The Economics of Water

Valuing the Hydrological Cycle as a Global Common Good

The Hydrological Cycle

Water is essential for life. It moves in complex, often invisible ways, all around us. And this water is under threat.
On its trajectory through the air, from source to sink, water connects every creature on the planet.

Freshwater on land can be differentiated into blue water and green water.

Water found in rivers, lakes, and aquifers is known as blue water. And under our feet, soils hold moisture essential for plants to grow. We call this green water. These plants release green water vapour back into the atmosphere.
Green water that flows from plants, and water that evaporates from land, lakes, and the ocean eventually falls as rain, snow or hail. It seeps into the soil, runs into rivers, lakes, and the ocean, and continues its journey forming the hydrological cycle.

Water released into the air forms large flows of moisture that travel overhead, before returning to the Earth's surface, sometimes thousands of kilometres away.
The movement of green water (also called terrestrial moisture flows) creates interconnections between source areas (where rainfall originates) and sink areas (where rainfall lands).
Green water is often overlooked, but the interconnectedness of the hydrological cycle means that deforestation, agricultural or urban expansion in one area can disrupt rainfall in another. This is important since almost half of the rain falling over land originates from green water. That is, from ecosystems on land.
Water travels long distances; its movements as moisture stretch across the world beyond national boundaries and continents and link communities, nations and regions. Like many river basins and aquifers, atmospheric moisture flows are transboundary resources, carrying water from one country to another, across continents and oceans.
Water is an essential economic input and our economy is a thirsty system. Stable rainfall patterns, groundwater tables for agriculture and industries, and other forms of water along the cycle sustain all economic activities. But while large and ubiquitous, the hydrological cycle, as we know it, is also fragile. Collectively, humanity's actions are pushing the hydrological cycle out of balance. Climate change, shifts in land use, overconsumption and other human activities have disrupted this vital cycle locally, nationally, regionally and even globally.

There is a vast, interconnected network of atmospheric water exchanges that span the entire planet. Every person, place and country is part of this network, receiving water flows and regenerating water stocks through the global water cycle.

In the map below, you can explore how green water flows connect countries across the globe. Country-to-country atmospheric moisture exchanges have been mapped and their volumes quantified to show how the freshwater cycle connects countries around the planet. Click on a country to view its imports and exports of moisture.

Moisture Flows

All water flows between countries and oceans
All water flows between countries
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How to read this graphic

DirectionOriginThickness*15000 km³ per year0.5km³ per yearOceanCountry*flows under 0.5km³ not shown.Note: The line widths in the legend are not to scale with the graphic,but the ratio of the line widths remains the same.EvotranspirationPrecipitation

The latest science behind green water flows therefore suggests that while the known local and transboundary dimensions of blue water remain, the regional and global dimensions of green water require further collaborative investigation across all countries and regions.

Managing water as a resource is more than a local matter.

The growth in consumption and changes in land use and pollution globally are impacting the quantity and quality of freshwater resources locally. Climate change, deforestation, and loss of biodiversity are mutually reinforcing drivers of shifts that are causing imbalances in the water systems, and changing rainfall patterns— the source of all freshwater.

What is happening to our water?

We feel the impact of a disturbed hydrological cycle with the increasing frequency and severity of droughts and floods around the world, but also through interconnected shifts in the amount of water available locally (even though globally, the amount of water remains the same).

The following maps show data from agronomy, hydrology, modelling, and satellites to highlight the global water crisis characterised by imbalances in water storage and their potential risks to society. You will discover the importance of rain originating from land for livelihoods and some of the most important challenges facing the hydrological cycle, as well as the rising vulnerability and exposure to water risks.

Swiping Moves
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Terrestrial Moisture Recycling

The science of atmospheric moisture flows expands our understanding of how water moves, and how rainfall is determined by local actions not only where rain falls, but especially where it originates. Degrading natural habitats in favour of agricultural or urban expansion affects rainfall in other parts of a country or distant regions. This is in turn causing water scarcity to spread to new regions of the world and worsen in regions where water is already scarce.
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Deforestation

Atmospheric moisture flows originating from land are critical to our economy and forests are key contributors. Clearing forests can therefore result in significant losses in economic growth, suggesting that the consequences of deforestation have been gravely underestimated.

