Charting our water future Economic frameworks to inform decision - - PowerPoint PPT Presentation

Dr Giulio Boccaletti McKinsey & Company

Economic frameworks to inform decision making

London Water Research Group 8 May 2010

Charting our water future

1

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?

2

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

3

Contents

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

CHALLENGE

4

CHALLENGE

2030 withdrawals 6,900 4,500 1,500 900 CAGR 2% Basins with surplus Basins with deficits 2,800

• 40%

100

Future demand for water will outstrip our capacity to provide it

Billion m3

Municipal & Domestic Agriculture Industry 4,500 Existing withdrawals 3,100 800 600 Existing accessible, reliable, sustainable supply Surface water 3,500 4,200 Groundwater 700

5

CHALLENGE

What supply?

SOUTH AFRICA - UPPER ORANGE RIVER BASIN Surface water Groundwater

Million m3, 2005

1,055 98 Transfer balance 3,490 Unreliable supply 141 Accessible environment require- ments 200 Accessible Supply (average) 4,886 4,788 Inacces- sible supply Accessible reliable supply after transfers Total renewable supply Inaccessible environment require- ments 8,318 6,981 1,337 2,283 957 98 Total reliabl e local yield 4,447 4,545

• 45%

98 1,239 1,044 1,149

6

CHALLENGE

0.25

• 0.50

SW Song Liao NW Pearl Huai Yangtze Huang SEHai

Basins in China

• 75%
• 50%
• 25%

25%

Krishna WFR1 Ganga Godavari Brahmaputra

Basins in India

WFR2 Indus

• 0.25

Projected gaps strongly differ by country and basin in 2030

• 100%

50%

Surplus 0 - 25% 25 - 50% 50 – 100%

100% world population China India Japan Bangladesh Indonesia Tanzania Ethiopia Nigeria Sudan Mexico Russia Pakistan Brazil South Africa

7

CHALLENGE

Where does demand growth come from?

Municipal and Domestic Industry Agriculture

Oceania 28 MENA 99 S America 180 Europe 184 N America 326 Rest of Asia 440 Sub-Saharan Africa 440 India 468 China 532 Change from 2005 Percent 61 58 283 54 43 50 95 47 109 9 178 338 320 243 181 72 300 89 28 117 124 100 68 54 40 92 80 23 89 85 7 21 12 21 6

Billion m3

8

CHALLENGE

Four country case studies

China GDP Population Water demand Agricultural production São Paulo

Brazil

South Africa India

Global total; percent

9

CHALLENGE

China – Water supply and demand gap

2.7 2.9 0.6 CAGR 2005-30 Percent Gap between existing supply and projected1 demand in 2030 Percent of 2030 demand Water demand by sector Withdrawals, billion m3 667 2005 555 1.6% 818 Agriculture Industry Municipal & Domestic 2030 2015 358 385 420 129 194 265 68 88 133 Southeast Song Liao Huai Huang Hai Yangtze Pearl Southwest Northwest Moderate (0% to 20%) Severe (20% to 80%) Surplus Size of gap

10

CHALLENGE

China – Industrial water withdrawal demand in 2030

Others Other metals Manufacturing Chemical Coal mining Food & beverage Oil refining Paper Steel Textile Thermal power

3.1 5.9 6.0 4.0 4.5 4.6 1.6 4.0 3 5 11 14 16 18 1 23 61 20 3 15 3 10 31 100% = 265 billion m3 Yangtze Pearl Hai Hai, Luan Huang Huai Southeast Liao Northwest Southwest Industrial water withdrawals in 2030 by segment Percent Industrial water withdrawals in 2030 by basin Billion m3 CAGR 2005-30 Percent 18 7 7 5 2

11

CHALLENGE

South Africa – Water supply and demand gap

Gap between existing supply and projected1 demand in 2030 Percent of 2030 demand Olifants/ Doorn Lower Vaal Upper Vaal Olifants Limpopo Inkomati Luvulvhu-Letaba Crocodile West and Marico Upper Orange Fish-Tsitsikamma Gouritz Breede Berg Middle Vaal UsutuMhlatuze Thukela Mzimvubu-Keiskamma Mvoti to Umzimkulu Lower Orange 1.1% Afforestation Irrigation Power Manufacturing Mining Leakage Households Public Commercial 2030 2020 2005 17.7 7.9 0.4 2.3 0.6 1.8 3.6 0.3 0.3 16.3 7.9 0.4 1.5 0.5 1.6 3.3 0.3 0.3 13.4 7.9 0.3 0.8 0.4 1.0 2.1 0.2 0.2 0.5 0.5 0.5 Moderate (0% to 20%) Severe (20% to 80%) Surplus Size of gap Water demand by sector Billion m3

