Charting our water future Economic frameworks to inform decision making London Water Research Group 8 May 2010 Dr Giulio Boccaletti McKinsey & Company
Questions from the corporate boardroom � How big is the “crisis” we face? � Why should today be different? � What does a solution look like? � What needs to happen? 1
Summary � The world faces a significant water resource challenge � Business-as-usual practices will not close the “water gap” � A cost-effective, sustainable solution is possible, but requires economy-wide actions � A pathway towards water sector transformation exists 2
Contents � The world faces a significant CHALLENGE water resource challenge � Business-as-usual practices will not close the “water gap” � A cost-effective, sustainable solution is possible, but requires economy-wide actions � A pathway towards water sector transformation exists 3
Future demand for water will outstrip our capacity to provide it Billion m 3 6,900 -40% CAGR 900 2% 2,800 1,500 CHALLENGE 4,500 4,200 Municipal & 100 Domestic 600 Groundwater 700 800 Industry 4,500 3,500 Surface water Agriculture 3,100 Basins Basins Existing 2030 Existing with with withdrawals withdrawals accessible, deficits surplus reliable, sustainable supply 4
What supply? SOUTH AFRICA - UPPER ORANGE RIVER BASIN Million m 3 , 2005 Surface water Groundwater 8,318 2,283 1,044 -45% 1,239 CHALLENGE 1,149 4,886 4,545 6,981 200 141 3,490 4,788 4,447 1,055 98 1,337 957 98 98 Total Inacces- Inaccessible Accessible Accessible Unreliable Total Transfer Accessible renewable sible environment Supply environment supply reliabl balance reliable supply supply require- (average) require- e local supply after ments ments yield transfers 5
Projected gaps strongly differ by country Surplus and basin in 2030 0 - 25% 25 - 50% Japan Tanzania 50 – 100% Bangladesh Ethiopia 50% South Africa Nigeria Indonesia Sudan 0 CHALLENGE 100% China world India population Russia Mexico Pakistan -100% Brazil Basins in China Basins in India 0.25 25% 0 0 -25% -0.25 -50% -0.50 -75% WFR2 Ganga Pearl Yangtze SEHai SW Brahmaputra WFR1 NW Song Krishna Huang Godavari Huai Liao Indus 6
Where does demand growth Agriculture Industry come from? Billion m 3 Municipal and Domestic Change from 2005 Percent China 178 300 54 532 61 CHALLENGE India 468 58 338 89 40 Sub-Saharan Africa 440 283 320 28 92 Rest of Asia 440 54 243 117 80 N America 326 43 21 181 124 Europe 184 50 12 72 100 S America 95 180 89 68 23 6 MENA 47 99 85 9 Oceania 109 21 28 7 7
Four country case studies Global total; percent CHALLENGE Water Agricultural demand Population GDP production China India São Paulo South Africa Brazil 8 l
China – Water supply and demand gap Gap between existing supply and projected 1 demand in 2030 CAGR Water demand by sector Withdrawals, billion m 3 Percent of 2030 demand 2005-30 Size of gap Percent Surplus Moderate (0% to 20%) 818 Severe (20% to 80%) 1.6% Song 2.7 Northwest 133 CHALLENGE 667 Huang 88 555 2.9 Municipal & 265 68 Domestic 194 Liao Industry 129 0.6 420 385 Agriculture 358 Hai Huai Southwest Southeast 2005 2015 2030 Yangtze Pearl 9
Thermal power Oil refining Manufacturing China – Industrial water Textile Food & beverage Other metals Steel Coal mining Others withdrawal demand in 2030 Paper Chemical Industrial water withdrawals CAGR in 2030 by segment Industrial water withdrawals in 2030 by basin 2005-30 Billion m 3 Percent Percent 3 61 23 20 18 16 14 11 5 1 4.0 CHALLENGE 100% = 265 billion m 3 3.1 5.9 18 31 3 6.0 15 4.0 10 3 7 2 4.5 5 0 7 4.6 1.6 Southwest Pearl Yangtze Northwest Hai Southeast Hai, Luan Huang Huai Liao 10
South Africa – Water supply and demand gap Gap between existing supply and projected 1 demand in 2030 Water demand by sector Billion m 3 Percent of 2030 demand Size of gap Surplus Moderate (0% to 20%) Severe (20% to 80%) 1.1% 17.7 Olifants Limpopo 0.3 0.3 16.3 CHALLENGE 0.3 0.3 Crocodile Luvulvhu-Letaba Commercial 3.6 West and Marico 13.4 3.3 Public Middle Vaal 0.2 0.2 Inkomati 1.8 Households 2.1 1.6 0.6 Upper Vaal Leakage 0.5 1.0 Lower Vaal 2.3 Mining 0.4 UsutuMhlatuze 1.5 0.3 0.8 0.4 0.4 Lower Thukela Manufacturing Orange Power Mvoti to Umzimkulu Olifants/ Irrigation Mzimvubu-Keiskamma 7.9 7.9 7.9 Doorn Berg Upper Afforestation 0.5 0.5 0.5 Orange Breede Gouritz 2005 2020 2030 Fish-Tsitsikamma 11
