Water Scarcity: Is a Global Water Market the Solution?

Davina Nair considers the market response to a global water crisis, and whether regulated and innovative international cooperation would be enough to keep our industries flowing.

Photo by Chuan on Unsplash.

Water is fundamental to the functioning of humanity, its continuous flow is vital not just for the individual but is a prerequisite for the effective operation of the nation state’s agriculture, irrigation and economic industries. The United Nation’s Human Development Report estimated that by 2025, 1.8 billion people will be living in regions of ‘absolute water scarcity’.1 This statistic illustrates the widely acknowledged probability of a global water deficit which is likely to fracture global stability, peace and security.

As we move into this uncertain future, states will be required to create both progressive and innovative solutions to combat the growing increase of precarity experienced within their countries. While there are limitations, the creation of a ‘Global Water Market’ could operate within this environment to alleviate states’ suffering extreme water deprivation.

Currently, water markets, both informal operating without a legal framework and formal operating under regulation, are utilised extensively at a regional level by countries such as Australia, Chile and the United States.2 These markets are owned and operated almost entirely by farmers working within the agricultural industry and are limited to transfers and exchanges within a small radius of their property.3

A ‘Global Water Market’ would see such schemes replicated on a macro level with the creation of a formal market operating between states, in which states experiencing current scarcity could purchase water from states with a current surplus. This would require the system to be a state-owned enterprise as, although many states have established legal frameworks which have distributed water rights to individual users, these remain usufruct rights which are subject to will of the state, who remains the true owner of set rights.4

Under such a scheme, the state would act as a type of intermediary, negotiating water sales in conjunction with other states, and once purchases are made would distribute this to areas of need such as municipal services or could resell it to the agricultural industry. Further, such a system could prove beneficial to developing nations, such as Nepal, who are rich in water resources, in which currently the largest contributor to its GDP is the services industry which relies heavily on tourism, which in the wake of the COVID-19 has drastically contracted.5 Therefore, the creation of a market could create a fruitful opportunity to provide a new source of economic input providing a respite to the detrimental impacts of the pandemic.

“The creation of a global water market could create a fruitful opportunity to provide a new source of economic input providing a respite to the detrimental impacts of the pandemic.”

The implementation of such a large-scale collaborative project will require the establishment of a comprehensive body of international legislation, which will act to establish both the regulations and protocols participating states would be required to follow and would further act as a framework to provide guidelines on how such a system would be implemented. However, establishing a universal guideline for extraction and reallocation principles is foolhardy as each participating state will need to undergo individual assessment on what would be considered “safe” reallocation volumes which do not cause drastic environmental and ecological damage that could occur if not properly controlled.

Furthermore, such a framework should seek to ban the sale of water produced through groundwater extraction, as such practices are both unsustainable and are likely to cause drastic depletion and deterioration of surface water levels. The legislation will also have to provide a framework to assess the accurate pricing of water which is likely to be far higher than current valuation in order to take into account both processing and transporting fees. However, such pricing measures, as have occurred in current regional markets, will likely prompt greater appreciation of the true value of water and help to promote and reeducate the public on conservation efforts.6

There are clear limitations to such a large-scale and ambitious project, particularly the issue of how such a system could operate in states that have transboundary river systems. Currently, 153 countries share transboundary watersheds with neighbouring countries, and while the majority of these systems function under mutual cooperation, there are current systems which do operate under contention. Such a scheme is likely to place further pressure on already strained relationships with riparian states, particularly if upstream states were to participate in the scheme without prior consultations with downstream users, as this is likely to disturb both the flow and volume of water received

While mutual cooperation would be the most beneficial outcome, the reality is this is highly unlikely as currently, these contentious water systems exist without formal agreement on the distribution of water. However, this could provide the monetary incentive for greater steps towards cooperation.

A project of such scale definitely warrants further research, particularly in dealing with issues such as transportation, creating safe quotas in order to ensure protection of the environment, establishing treatment facilities and creating vigorous auditing and oversight bodies.

Ultimately, the establishment of a Global Water Market, while providing an opportunity to both alleviate the position of states dealing with current scarcity and also providing a new market for states to capitalise on, in reality only provides a surface solution to a complex issue.

“Ultimately, the establishment of a Global Water Market only provides a surface solution to a complex issue.”

States will continue to experience higher degrees of precarity and scarcity as a result of water depletion, therefore while solutions such as a Global Water Market can be utilised as a method to divert current water volumes, society as a whole must make a conscious and sustained effort to conserve current water supplies, changing their perception of water from a source which is infinite to rather something that is finite.



1. United Nations Development Program 2014, Human Development Report 2006, HDRO, New York.
2. Horne, A.,  Purkey, A., McMahon, T 2008, ‘Purchasing Water for the Environment in Unregulated Systems – What Can We Learn from the Columbia Basin?‘, Australian Journal of Water Resources, 12, p. 62.
3. Thobani, M 1997, ‘Formal water markets: Why, when, and how to introduce tradable water rights’, The World Bank Research Observer, Vol. 12, p. 162.
4. Brewer, J., Glennon, R.,Ker, A., Libecap, G 2008, ‘ 2006 Presidential Address Water Markets in the West: Price, Trading and Contractual Forms’, Economic Inquiry, Vol. 46, No. 2, p. 93.
5. Karki, B 2020, ‘Nepal’s Economy Is on Edge As Concerns of a COVID-19 Outbreak Loom Large’, The Diplomat
6. Easter, W., Rosegrant, M., Dinar, A 1999, ‘Formal and Informal Markets for Water: Institutions, Performance, and Constraints’, The World Bank Research Observer, 14, p. 100.

Davina Nair is currently undertaking her second year of a Bachelor of International Relations and Politics (Advanced Studies) at the University of Sydney.

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