuing the Hydrological Cycle as a Global Common Good. We raise the alarm that the global hydrological cycle is increasingly unstable, and needs urgent global, collective, economy-wide and systemic action.

The world is grappling with an escalating water crisis marked by extremes: too much, too little, or too polluted water. In 2023, devastating floods affected 50 million people globally, while severe droughts left nearly three billion people at risk of water scarcity. Meanwhile, more than 1,000 children under the age of five die daily from illnesses linked to unsafe drinking water. This crisis is not merely local or sectoral; it is systemic, affecting food security, health systems, economies, and ecosystems everywhere.

The hydrological cycle has been destabilized by decades of mismanagement, deforestation, and climate change. Policies have focused too narrowly on visible "blue water" resources, such as rivers and lakes, while neglecting the critical role of "green water"—the moisture in soils and vegetation that sustains half the rainfall over land.

The consequences of this mismanagement are stark and worsening. Globally, total water stored on and beneath the Earth's surface is unstable and declining across areas where populations and economic activity are concentrated. Over half (55%) of the world's food production is now in areas with depleting freshwater supplies, and 60% of the world's population is experiencing declining freshwater storage. The situation is particularly dire in high-population regions like northwestern India and northeastern China, where 38% of people face extreme rates of decline.

By 2050, the combined effects of changing precipitation patterns, rising temperatures, and declining water availability could jeopardize more than half of global food production and reduce GDP by 8% in high-income countries and up to 15% in lower-income nations. These impacts will exacerbate inequality, with the poorest 10% of the global population—those who rely most heavily on land-based precipitation—bearing the brunt of the crisis.

It was in this context that the Dutch Government asked me in 2022 to co-chair the Global Commission on the Economics of Water alongside three amazing leaders: Tharman Shanmugaratnam (President of Singapore), Ngozi Okonjo-Iweala (Director General of the World Trade Organisation), and Johan Rockström (Director of the Potsdam Institute for Climate Impact Research, PIK). We each brought something different to the table: Johan’s groundbreaking research into the new science, Ngozi’s deep insights about trade, Tharman’s understanding of national and global finance, and my new economic framing about the need to shift from a reactive market-fixing mindset to a proactive market-shaping approach.

In 2005, Nick Stern rewrote the economics of climate change with his Stern Review, and in 2019, Partha Dasgupta did the same with the economics of biodiversity. The commission’s work had a mandate to rewrite the economics of water and complete the environmental trilogy.

Our final report, The Economics of Water: Valuing the Hydrological Cycle as a Global Common Good, hopes to usher in a paradigm shift in water economics. Here are the key messages:

It is time to govern the hydrological cycle as a global common good, which means we need systemic, collective, and economy-wide action to address the crisis. First, countries and communities are interdependent through the hydrological cycle - not just transboundary blue water flows, but through green water vapour flows which expand far beyond traditional watershed boundaries. Second, the water crisis, climate change, and the loss of biodiversity are interconnected and exacerbate one another, creating a vicious cycle. Third, the water crisis runs through all SDGs: insufficient food for a growing world population, accelerated spread of disease, and increased forced migration and cross-border conflicts are some of the predictable outcomes. Fourth, water cuts across all sectors. Indeed, water is not a sector. We need an all-of-economy approach to the water crisis because every sector must be part of the solution.
We can turn the tide on the global water crisis if we mobilize systemic, collective, and economy-wide action. Underpinned by a new economics of the common good, we must begin with the outcomes we want to achieve and design our economies to deliver on them. We need to shape our economies to be radically more efficient, equitable, and environmentally sustainable in their water use.
We recommend that governments adopt five critical mission areas to develop a more joined-up, all-of-government response, namely to (1) Launch a new revolution in food systems, (2) Conserve and restore natural habitats critical to protecting green water, (3) Establish a circular water economy, (4) Enable a clean-energy and AI-rich era with much lower water intensity, and (5) Ensure no child need die from unsafe water by 2030.
Governments must design the innovation, partnerships, financing, and the governance of utilities and data to achieve these missions. There are lots of impressive innovations around water storage systems, delivery systems, agriculture practices, and recycling practices that already exist and need to be scaled up. To achieve this scale, the innovations not only need more finance, they need the right kind of patient, long-term finance flowing into the right kind of symbiotic (not parasitic) partnerships.

Tharman and I launched the report at one of the eight official high-level events at the IMF-World Bank Annual Meetings entitled “Financing Water Security: Increasing Investments to Close the Gap Between Water Demand and Supply” (video below). The event also featured opening remarks from Axel van Trotsenburg (Managing Director of the World Bank) and a panel consisting of Vera Daves (Minister of Finance of Angola) and Pavel Isa Contreras (Minister of Economy of the Dominican Republic), among others.

The report has already catalyzed global action. It has received extensive media coverage from top outlets, including the New York Times, The Guardian, CNN, and Bloomberg, to name a few, in part because of the radical new economic framing it sets out. The UN has now appointed its first ever Special Envoy on Water – following a recommendation from the commission’s interim report.

Now our focus is on embedding the recommendations of our final report in the agendas of national governments. For example, we have been working with Prime Minister Mia Mottley and her government in Barbados for the past two years on their economic transformation. 90% of water supply in Barbados comes from groundwater, but with increasing demand and changing rainfall patterns affecting the ability of aquifers to recharge, groundwater depletion is a big challenge for the island. The government is seeking to tackle the country’s food and water insecurity through a mission to “by 2030, ensure that every Barbadian has equitable and reliable access to clean water and nutritious food that is affordable.”

Another example is Mexico, where 70% of its rivers are contaminated and the country is facing droughts with greater frequency and intensity. The newly elected President Claudia Sheinbaum has tasked Alicia Barcena (Secretary of Environment and Natural Resources and former member of the Global Commission on the Economics of Water), with developing a National Water Plan. During my trip to Mexico City in October 2024, President Sheinbaum and Secretary Barcena expressed a strong interest in implementing the commission’s recommendations.

In two years, the world will convene in the United Arab Emirates for the 2026 UN Water Conference. So far, the UN water process has focused on developing a “System-wide Strategy for Water and Sanitation.” It is the job of the commission and our government partners to strengthen the ambition and expand the remit to include not just blue water, but green water; highlight the crucial connections between water, climate, and biodiversity; and consider the local to global implications of the crisis.

My latest policy brief, co-authored with Luca Kühn von Burgsdorff, builds on the GCEW Final Report and highlights the Commission's recommendation to adopt five missions addressing the global water crisis: food systems, natural habitats, circular economy, water efficiency, and water, sanitation, and hygiene (WASH). It explores the four pillars critical for governments to design, develop, and deliver mission-oriented policies that target the most pressing water challenges: mission-oriented policy design, outcomes-oriented tools and institutions, symbiotic partnerships, and dynamic public sector capabilities. Read the full policy brief here.

The Economics of Water: connecting the drops

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