Alarmingly, many forests, including the Amazon, Congo and Sundaland rainforests, are facing deforestation. Agricultural expansion is the main driver. Many lower-income areas receive a large portion of their rainfall from deforestation hotspots and are therefore at great risk of declines in rainfall, which will have disastrous consequences on their economy.

The water crisis is therefore deeply intertwined with the global and systemic issues of biodiversity loss and desertification. Protecting and restoring ecosystems, preserving intact forests, and promoting sustainable land management and agriculture practices are vital for stabilising the hydrological cycle and require global coordinated efforts.
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Deforestation Hotspots

Spreading Aridity

The socioeconomic impacts of water scarcity are already enormous and are likely to become more severe in places where high demand and vulnerable populations overlap. Aridity indices reflect the degree of dryness of an area and are simple and effective indicators of physical water scarcity. When combining the degradation of ecosystems with climate change, arid areas are spreading and there is increasingly less water to satisfy the thirst of communities and ecosystems.

Practices which increase the retention of green water, as moisture in soils, effectively increase their resistance to drought and help shield economic growth.
Average Monthly Aridity Between 2003 to 2019
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Depleting Groundwater

Communities and economies rely on groundwater for agriculture, industry and drinking water, particularly in places where green water is naturally scarce. But pollution and over-abstraction of groundwater primarily for agriculture and industry have led to a significant decline in water tables worldwide. This not only reduces immediate water availability but also endangers long-term water availability, as these aquifers can take decades or even centuries to replenish.
Groundwater Depth
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Evolution of Total Water Storage

Scientists refer to the amount of water held on and below ground, including rivers, soil moisture, groundwater and ice, as Total Water Storage (TWS).

Trends in TWS have varied manifestations and impacts across locations. When TWS in a place decreases, it signals an overall loss of available water locally, potentially resulting in scarcity. In others, water could accumulate, potentially leading to adverse impacts such as flooding.

Globally, the gain in TWS is outweighed by declines in many places across the world. Furthermore, where there is intense agricultural irrigation, it decreases even faster. This trend is threatening over half of global food production.

This map signals where urgent action is most needed.
Total Water Storage Trend
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Water Scarcity Hotspots

Globally, total water stored on and beneath the Earth’s surface is unstable and declining across areas where populations and economic activity are concentrated, and crops are grown. About two out of three people globally (61%) live in areas where total water storage is declining, and more than a third (38%) live where it is diminishing at extreme rates. Highly populated areas, including northwestern India, northeastern China and south and eastern Europe, are particularly vulnerable.
Water Stressors
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Vulnerability

At the heart of these worrisome trends is the need to recognise the connection between environmental sustainability, social equity, and economic efficiency.

Low-income areas receive a large portion of their rainfall from deforestation hotspots and are therefore at greater risk of declines in rainfall. Overall, the socioeconomic impacts of water scarcity are likely to be more severe in places where high demand and vulnerable populations converge. Demand for water is typically higher in densely populated regions and where agriculture is the primary economic activity. At the same time, low-income households have less means to build resilience and adapt to growing water scarcity.

GCEW in its report reveals the hidden potential of blue and green water protection and conservation for growth impact.
Social Stressors
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Why does water matter for our economy?

The global hydrological cycle supports and influences our economies at every level. Food systems, industry, energy production, hygiene systems and data centres all hinge on a reliable supply of water.

But today, the demands of our economies, industries and societies are breaching planetary boundaries, causing physical changes to the water cycle, consequently increasing the uncertainty of rainfall patterns and depleting freshwater resources locally, in numerous, interconnected ways.

In fact, many economic activities are already struggling with declining freshwater availability.

