Water bankruptcy: when the planet starts running out of capital

This is article 1 of 5 in The Complexity Paradox series.

I am a huge sci-fi fan, always have been, always will be. One of my first obsessions was the Dune series, set on the dystopian planet of Arrakis where survival revolves around preserving every drop of moisture. When cinema opened to me Star Wars gave young me an idol in Luke Skywalker, a young man who grew up on a moisture farm, extracting precious water from the desert air of Tatooine. Then when I was a little older, Mad Max came along where control of water is control of civilisation itself.

Sci-fi writers have understood something for a long time. Take away energy and modern life becomes difficult. Take away water and life itself becomes impossible. But that is just sci-fi, right? Maybe not. Science is starting to sound dystopian.

Earlier this year, the United Nations declared that parts of the world have entered an era of "global water bankruptcy". We in the sustainability community have spent decades talking about water stress, water shortages and water crises. All of these terms imply something temporary. Something we can weather. Something we can replenish. Something we can come out the other side when normality returns.

Bankruptcy means something rather different. It means that, in many places, we have been withdrawing water faster than natural systems can replenish it for so long that returning to the old normal may no longer be possible. We have been living off our planet's capital. Rainfall, rivers and renewable groundwater are something like income. Aquifers, wetlands, glaciers and healthy soils are our accumulated natural capital.

For generations we have treated both as though the balance were unlimited. It isn't. Around half of global food production is now concentrated in areas where water storage is declining or unstable. Agriculture accounts for roughly 70% of global freshwater withdrawals. Groundwater supplies more than 40% of irrigation water worldwide.

Much of the global food system therefore rests upon the assumption that tomorrow's water will continue to be available because yesterday's was. And in the world of ever increasing climate the rules no longer apply.

Anyone who has ever run a business where your expenditure remains stable as your income is falling knows where that logic eventually leads. You can disguise deteriorating cash flow by drawing down reserves for quite a long time. The business may look healthy while the balance sheet underneath it gets progressively weaker. Until one day it doesn't.

Water has the additional difficulty that some of the damage is irreversible on any useful human timescale. Overdraw an ordinary bank account and, given enough money, you can replenish it. Overpump certain aquifers and the geological structure itself can compact, permanently reducing its capacity to store water.

This is why "bankruptcy" is much scarier than "scarcity".

Climate change has teeth

There is an old line in climate circles that if climate change is the shark, water is its teeth. It is a useful way of understanding why water deserves far more attention than it receives.

Climate change is often discussed through atmospheric abstractions: degrees of warming, tonnes of carbon dioxide, emissions pathways and dates somewhere between 2030 and 2050.

We experience it rather differently. We experience climate change when crops fail because the rains do not come. When reservoirs empty. When rivers burst their banks. When homes flood. When soils dry out. When food prices rise because harvests have failed thousands of miles away.

A warmer atmosphere can hold more moisture. That intensifies the water cycle. Broadly, dry conditions become more persistent in many already dry regions while extreme rainfall and flooding become more intense elsewhere.

Climate change can give us both too much water and too little of it.

Sometimes in the same place.

Sometimes in the same year.

And this is where an environmental issue becomes an economic and geopolitical one.

Water rarely starts wars. It can make everything else worse

There is a temptation to jump back to the sci-fi source material and to move from water scarcity to predictions of "water wars". History mercifully suggests this is unlikely. Countries have generally proved remarkably capable of cooperating over shared rivers. Thousands of agreements have been negotiated governing transboundary water.

Water is better understood as a threat multiplier. If a country already faces weak institutions, high food prices, inequality, migration pressures and political instability, removing reliable access to water does not improve the situation.

And tensions are rising. The dispute over the Nile provides one example. Ethiopia's enormous Grand Ethiopian Renaissance Dam promises badly needed electricity and development. Downstream, Egypt depends overwhelmingly on the Nile and understandably regards changes to its flow as a matter of national security. Both positions can be rational. That is precisely the problem.

Similar tensions are emerging in America's Colorado River Basin, where historical allocations promised users more water than a changing river system may now be able to deliver. The politics becomes particularly difficult because many water agreements were negotiated around an assumption of hydrological stability.

Climate change is changing the denominator. A treaty can allocate percentages of a river that actually exists. It is much harder to honour fixed promises based upon a river that no longer does.

Britain cannot import its way out of this problem

For a country such as the UK, the obvious response might be that this all sounds rather remote. We live on famously wet islands. But water security cannot be measured simply by looking at the nearest reservoir.

Britain imports a substantial share of its food and many of the products we consume depend upon water used elsewhere. In effect, international trade allows us to import water embedded in food, clothing and manufactured goods. That creates resilience, but it also creates dependency.

A drought affecting a major agricultural region in Spain, India, California or North Africa can quickly become a British inflation problem.

Water scarcity becomes food scarcity.

Food scarcity becomes higher prices.

Higher prices become political instability.

As with energy, the real vulnerability lies not simply in domestic supply but in the interconnected system around us. That is why treating water as the responsibility of an environment ministry alone makes increasingly little sense. It belongs in discussions about national security, economic policy, trade, agriculture, infrastructure and industrial strategy.

And increasingly, technology.

AI meets the physical world

For all the exciting/terrifying (delete according to your own perspective) discussion around artificial intelligence, it is easy to forget how stubbornly physical the AI economy actually is.