India – Water supply and demand gap Gap between existing supply and projected 1 demand in 2030 Water demand in agriculture Billion m 3 Percent of 2030 demand Size of gap Surplus 2.4% 1,195 Moderate (0% to 20%) Severe (20% to 80%) 979 361 CHALLENGE Rice 311 656 Indus Wheat Brahmaputra 335 Sugar 219 299 Oil crops 152 WFR 1 2 Maize Ganga 236 132 137 Cotton 87 61 Sabarmati Meghna 101 29 44 37 38 Other crops Mahi 105 28 29 14 74 Subernarekha Narmada Brahmani-Baitarni 2005 2020 2030 Tapi Godavari Mahanadhi Krishna Food 98 96 95 WFR 2 2 EFR 1 2 Percent Pennar Feed 2 4 5 Cauvery Percent EFR 2 2 Net export 5 3 1 Percent 12
Contents � The world faces a significant water resource challenge � Business-as-usual NEED FOR ACTION practices will not close the “water gap” � A cost-effective, sustainable solution is possible, but requires economy-wide actions � A pathway towards water sector transformation exists 13
Business-as-usual approaches will not meet demand for bulk water Billion m 3 Portion of gap Percent 8,000 Demand with NEED ACTION no productivity improvements 7,000 Improvements in 20% water productivity at historical rates 6,000 60% Remaining gap 5,000 Increase in supply 20% at historical rates 3,000 Existing accessible, Today 2030 reliable, sustainable supply 14
Supply measures face a steep INDIA EXAMPLE marginal cost curve Cost of measure USD/m3 Small-scale irrigation infrastructure 0.03 Artificial recharges 0.04 NEED ACTION Wastewater reuse 0.04 Large-scale irrigation infrastructure 0.04 Aquifer re-charge (small-scale) 0.04 Groundwater (deep) 0.06 Municipal reservoirs 0.06 National river-linking project 0.07 Gravity transfers 0.29 Removal of alien vegetation 0.36 Rainwater harvesting 0.38 Desalination (reverse osmosis) 0.76 Desalination (thermal) 0.80 Average Current Marginal cost of cost of cost new supply of new supply supply 15
China – Rising water quality challenges Surface water breakdown by quality level Billion m 3 , percent 2,724 2,436 100% = NEED ACTION Non-usable 18 22 Agriculture, irrigation 6 7 Low-grade industrial usage 12 13 Qualified for potable use 65 58 2002 2006 16
Contents � The world faces a significant water resource challenge � Business-as-usual practices will not close the “water gap” � A cost-effective, sustainable SOLUTIONS solution is possible, but requires economy-wide actions � A pathway towards water sector transformation exists 17
The water availability cost curve is a powerful organizing framework Net marginal cost in 2030 $/m 3 The water gap in 2030 Lever width quantifies net SOLUTIONS impact on water availability Lever height quantifies unit cost ($/m 3 ) Incremental water availability Billion m 3 /year Measures with net Measures with net financial savings financial costs over the over the lifetime of lifetime of the measure the measure 18
The solutions will differ by country Agricultural Supply Industry Municipal & Domestic São Paulo (Brazil) India 0.30 0.10 0.20 0.06 0.10 0 0.02 0.4 0.8 1.2 1.6 2.0 2.4 0 -0.10 SOLUTIONS 250 500 750 1,000 1,250 -0.02 -0.20 -0.06 -0.30 South Africa China 1.4 0.8 0.2 -0.2 1.0 2.0 3.0 0.4 -0.6 0 -1.0 60 120 180 260 -0.4 -1.4 -3.4 19
India – Water availability cost curve Agricultural Industry Cost of additional water availability in 2030 Municipal & Domestic Supply USD/m 3 National river linking Specified deficit project (NRLP) between supply and water requirements Pre-harvest treatment in 2030 Municipal dams Gap in 2030 = 755,800 million m 3 Deep groundwater 0.80 Ag. rainwater harvesting Cost to close gap = USD 5.9 billion Aquifer recharge small Large infrastructure 0.10 Infrastructure rehabilitation Shallow groundwater 0.08 Rain-fed germplasm Wastewater reuse SOLUTIONS Irrigated integrated plant stress mgt. 0.06 Irrigated germplasm 0.04 Drip irrigation 0.02 Incremental 0 availability 250 500 750 1,000 1,250 Billion m 3 -0.02 -0.04 Desalination (thermal) Increase fertilizer use -0.06 Industrial levers Reduce transport losses Desalination (reverse Sprinkler irrigation osmosis) Rain-fed drainage Artificial recharge On-farm canal Irrigated drainage Small infrastructure Rain-fed fertilizer balance lining System of rice intensification Genetic crop development – rain-fed Post-harvest treatment (SRI) Rainfed integrated plant stress mgt. Irrigated fertilizer balance Rainwater harvesting Last mile infrastructure Reduced over-irrigation Genetic crop development - irrigated Municipal leakage No-till farming 20
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