Determinants of Industrial Water Demand in Iran and Challenges Ahead

As countries seek higher per capita incomes and economic development, hence water consumption in the agricultural, industrial and domestic sectors is increasing. Due to the water crises, it is important to study the factors that increase water demand. In this regard, the present paper employs the Logarithmic Mean Divisia Index (LMDI) method to analyze the factors affecting changes in the water demand of Iran’s industries. According to this method, changes in water demand (at a two-digit ISIC level) are divided into three factors economic growth, technical coefficient (inverse productivity), and structure of the industry. In the following, demand decomposition with the variable base year (1997-2001, 2001-2007, 2007-2011, 2011-2017) showed that  industrial production has the largest share in increasing water demand and its share has increased from 43% to 80%. On the other hand, the share of water productivity has decreased from 45% to 7%, and the effect is reversed. Changing the structure of the industry also has a somewhat constant share of around 10%. In general, it can be concluded that the increase in industrial production has been the main driving force of the water demand in the industrial sector in Iran. While improving productivity and increasing the share of lower water-intensive industries have not been able to neutralize it, and even their impact has diminished in recent decades. Therefore, a self-sufficient strategy has not been sustainable in terms of water. The current path will lead to an escalation of the water crisis and even a choice between the survival of the industry or the reduction of water stress.