On Wednesday, the Global Commission on Economics of Water (GCEW) released a report highlighting a pressing crisis: if the issue of water scarcity is not addressed, wealthy countries could see their GDP shrink by an average of 8% by 2050, while poorer nations may experience declines of up to 15%. One of the key factors driving this crisis, according to the analysis, is the provision of subsidies that often encourage excessive water use.

The report reveals that nearly 3 billion people and over half of the world’s food production are located in areas where water scarcity is becoming increasingly severe. Regions with high population density, such as Southern Europe, Northeast China, and Northwestern India, are particularly vulnerable to this crisis.

While deforestation and climate change are commonly recognized contributors, the authors of the report identify a lesser-known issue: government subsidies that lead to overconsumption of water.

“Due to misguided incentives and inappropriate policies, water management is often inadequate,” the report states. It points out that subsidies for crops like cotton and sugarcane encourage their cultivation even in some of the driest regions of the world, such as South Asia and the Middle East. Annually, at least $550 billion is spent on harmful agricultural subsidies, with distorting subsidies potentially leading to a loss of 13.2 cubic kilometers of groundwater each year. In comparison, annual water usage for U.S. agriculture totals just 1 cubic kilometer.

Researchers are advocating for a shift in these excessive subsidies towards initiatives that promote water conservation, protect and restore freshwater ecosystems, and ensure that vulnerable communities have access to clean water. They are calling for a reevaluation of water pricing to help mitigate impending risks.

Tharman Shanmugaratnam, co-chair of the GCEW and the current President of Singapore, emphasized that while the global market for water pricing is not yet a topic ready for discussion, countries should move towards pragmatic pricing strategies that take water scarcity into account.