The Economic Value of Seawater Desalination—The Case of Israel

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In the decades to come, seawater desalination is expected to be an important source of potable water in water-stressed countries bordering oceans and seas, in particular in regions with fast population growth where further decline of natural freshwater availability is expected due to climate change. Israel, being part of the “thirsty Middle East region”, faces natural water scarcity that was exacerbated by the five-year drought started at 2013. This has led to an ever-growing reliance on alternative water sources, where seawater desalination has been the main source for addressing the shortages. Desalination plants currently provide about a quarter of the potable water supply with plans to expand the desalination capacity. In this chapter, I assess the economic value of seawater desalination which increases the water supply and diminishes the effects of natural freshwater shortages. The analysis employs the Israeli Computable General Equilibrium (CGE) model—IGEM, which estimates the benefit of desalination gained by reducing water shortages that cause an economic loss with impact on the entire Israeli economy. IGEM assesses the impact of water shortages on key economic indicators, where the shortage values are equivalent to the amounts of desalinated seawater—current and planned. The different qualities characterizing the five water types, which account for constraints associated with crop salinity-tolerance and food-safety regulations, are reflected in the model by the constant elasticity of substitution (CES) rates between different irrigation water types. The results reveal that the value of desalinated seawater due to its role in diminishing potable water shortages is about $4 per m3—much higher than its direct cost.