03/21/2014 12:40 pm ET Updated Dec 06, 2017

Why We Need to Act Now on Risks to Water

By Angel Gurría

Over the past year, Californians have had to ration water as one of the worst droughts in 500 years left water reserves severely depleted. Brazilians have suffered the worst drought in four decades, which dried out the reservoirs of hydroelectric dams. And swathes of southern England have been flooded following the wettest winter in more than two centuries.

We are on a collision course with nature! Households, farmers, industries and ecosystems are increasingly competing for their daily water needs. Global water demand is projected to increase by some 55% to 2050, much of the extra demand coming from manufacturing industries in emerging economies. Groundwater is being exploited faster than it can be replenished and is becoming increasingly polluted. By the middle of the next century, over 40% of the world population - 3.9 billion people - could be living in areas under severe water stress as climate change adds to the pressure from economic and population growth.

At the same time, weather-related disasters have become more frequent over the last three decades. Between 1980 and 2009, such disasters (45% of which were storms, 40% floods and 15% droughts) affected on average between 100 million and 200 million people and caused $50-100 billion per year in economic losses.

But these averages mask extreme situations. In 2002 alone, drought in India and floods and storms in China affected 450 million people. In 2005, Hurricane Katrina caused around $140 billion of damage. The impact on global commodity markets can be significant, as drops in farming yields raise prices worldwide, or when floods disrupt global supply chains, as they have done by hitting electronics and transport industries.

What can be done?

Economist Adam Smith famously pondered the so-called diamond-water paradox. Diamonds are considered vastly more valuable than water, the argument goes, even though we can happily live without polished jewels but we cannot survive without fresh water. Unlike other essential goods, like clothing, shelter or food, we take cheap or even free water for granted. It often takes a crisis, such as a major drought or flood, to spur investment and policy reforms in improving water security.

The OECD advocates a risk-based approach to water security and is calling on governments to speed up their efforts to improve efficiency and effectiveness of water management.

We recommend improving water pricing to recover costs and to reflect the value of water to users and society. This will create better incentives for efficient use, encouraging flexible water allocation mechanisms, improving water governance, investing in innovative storage capacities and restoring the ecosystem functions of floodplains and wetlands.

Water security is not just for domestic policies. International co-operation is crucial to sustainably manage trans-boundary water bodies and river basins. The international community must ensure that access to safe water and sanitation is reflected in the Sustainable Development Goals of the post-2015 Development Agenda.

Already, Australia has pioneered efficient water trading arrangements. The Netherlands is a global reference for flood management, using both traditional engineering and innovative ecosystem-based approaches. In its efforts to rebuild after Hurricane Sandy, the United States is building its resilience to future storms.

History is full of lessons for how water crises could have been avoided or better managed. On World Water Day, this March 22, I urge governments to act now so that history will show that we took resolute action when needed, rather than leave us with costly regrets.

Angel Gurría is the Secretary-General of the Organization for Economic Cooperation and Development.

Find out more about the OECD's work on water.