What’s the value of water?

Ng’ang’a Mbage, a senior manager (transport & infrastructure) at KPMG’s East Africa office, says water should increasingly be viewed as economic infrastructure. Its availability, quality and reliability affect agricultural production, electricity generation, industrial activity and the ability of cities to function and grow.

‘Attracting investment into these sectors will increasingly require countries to understand whether reliable water supply can support new demand alongside existing agricultural, urban and environmental needs,’ he says.

More than measurement

Yet conventional economic statistics do not always show how water availability, use and degradation interact with economic activity. This is where water accounting can help.

Dan Whitaker, senior environmental economist at natural capital accounting advisers IDEEA Group, describes it as ‘a statistical process to organise data on water’, including its sources, the ecosystems that support it, who uses it, how it moves through the economy and the value it creates.

It does not necessarily mean putting a single price on every cubic metre. Water’s value varies by use: as an input to agriculture or industry, as drinking water, and through ecosystem services such as purification and flood and flow regulation.

‘There is not just one monetary value,’ says Whitaker. ‘There are lots of values for lots of different questions you might want to answer, and water accounting is about bringing that all together.’

That distinction matters for policymakers. A tariff or market price records a particular transaction; the economic cost of losing access to water can tell a different story.

Societal cost

For Professor Silvia Ferrini, an environmental economist at University College London and the University of Siena, the focus should be on understanding the consequences of water losses and the marginal costs and benefits of preventing them.

One approach is to estimate what it would cost to recover, replace or conserve an additional unit of water. Businesses might reduce consumption, for example, while utilities could reduce leakage and other forms of non-revenue water.

‘All these costs can provide a good proxy for the value of water, although the benefits for saving water would be the ideal valuation measure,’ Ferrini says.

False precision

Putting a monetary value on water is not straightforward. Its value varies with location, use, scarcity, quality and ecosystem condition, while the available data may be incomplete. That creates a risk of false precision.

‘The fundamental difficulty is that the price paid for water and the economic value of water are not the same thing,’ says Mbage.

‘A tariff may reflect the cost of supplying water, affordability considerations, subsidies and government policy. It does not necessarily reflect what reliable water is worth to a mine or factory that cannot operate without it,’ he says.

Mbage adds organisations should be cautious about presenting one number as the ‘true value’ of water. In many circumstances, scenarios and ranges may tell decision-makers considerably more: ‘What happens if supply becomes less reliable? What would an alternative source cost? What economic activity is at risk? What are the competing demands? And what investment could reduce that exposure?’

The value of water accounts lies in creating a structured evidence base in which assumptions, data limitations and changes over time can be identified.

‘It is one thing for statisticians and economists to just like producing these water accounts,’ Whitaker says. ‘For policymakers, the real task is to identify the gaps in the kind of information we have to be able to effectively manage water within our own economy and in the environment.’

Investment implications

That can have direct implications for investment. ‘The biggest practical benefit would be better prioritisation of scarce investment capital,’ says Mbage. ‘Governments face choices between building new supply, rehabilitating existing infrastructure, reducing leakage, protecting catchments and managing demand.’

Whitaker points to work on groundwater in Abu Dhabi, which has highlighted the emirate’s dependence on a resource being extracted faster than it is naturally replenished and has implications for how water is managed and how economic activity is sustained.

‘Abu Dhabi provides a snapshot of a place which has a small amount of water, a large use for it, and that has identified problems around ground water recharge that they need to work on to support their economic activity,’ he says. ‘Water accounting is a way that they can get that done and get everyone to move forward.’

Evolving framework

The international framework for doing this work is also evolving. The UN’s System of Environmental-Economic Accounts for Water (SEEA-Water) is the main international framework, combining hydrological and economic data on water flows, stocks, supply, use, costs and financing.

Water Accounting Plus (WA+), meanwhile, takes a more spatially focused approach, using remote sensing and other open-access data to produce standardised river-basin accounts of water stocks, flows, consumption and related services.

The approaches are complementary rather than competing. SEEA-Water connects water information with national economic statistics, while WA+ can provide detailed physical information at basin level.

The SEEA itself is evolving. Work on the next revision of the Central Framework is due to be finalised in 2028 and, says Ferrini, is expected to ‘provide international guidance on how the biophysical and economic value of water should be accounted for’.

The next stage

The challenge now is to make water accounting part of the statistical infrastructure of government rather than a one-off research exercise.

South Africa published its first water accounts in 2000 and its statistical programme now includes national and sub-national water-resource accounts as well as accounts for strategic water-source areas. Australia’s National Water Account meanwhile, produced by the Australian Bureau of Meteorology in accordance with SEEA and SEEA-Water, brings together physical and monetary supply-and-use information and provides a continuing time series.

For Whitaker, this continuity is critical. Accounts can be produced at a more granular spatial or temporal scale to capture seasonal changes and local pressures. ‘There is a lot of work that happens that is one individual project that gets some funding from somewhere and disappears,’ he says. ‘Moving to that ongoing process of accounting is the way forward.’