Good water quality is vital for human health and biodiversity. The degradation of water resources affects ecosystems, increases water treatment costs and worsens water scarcity. Policies to prevent and manage pollution are essential to safeguard surface water and groundwater, as well as coastal zones. The OECD helps identify the economic and financial costs of water quality degradation and identify effective pollution management strategies. This includes the use of economic instruments, novel financing approaches and adequate monitoring.
Water
Water is essential to life and for the health of ecosystems. Access to plentiful, good quality water resources underpins sustainable and inclusive development. Climate change, biodiversity loss and pollution all create pressures that disrupt the ability of freshwater systems to continue providing ecosystem services, impacting human health and nature but also affecting economic growth and generating financial risks. The OECD helps governments to manage their water resources and deliver water-related services effectively across economic sectors and policy agendas.
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Key messages
The ability to allocate water where it creates most value is a condition for sustainable growth, social equity and environmental performance. The OECD has reviewed water allocation regimes in a range of countries and provides policy guidance on how to improve these regimes so as to make them more equitable and efficient and reflect the distinctive features of different types of freshwater resources.
Ideally, water should pay for water. This means measures for the sustainable financing of water services, infrastructure, management and protection of water-related ecosystems should consider four principles: the “Polluter Pays Principle”, the “Beneficiary Pays” Principle, as well as “Equity” and “Coherence” between policies affecting water resources. The OECD conducts analysis and develops guidance to support countries with the development of appropriate economic instruments that reflect their specific social and economic conditions. Pricing instruments should be used in combination with other tools (e.g., regulations), to manage water resources, including through water conservation, to phase out negative externalities (e.g. overuse, pollution) and improve the financial sustainability of water infrastructure and services while considering affordability constraints for vulnerable sections of society.
Investments are needed to ensure water security, including for the delivery of water and sanitation services, the management of water resources and for tackling water-related risks. These investments are important for public health and social well-being, as well as for protecting ecosystems and strengthening the resilience of economies.
To encourage more large-scale investment, more needs to be done to identify investment needs, improve the investment environment, make the most efficient use of existing sources of finance and assets, and mobilise additional sources.
The OECD facilitates water policy dialogues in OECD and partner countries. The dialogues provide policy guidance on water resources management and the planning and delivery of water services. They align with the OECD Council Recommendation on Water. Policy dialogues are a dynamic and demand-driven process. National stakeholders and experts from across the world contribute to formulating actionable policy recommendations.
Tackling water challenges requires looking at who does what in government. In a nutshell, governance is about managing complexity. OECD evidence shows that solutions to water governance challenges need to be designed to fit diverse circumstances within and across countries.
Context
The use of environmental policy instruments to combat water pollution is growing
The last 20 years has seen an increase in the use of environmental policy instruments to address water pollution. Taxes and fees account for 60% of these measures, underscoring a significant reliance on economic instruments to discourage pollution. Environmentally beneficial subsidies and payments account for 32% of the total and have been on the rise, especially since 2010. This indicates a growing commitment to using positive financial incentives for environmental protection over the last decade, including for addressing water pollution.
Funding for the water sector come from the 3Ts, which can help leverage repayable finance
Financing for all types of water investments can draw from three main sources: beneficiaries (in the form of tariffs, payments for ecosystem services, land value capture or other mechanisms), public budgets (via taxes) or from external transfers (via official development assistance (ODA), philanthropic donations or remittances). These three sources, commonly referred to as the 3Ts as per a terminology coined by the OECD, are essential to bridge any financing gap and bring forward investments through mobilising repayable finance.
The population at risk of water shortage is projected to rise significantly
Beyond temperature increase, climate change is also expected to lead to changes in global water cycles and precipitation patterns. Water demand will also increase, mainly from the energy and industry sectors, as well as from households.
In turn, the number of people experiencing water stress — those living in areas at risk of water shortage — is projected to increase by 40% between 2020 and 2050 (amounting to 1 billion additional people). The greatest increases are projected for Sub-Saharan Africa, South Asia and Middle East and North Africa.
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All life on Earth depends on biodiversity and water. Yet these invaluable natural resources are under increasing threat from multiple pressures caused by human activities. OECD analysis on biodiversity, covering both species and ecosystems, and water supports governments in developing policies that yield greater environmental benefits in a cost-effective and inclusive way.Learn more
Questions? Reach out to us
For more information, please contact Sophie Trémolet, Team Leader, Water team of the OECD Environment Directorate.