How is the Water Risk Monetizer different from other publicly available water risk tools?
Several very good water frameworks and tools, such as the World Resource Institute’s Aqueduct Tool and the World Wildlife Fund’s Water Risk Filter, provide a good starting point with quantitative and systematic assessments of water risk. The Water Risk Monetizer is the first tool to place a monetary value on water quantity and water quality risks to estimate potential increases in operating costs and potential loss of revenue to businesses.
Does the Water Risk Monetizer calculate the full value of water and the full business value at risk?
The Water Risk Monetizer addresses business risk related to the price paid for water and revenue dependent on water availability and water quality. There are other water-related business risks and costs that the tool currently does not address quantitatively, for example, the water risk in supply chains, brand reputational loss, etc. If you would like to directly measure and monetize supply chain risks or other business risks, understand the full value of water at your location, or use a more site-specific information to better understand and manage water risks, please contact Trucost.
What is the Water Risk Monetizer / what does it do?
The Water Risk Monetizer is a publicly available online tool that provides actionable information to help businesses around the world understand the impact of water availability (quantity) and water quality to their business and quantify those risks in financial terms to inform decisions that enable growth.
Why is the Water Risk Monetizer vital to addressing global water challenges?
Global water scarcity, a function of quantity (availability) and quantity of clean, freshwater threatens business vitality and demands action. The current cost of water does not account for real and future risk, making it hard to rationalize business decisions to reduce use. In addition, decreasing water availability and declining water quality factors are making it harder for businesses to access the water they need to operate, putting revenue at risk. The Water Risk Monetizer provides valuable, actionable information – risk-adjusted water prices for incoming and outgoing water and calculation of potential revenue at risk – to help businesses better understand risks and potential impacts in order to make more informed decisions around strategies and investments to mitigate water risks and enable growth.
Does this tool advocate for the cost of water to increase in water scarce regions?
Water is significantly undervalued in much of the world. In many high-growth regions of the world, the price of water is inverse to its scarcity. While water prices are increasing gradually in many regions, it is unlikely that market prices will increase to reflect the full value of water based on risk. The Water Risk Monetizer does not advocate for a market price, but rather provides valuable information to help water users understand the full value of water scarcity and water quality risks to their business.
Does the Water Risk Monetizer predict or forecast future water prices?
The Water Risk Monetizer does not predict whether water risks will be realized in a water bill. Water providers set their local prices based on local water availability and water quality, as well as a variety of factors. It’s not possible in a global tool like this to address all those local factors. The Water Risk Monetizer provides risk-adjusted water prices that businesses should use for budgeting, planning, strategy development, and when considering the return on CapEx or OpEx investments for water projects. The water risk premiums should be used as one data point in a comprehensive risk assessment process and is intended to be refined based on local conditions and business particulars.
How is the “Combined Incoming Risk Adjusted Price” calculated?
The combined incoming risk adjusted price is calculated by adding the incoming water bill (USD per year) to the incoming risk premium (USD per year) and dividing by the incoming water quantity (m3). The combined incoming risk adjusted price is the price that would be paid per m3 of water if it included all the currently unpriced benefits that water provides and the future costs of water treatment at a local basin level, taking into account baseline water stress, as defined by the WRI (2016), and local water quality. The combined incoming risk adjusted price is also calculated per unit of facility output. The tool also displays an incoming quantity risk-adjusted price and an incoming quality risk-adjusted price which are calculated by adding the incoming water bill (USD per year) to the incoming quantity risk premium (USD per year) or the incoming quality risk premium (USD per year), respectively, and dividing by the incoming water quantity (m3).
Why does the incoming quality and outgoing quality risk adjusted price not increase with increased water use?
The incoming quality and outgoing quality risk premium calculations use water treatment cost curves to calculate the amount that the facility would need to pay to treat the water. According to the water treatment cost curves used as the basis for the calculation, it is more cost-effective to treat larger volumes of water than smaller volumes of water. As a result, the cost per cubic meter of water decreases as volumes increase. More information on the calculation can be found in the complete methodology paper.
Does the user need to enter facility-specific revenue to calculate potential revenue at risk?
The user has the option to enter facility-specific revenue to calculate potential revenue at risk due to water scarcity. This input is optional. If the user does not enter facility revenue, the Water Risk Monetizer will estimate revenue based on the facility’s industry classification and industry average economic data based on Trucost’s environmentally extended input-output (EEI-O) model. Trucost’s EEI-O model is informed by the US Bureau of Economic Analysis (BEA) data.
How is potential revenue at risk calculated?