12

CHALLENGE

India – Water supply and demand gap

Gap between existing supply and projected1 demand in 2030 Percent of 2030 demand Water demand in agriculture Billion m3 2.4% Other crops Cotton Maize Oil crops Sugar Wheat Rice 2030 1,195 2020 979 2005 656 98 95 96 Food Percent 2 5 4 Feed Percent 5 1 3 Net export Percent Moderate (0% to 20%) Severe (20% to 80%) Surplus Size of gap 105 44 61 137 38 87 101 132 152 236 299 335 219 311 361 Indus Ganga WFR 12 Sabarmati Mahi Narmada Tapi Cauvery EFR 22 EFR 12 Brahmaputra Meghna Subernarekha Brahmani-Baitarni Mahanadhi WFR 22 Pennar Krishna Godavari 37 14 29 74 28 29

13

Contents

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

NEED FOR ACTION

14

NEED ACTION

Business-as-usual approaches will not meet demand for bulk water

Demand with no productivity improvements Existing accessible, reliable, sustainable supply Today 2030 6,000 5,000 3,000 8,000 7,000 Improvements in water productivity at historical rates 20% Remaining gap 60% Portion of gap Percent Increase in supply at historical rates 20%

Billion m3

15

Supply measures face a steep marginal cost curve Cost of measure USD/m3

NEED ACTION

INDIA EXAMPLE

Marginal cost

• f new

supply Desalination (thermal) 0.80 0.76 Rainwater harvesting Desalination (reverse osmosis) Current cost of supply Average cost of new supply 0.38 Removal of alien vegetation 0.36 Gravity transfers 0.29 National river-linking project 0.07 Municipal reservoirs 0.06 Groundwater (deep) 0.06 Aquifer re-charge (small-scale) 0.04 Large-scale irrigation infrastructure 0.04 Wastewater reuse 0.04 Artificial recharges 0.04 Small-scale irrigation infrastructure 0.03

16

China – Rising water quality challenges

Surface water breakdown by quality level Billion m3, percent

100% = Qualified for potable use Low-grade industrial usage Agriculture, irrigation Non-usable 2006 2,436 58 2002 2,724 65 12 13 18 22 7 6

NEED ACTION

17

Contents

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

SOLUTIONS

18

SOLUTIONS

The water availability cost curve is a powerful

• rganizing framework

Net marginal cost in 2030 $/m3 The water gap in 2030 Measures with net financial savings

• ver the lifetime of

the measure Measures with net financial costs over the lifetime of the measure Incremental water availability Billion m3/year Lever width quantifies net impact on water availability Lever height quantifies unit cost ($/m3)

19

SOLUTIONS

The solutions will differ by country

São Paulo (Brazil) India South Africa China

60 120 0.8 1.4

• 3.4
• 0.4

0.4 260 180

• 0.6
• 0.2
• 1.4

2.0 1.0

• 1.0

0.2 3.0

• 0.06

0.10 750 500 250 0.06

• 0.02

0.02 1,250 1,000

• 0.20
• 0.10

0.30 0.20 0.4 0.10 2.4 0.8 1.2 1.6 2.0

• 0.30

Agricultural Supply Industry Municipal & Domestic

20

SOLUTIONS

India – Water availability cost curve

Cost of additional water availability in 2030 USD/m3

Agricultural Supply Industry Municipal & Domestic

Specified deficit between supply and water requirements in 2030

• 0.04
• 0.06

0.10 0.04 750 500 250 0.80 0.06

• 0.02

0.08 0.02 1,250 1,000 Incremental availability Billion m3 Drip irrigation Irrigated germplasm

Irrigated integrated plant stress mgt.

