The water banks

For years so-called water banks have been in existence in various countries as a way to avoid price speculation and meet an urgent need to alleviate drought conditions. In this article we tell you about the role of these kinds of mechanisms, how they work, and why they would not be viable in Chile today.

22 June 2022

Given the very real social and economic catastrophe that drought is already causing in different parts of the world, water is undoubtedly one of the most pressing concerns arising from the climate crisis. So much so that it is very likely that in a couple of decades there will be wars over who controls the water. Organizations, including the UN and the World Bank, report that by 2030, some 700 million people could be forced to move due to water scarcity.

In light of the havoc already being wreaked by climate change, the outlook is bleak. Areas that used to be able to maintain their water reserve levels with minimal variations thanks to rainfall or river flow are now facing droughts unprecedented in human history. In the face of this grim reality, water banks have become a valuable tool to alleviate the water stress suffered in some regions of the planet. While this is a tool used in Australia, Germany, Israel, Mexico, Colombia and the United States, the regulatory framework is critical for adopting these types of banks and their transactions.

What is a water bank? “It is an institution for the management of regulated operations for the transfer of rights, i.e. a tool that helps to regulate existing informal practices in this area, in order to create a regulated market for rights, thereby promoting the efficient allocation or reallocation of the resource towards its most productive uses, to promote the integrated and sustainable management of the resource,” according to a paper by María del Mar Borrego-Marín, professor at the University of Seville and Laura Riesgo, professor at the Pablo de Olavide University, as reported in The Conversation, a Spanish media outlet. In general, water banks operate under public law and promote equity in access to water. The ultimate goal is to avoid any kind of speculation involving this precious commodity.

Where and how do they operate? They exist in countries including Colombia, Mexico, Spain, the United States, Australia, and Germany, among others. For example, in Colombia they are known as Bancos Municipales de Agua (BAMA) (Municipal Water Banks) and are systems for capturing, storing and distributing rainwater or surface water sources. “These types of banks are being implemented by the Corporación Autónoma Regional de Cundinamarca (CAR) (Autonomous Corporation of Cundinamarca), for the purpose of meeting priority needs, such as domestic consumption, irrigation systems and fire vulnerability, especially in municipalities or areas that do not have aqueducts. They operate specifically to collect the liquid during the rainy season so that it can be used during times of drought,” says the article published by The Conversation. “Any Municipal Water Bank is fully equipped and fitted to serve as a reservoir for times of drought. In the rainy season, they store the liquid,” explains Carlos Antonio Bello, the CAR’s Director of Evaluation, Monitoring and Environmental Control.

In Mexico, there are currently 653 aquifers, 275 of which are unavailable (42% of the total), and of these, 157 are over-exploited, i.e., sites where new concessions should no longer be granted according to the Ley de Aguas Nacionales (LAN) (National Water Law). The most stressed aquifers are located in the central and northern part of the country. This is a generally arid and semi-arid area that is also home to large agricultural and industrial operations, including mining. “In Mexico, Water Banks currently operate in the 13 Regiones Hidrológicas Administrativas (Administrative Hydrological Regions) managed by the Conagua’s Basin Organizations, and there are also support offices in the Local Directorates,” writes researcher Cuauhtémoc Osorno Córdova in a paper published by the Remexcu blog network.

In Arizona (United States), the option of creating water banks and electronic platforms where the rights to use this resource are publicly sold or leased was also adopted. Arizona is currently considered a world leader in water management, with a management philosophy based on “not losing a single drop,” despite being in the middle of the desert, according to the document “Chilean and foreign experience on water management, its institutional and regulatory support framework,” drafted and submitted by Eduardo Baeza to the Public Works Commission of the Chilean Senate, in October 2021. But achieving this required a change in people’s mentality, Baeza explained. “During the 1960s, the public did not have a culture of responsible water consumption, but the drastic reduction of aquifer levels in the 1970s generated a significant cultural change,” the document explains. “The population was educated and changes were implemented such as no lawns, treatment and reuse of black and gray water, cleaning of contaminated aquifers in the cities and infiltration. Accordingly, Arizona today has water reserves for 200 years,” according to the University of Chile, as cited in Baeza’s text.

The Chilean case. In terms of water issues, our country finds itself at a critical juncture. Not only are there no water banks — because in Chilean water does not have prices which are needed to carry out these types of transactions — we also have another much more serious problem. “There is enormous institutional fragmentation in water matters, which is reflected in the National Water Resources Policy and the more than 42 institutions that are directly related to the management of water resources in the country. This situation has caused serious coordination problems and has hindered an adequate prioritization of resources and mechanisms for better management and administration of water resources,” says Baeza. He goes on to add that “the creation of a permanent inter-institutional coordination body needs to be studied in order to facilitate and lead the coordinated management of water resources, taking into account the unique characteristics of the different regions of Chile.”

The guarantee of water. Water is a right that must be guaranteed worldwide. “It is no coincidence,” reports the El País newspaper, “that two of the 17 United Nations Sustainable Development Goals (SDGs) have water as a central theme. SDG 14 focuses on underwater life, while SDG 6 focuses on ensuring the availability and sustainable management of water and sanitation for all,” the newspaper writes.

The degradation of water resources has many causes, such as “uncontrolled pollution in many places, the intensive use of water to allow the development of our economic activities, the fragmentation of rivers and the occupation of river areas, among others, and climate change adds pressure to a system that in many places has already been under extreme stress for decades,” according to the analysis of Lucia De Stefano, deputy director of the Botín Foundation’s Water Observatory, in El País.

Water is essential for life and survival on earth. But tackling this problem definitively looks like an uphill battle. Cédric Lecamp, manager of the Pictet Water fund, explains to the Spanish newspaper that “the OECD estimates that to guarantee universal access and adequate sanitation by 2030, a trillion dollars must be invested annually, compared to the current US$ 600 billion. The UN further estimates that every dollar invested in drinking and wastewater infrastructure provides US$ 6.35 in long-term GDP growth and adds US$ 2.62 in other industries.”