Potential revenue at risk is the estimated monetary value of the revenue that could potentially be lost at a facility as a result of water scarcity. Because water is a finite resource that is shared by many users in a water basin, the amount of water that should be available to a facility may be less than what a facility needs. The amount available could also change over time, as water scarcity increases or as a local economy grows. The model estimates the amount of water a facility requires to generate revenue, and compares it to the facility’s share of water in the basin if water were allocated among water users based on economic activity (contribution to basin-level GDP). If more water is required than the basin share of water allocated (as determined by the model), then the facility’s revenue is potentially at risk. The Water Risk Monetizer has a built-in water risk threshold that prevents water withdrawals breaching 20% water scarcity within any water basin.
How does the Water Risk Monetizer address locations currently in a drought?
Global water databases reflect long-term water conditions. Some regions and cities may be experiencing droughts that are not captured in global databases and the tools that use those databases, including the Water Risk Monetizer. As a result, water availability and water quality risks may not reflect that there is currently a drought. To provide additional insights for users, the Water Risk Monetizer has a Drought Scenario feature. This feature provides the user with risk-based water price and revenue at risk results that reflect a drought condition, regardless of long-term water conditions in the underlying water database. If you select the Drought Scenario when entering a facility location, we recommend that you also evaluate your facility under the baseline conditions so that you have a more complete understanding of water scarcity issues. For more information, click on the “Drought Scenario” link beside the “City” field name in the Facility data entry form.
How are the incoming and outgoing water risk premiums calculated?
The Water Risk Monetizer uses scientific models developed by Trucost to estimate incoming and outgoing water risk in monetary terms. The incoming water risk premium is made up of the incoming quantity and incoming quality risk premiums. It looks at the amount and quality of water available at a specific location, the amount of water used by a facility, additional demands on the supply of water and the impact of a facility’s water use on the local water basin. The outgoing water risk premium is made up of the outgoing quality risk premium. It looks at the amount and quality of water discharged by a facility, local water quality thresholds and the impact of water pollution on the local water basin.
The incoming and outgoing water risk premiums are a monetary estimate of the increased price of water, which may be realized by a business as an increase in its operating costs. The water risk premium is calculated based on the full value of water to a facility, as estimated based on local water availability and local water quality
How do risk levels correlate with likelihood of impact?
If a facility has a high or medium risk, the likelihood of increased water costs or revenue loss in the context of site specific issues should be evaluated. In particular, a business should identify local development or growth pressures that may affect the availability of water, the extent to which other water users have plans for growth, whether water subsidies are expected to continue, any plans that the local water agency may have to reassess or review water risks and costs, and other locally specific issues that will factor into the price paid for water and the ability to generate expected revenue.
If a facility has a high or moderate risk, a business should also quantify the full business value at risk related to water. In the water risk premium calculation, the Water Risk Monetizer caps the monetary value of these risks to reflect current market conditions as a way to provide an indication of possible immediate costs of potential risks. The full business value at risk is much higher, and should be estimated at these priority locations because it will help a business set priorities and understand the extent to which local investments are appropriate.
How is the Water Risk Monetizer used / what types of decisions can this information inform?
The information provided by the Water Risk Monetizer can be used to help businesses better understand water risks and the potential implications of decreasing water availability and decreasing water quality on operating costs and revenue at a particular facility. The data provides valuable information to help assess different business models, determine how water costs related to quantity and quality factors may affect growth plans and help inform business goals. The tool also helps users identify high-risk (based on business growth and water scarcity) facilities and includes an investment calculator that users can utilize to model financial outputs to inform and support water investment projects.
Who will benefit from use of the Water Risk Monetizer?
The tool is designed for use by a range of business decision makers, including:
- Business decision makers (corporate level) – individuals and teams setting enterprise business strategy (supply chain, operations, quality, engineering, sustainability)
- Facility and operations managers (site level) – individuals and teams responsible for improving performance at the site level
- Business consultants – third party experts helping to shape corporate strategy and decision making
- Nongovernmental organizations – organizations influencing global water stewardship practices
What is the likelihood that my business will have to pay a water risk premium or experience revenue loss?
The likelihood that businesses will have to pay a water risk premium or lose revenue will depend on a number of local factors, including local water availability and quality, reputational issues related to water, the amount of water required for facility operations and the regulatory framework governing water allocation and pricing. The Water Risk Monetizer calculates likelihood scores as high, medium or low. Facilities with likelihood scores that are high or medium are more likely to pay a water risk premium or experience revenue loss and should take immediate steps to better understand their local situation, including factors like local water subsidies, infrastructure leakage rates and other demands for water in their basin. These businesses should also take immediate steps to understand how investing in water efficiency programs can reduce those risks. The Water Risk Monetizer’s Investment Calculator is designed to help a user understand some of the basic financial implications of water project investments.