Rain-fed germplasm Infrastructure rehabilitation Genetic crop development - irrigated Last mile infrastructure Rainfed integrated plant stress mgt. Genetic crop development – rain-fed Small infrastructure Artificial recharge Sprinkler irrigation Reduce transport losses Increase fertilizer use Wastewater reuse Shallow groundwater Large infrastructure Aquifer recharge small

• Ag. rainwater harvesting

Deep groundwater Municipal dams Pre-harvest treatment National river linking project (NRLP) Municipal leakage Rainwater harvesting Post-harvest treatment On-farm canal lining Desalination (reverse

• smosis)

Desalination (thermal) Gap in 2030 = 755,800 million m3 Cost to close gap = USD 5.9 billion Reduced over-irrigation No-till farming Irrigated fertilizer balance System of rice intensification (SRI) Rain-fed fertilizer balance Irrigated drainage Rain-fed drainage Industrial levers

21

SOLUTIONS

China – Water availability cost curve

Cost of additional water availability in 2030 USD/m3

Agricultural Supply Industry Municipal & Domestic

Incremental availability Billion m3 Power: USC Steel: coke dry quenching Paper: white water reuse Paper: intermediate water reuse Textile: wastewater reuse Steel: condensed water cooling Power: condensed water cooling Paper: concealed filtration Commercial building leakage Steel: dry de-dusting No till rainfed Power: wastewater reuse Municipal leakage New showerheads Wastewater reuse in commercial buildings Steel: wastewater reuse Others: waste

• ther reuse

Integrated plant stress mgt. (rain-fed) New faucets Integrated plant stress mgt. (irrigated) Irrigation scheduling Genetic crop development (irrigated) Seawater direct use Dam & reservoir - large Rice Intensification Improved fertilizer balance (irrigated) Retrofit faucets Local water pumping Aquifer recharge Genetic crop development – rain-fed Post-harvest transport and storage Groundwater pumping - shallow Dam & reservoir - small Efficient sprinkler irrigation Improved fertilizer balance (rain-fed) Pipe water conveyance On-farm canal lines Mulching Groundwater pumping - deep Rainwater harvesting Fresh water transfer – intra-basin Drip irrigation Wastewater reuse – municipal/industrial Rain water harvesting – roof top Fresh water transfer – inter-basin New toilets Desalination (RO) Desalination (thermal) – co-located with power plant New laundry machines Power: Dry cooling Retrofit toilets No till (irrigated) Retrofit showerheads Supply/demand gap in 2030 = 201 billion m3 Total cost to fill gap = - USD 21.7 billion Local water conveyance Desalination Thermal - standalone 140 220 240 100 0.6 200 60 40 120 0.8 1.4

• 8.2
• 3.4
• 0.4

0.2

• 0.2

0.4 80 260 160 20 180

Specified deficit between supply and water requirements in 2030

22

SOLUTION

The solutions also differ by country

São Paulo (Brazil) India South Africa China

60 120 0.80 1.40

• 3.40
• 0.40

0.40 260 180

• 0.60
• 0.20
• 1.40

2.0 1.0

• 1.00

0.20 3.0

• 0.06

0.10 750 500 250 0.06

• 0.02

0.02 1,250 1,000

• 0.20
• 0.10

0.30 0.20 0.4 0.10 2.4 0.8 1.2 1.6 2.0

• 0.30

Agricultural Supply Industry Municipal & Domestic

23

SOLUTIONS

In South Africa, the cost increases with different solution mixes and demand scenarios

Endogenous scenario

Accelerated economic growth

Gap 5.4

Exogenous scenario

Climate change

Gap 3.8 2030 gap

• 38

2030 gap 332 2030 gap 750 2030 gap 623 2030 gap 313 2030 gap 266

Solution mix 1 Least-cost solution Solution mix 2 Infrastructure

• nly

Solution mix 3 Agricultural efficiency

• nly

Base-case scenario

Gap 2.9 Net cost of solution, per annum $ Million 2030 gap

• 150

2030 gap 545 2030 gap 249

24

Contents

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 TRANS- FORM

25

Six principles to drive water sector transformation

Accepted, fact-based vision Leadership & institutional alignment Water sector trans- formation Regulatory schemes & incentive design Water technology & solutions development Large user efficiency Private sector investments 1 2 3 4 6 5 Leadership & institutional alignment 2 Regulatory schemes & incentive design 3 Accepted, fact-based vision 1 Water technology & solutions development 6 Private sector investments 4 Large user efficiency 5

TRANSFORM