The cloud is not in the clouds.

It is enormous buildings full of semiconductors connected to enormous amounts of electricity infrastructure. And those buildings need water.

Data centres can consume water directly through cooling and indirectly through the generation of the electricity they use. Estimates vary enormously according to cooling technology, climate and power source. Much more disclosure is required from the industry.

In Britain, a large proportion of proposed water-intensive data centres are being considered in areas already experiencing, or expected to experience, water stress. The instinctive reaction on either side is not particularly helpful. One camp presents AI as so economically important that environmental constraints become secondary. The other sometimes presents data centres as though every ChatGPT query were personally draining a reservoir.

Neither gets us very far but I will never understand the logic as to why a solar farm needs an environmental impact survey but a data center does not.

The more interesting question is one I have returned to before when writing about AI and climate. What are we actually asking the technology to do, and what resources are we prepared to allocate to doing it?

Using artificial intelligence to identify cancer, improve the efficiency of an electricity grid or accelerate scientific research is not economically or socially equivalent to using vast computing resources to generate an endless supply of disposable digital content.

Yet infrastructure policy rarely distinguishes between them.

We talk about "AI" as though it were a single activity.

That makes about as much sense as discussing the environmental footprint of "transport" without distinguishing between a bicycle and a private jet.

The answer is not to abandon AI.

Nor is it to pretend that its physical footprint does not exist.

It is to govern the buildout intelligently.

That means knowing where data centres are being built, what electricity and water they will require, whether those resources actually exist, and what the cumulative effect of multiple developments will be. We need coherent industrial policy.

Technology will help. It will not repeal hydrology

There are plenty of technological solutions. Data centres can use closed-loop cooling systems and recycled water. Agriculture can deploy precision irrigation, better soil monitoring and less thirsty crops. Wastewater can be treated and reused. Desalination will play an increasing role.

But the lesson of environmental economics is that efficiency alone rarely solves a problem where the underlying resource remains effectively unlimited in its allocation. Make irrigation cheaper and farmers may simply irrigate more land or plant more water-intensive crops.

Make computing more efficient and falling costs may encourage exponentially more computing. Economists know this as the rebound effect.

The lesson is not that efficiency is pointless. Quite the opposite. It is that efficiency works best when combined with boundaries. We need to know how much water can sustainably be extracted from a basin before deciding how efficiently to divide it.

Without the first question, the second merely determines how quickly we consume the remaining resource.

Some of the cheapest reservoirs are beneath our feet

If you are looking for a glimmer of hope in the water story, similarly to the renewables debate, many of the solutions are neither futuristic nor particularly exotic. We know what we need to do and how to do it and much of the resource we need is available.

Healthy soil is one of the world's great pieces of water infrastructure. Increasing organic matter improves the ability of soil to absorb and retain water. Regenerative agricultural practices can therefore improve drought resilience while supporting biodiversity and storing carbon.

For much of the industrial era, we have treated nature as either a source of raw materials or an obstacle to engineering. Increasingly we are discovering that functioning ecosystems are themselves infrastructure.

Wetlands store water.

Forests influence rainfall.

Soils act as reservoirs.

Floodplains regulate rivers.

Destroy enough of that infrastructure and eventually we have to construct extremely expensive artificial systems to replace services nature once provided for free.

Water needs a balance sheet

Perhaps the most important change is therefore conceptual rather than technological.

Governments need to start treating water as capital.

Measure it.

Account for it.

Understand withdrawals and replenishment.

Price scarcity where appropriate.

Protect minimum ecological flows.

And stop approving economic plans that assume water will somehow appear because an Excel spreadsheet requires it to.

This does not mean water should simply be handed over to markets. Access to clean water is a fundamental human need and questions of allocation inevitably involve fairness. But pretending that a scarce resource has no economic value does not protect the poor. Quite often it ensures that the best connected users capture it first.

The financial analogy has another lesson. When companies approach bankruptcy, pretending the liabilities do not exist normally makes the eventual restructuring worse. The same is true of water. The earlier we acknowledge the limits, the greater our range of choices.

The age of abundance is ending

We have built much of modern economic life around an assumption of environmental abundance.

Enough atmosphere to absorb our emissions.

Enough forests to clear.

Enough fish to catch.

Enough soil to degrade.

Enough water to withdraw.

One by one, those assumptions are colliding with physical reality.

This need not lead us to the wasteland of Mad Max or the deserts of Arrakis.

Human beings are remarkably good at solving resource constraints when governments establish sensible rules, businesses are given the right incentives and technology is directed towards the right problems.

But first we have to recognise the constraint.

Water may turn out to be one of the defining economic questions of the coming decades precisely because it sits beneath almost everything else.

Food needs water.

Energy needs water.

Industry needs water.

Technology needs water.

Nature needs water.

We do too.

Water scarcity belongs alongside climate change, energy security and technological competition as a strategic issue. Our institutions need to recognise that fact before the balance finally reaches zero.

illuminem Voices is a democratic space presenting the opinions of leading Sustainability Thought Leaders, their views do not necessarily represent those of illuminem.

The world needs sustainability knowledge. At illuminem, no interest group or shareholder can influence our work. Thank you for supporting our mission to make high-quality and independent sustainability information free for all. Every contribution helps. Thank you for donating today.