A Sustainable Circular Water Economy

Roy Brouwer believes that a sustainable and healthy freshwater future depends on our ability to establish a circular water economy.
 

Everyone knows that water has important value. Humans need water to survive, grow crops, and manufacture goods. Clean water is key to sustainable economic growth. In much of Canada, water is conveniently available – it is delivered directly to most of us through the tap. We don’t have to go out and fetch it like elsewhere around the world.

Easy access to water has made the social and economic values of tap water, source waters, and aquatic ecosystems largely invisible. Moreover, we don’t measure these values, or they are considered intrinsically unmeasurable, and therefore, they are often not adequately reflected in the price we pay for essential water services.

Roy Brouwer explores this challenge in the Global Water Futures (GWF) project titled What is Water Worth?

Most Canadians take water for granted because it appears to be abundantly available, and they are among the largest water users in the world on a per capita basis. Although water prices have been increasing considerably over the past number of years, most Canadians still pay relatively little for their water. Water bills are not based on economic principles that would encourage more efficient water use, and do not typically reflect the total cost of the provision of water services.

Photo: Roy Brouwer, Executive Director, the Water Institute; Professor, Faculty of Arts, Dept. of Economics; University Research Chair in Water Resources Economics.

“Canadians are largely unaware of the important societal value of access to safe and clean drinking water,” says Brouwer, who is the University Research Chair in Water Resources Economics at the University of Waterloo. “We lack incentive structures that encourage more efficient use.”

Despite the apparent abundance of water in Canada, its quality has been significantly declining. This is especially true in the southern, more populated parts of the country where there has been rapid urban, agricultural, and industrial growth, resulting in increased social and economic costs of water use.

How we value water

“We want to better understand the many ways Canadians value water, as well as how these values can be integrated into economic models for decision-making, like cost-benefit analysis, to enable the transition towards a more sustainable, circular water economy,” Brouwer says.

Assigning a monetary value to the benefits of sustainable and efficient water use and management helps raise public awareness. Water pricing, one of the economist’s most important instruments to manage water demand, can be included in a mix of policy instruments that encourage investments in residential and industrial water-saving technologies.

“Water prices that better reflect the true economic, social, and environmental costs of water use are expected to change behaviour and encourage action that puts us on a path towards a more sustainable natural resource use,” says Brouwer. “As long as the price remains relatively low, there is no incentive for a household or industry to reduce their water use and wastewater.”

Helping watershed organizations choose cost-effective water quality solutions

There are many ways to improve overall water quality, including how we manage nutrients through pollution control measures. Nutrient pollution can lead to the eutrophication of a water body, which can cause nuisance and harmful algal blooms. Through another GWF project, Agricultural Water Futures, Brouwer’s team worked with the Grand River Conservation Authority (GRCA) to identify optimal locations – meaning least costly and most effective – for Best Management Practices (BMPs), such as cover crops, buffer strips, and wetland restoration, in the Grand River watershed.

"The GRCA not only gained valuable insights into which BMPs they should prioritize moving forward, but we also learned how much the existing cost-sharing program incentivizes farmers to participate in the program based on their total economic costs and hence how to increase the uptake of BMPs,” says Brouwer.

“Collaborating with the GRCA helped us gain a much better understanding of their water quality program and at the same time highlighted the need for complementary environmental and economic data collection to be able to make informed decisions,” Brouwer says. “The GRCA provided us access to a unique database containing two decades of information on BMP projects, without which it would not have been possible to conduct any meaningful economic analysis.”

Scaling up economic impacts of climate change and pollution control

The work in the Grand River watershed was scaled up to the whole Great Lakes Basin in a third GWF project, Lake Futures. Brouwer and his team used models to compare the damage costs of eutrophication with the costs of possible pollution control strategies, with the goal of reducing costs for Ontario’s economy.

Because Brouwer used a common modelling framework with data from Statistics Canada, this work can be replicated across Canada. As a result, the process was also used in the Saskatchewan River Basin for a fourth GWF project that Brouwer is involved part of, called the Integrated Modelling Program for Canada.

A key feature of this type of hydro-economic model is its ability to account for cross-sectoral relationships in the economy. The model allowed Brouwer’s team to assess, for example, the impact of nutrient reductions in the agricultural sector on other related sectors in the economy of Ontario and the rest of the country. The model was also used to determine the economic costs of climate change if it were to reduce water availability in the Great Lakes.

“Understanding the broader economic impacts of climate change across the economy demonstrates how dependent Ontario and Canada are on water availability in the Great Lakes for water, food and energy security,” Brouwer adds.

Water resources management needs to be informed by the social sciences

Brouwer says solving the global water crisis, including in Canada, requires expertise from multiple disciplines. “We need scientific and technical expertise, but also the social sciences. If we want people and businesses to change their behaviour, we need to not only understand what drives them but also identify what incentives can effectively motivate the necessary change.”

While there are few water economists in Canada, the demand for this expertise is growing quickly. “The research we’ve done through Global Water Futures shows us how economics can play a key role in informing water policy and management,” Brouwer says.

“As water challenges mount, we need to build capacity in Canada to support decision-making that moves us towards sustainable development and improved natural resource management. This will clarify the necessary trade-offs when transitioning towards a more sustainable circular water economy, since this is at the core of economics as a discipline.”