The Global Commission simulated what will happen to the Gross Domestic Product (GDP) if we do not collectively act to stabilise the water cycle. Results are clear: the situation will only get worse, with devastating economic, environmental and humanitarian consequences.
The combined effects of changing rainfall patterns and rising temperatures due to climate change, together with declining Total Water Storage and lack of access to clean water and sanitation could see the median GDP in high-income countries shrink by 8% by 2050 on average. This will cause massive cascading disruptions to the global economy.
Lower-income countries, faced with the combined effects of climate change and dwindling water resources, could face an even steeper drop in GDP of between 10% and 15%.

These nations’ economies are heavily reliant on agriculture and other water and climate-sensitive sectors are vulnerable to the economic shocks caused by extreme weather events and water scarcity. The result is a vicious cycle of poverty, slowed development, economic instability and increased vulnerability to future climate impacts. The cost of inaction far exceeds the cost of taking action today and the opportunities it will bring.

The water challenge becomes even more pressing when we recognise how much water each person needs daily to live a dignified life. The Global Commission offers a new perspective on just access to water: While 50 to 100 litres per day is required to meet essential health and hygiene needs, a dignified life – including adequate nutrition and consumption – requires a minimum of about 4,000 litres per person per day. Most regions cannot secure this much water locally. Although international trade can help distribute water resources more equitably, it is hampered by misaligned policies and the water crisis itself.

The water crisis demands bolder, more systemic thinking, and a recast of current policy frameworks, recognising what the science tells us, and reshaping our economic and governance systems.

We must reframe our approach to water.

A vision for the future

The Global Commission on the Economics of Water presents a framework to drive radical change in how water is valued, governed and used. At its centre is the recognition that the hydrological cycle is a global common good, which we can safeguard through concerted action and collaboration across sectors and scales, from local to global.

The new economic framing should shift from fixing negative externalities after the fact to shaping economies so that water is allocated and used efficiently, equitably, and sustainably from the start. Indeed, markets across our economies – from agriculture and mining to pharmaceuticals, energy and semiconductors – must be reshaped to achieve this.
We must begin with what we are trying to achieve - the outcome - and work backwards through what this means for the economy and its components.

Radical transformation of the economics of water will require a mission-oriented approach placing water-related challenges at the core of sustainable and just transitions.
We can and must succeed in tackling five missions that address the most important and interconnected challenges of the global water crisis.

1. Launch a new revolution in food systems

2. Conserve and restore natural habitats critical to protect green water

3. Establish a circular water economy

4. Enable a clean-energy and AI-rich era with much lower water intensity

5. Ensure that no child dies from unsafe water by 2030
To successfully tackle these five missions, the Global Commission has identified key enablers – partnerships, finance, data and global water governance – to catalyse action.

This paradigm shift requires the participation of all stakeholders, from local to global, with new commitments from actors across the economy, and new roles for government. It also requires a combination of policies that will help reflect the benefits water brings, improve climate resilience and increase equity.
By combining the five missions and key enablers, the Global Commission has devised a net to pull the hydrological cycle back into a stable state and lay the foundation for a sustainable water future.
The Global Commission’s findings recognise that economic instruments such as pricing, subsidies and other incentives, must ensure that water is used and managed more equitably, sustainably, and efficiently in every sector.

Another fundamental new step in water economics is to consider absolute limits on the global consumption of water for both blue and green water to keep the local, regional and global water cycle in a stable state.
This new framework for water economics offers an opportunity to reset our relationship with water, to drive economy-wide innovation and prosperity; to forge a new social contract among all stakeholders, with justice and equity at the centre.

The Global Commission's recommendations are only a beginning of a global water cycle revolution. This journey must involve continuous deliberation and collaboration with all stakeholders, including youth, women, marginalised communities, and the Indigenous Peoples and rural communities, who are at the frontlines of water conservation.

Today, collectively, we have an opportunity to stabilise the hydrological cycle and safeguard our future. The time to act is now.