The report investigates the state of the art, challenges and opportunities of the circular water economy in 10 Latin American countries, namely: Argentina, Brazil, Chile, Colombia, Costa Rica, Honduras, Mexico, Paraguay, Peru, and Uruguay. The circular approach to water management consists of reducing water use in production and consumption processes, enhancing water efficiency, promoting water re-use and recycling, and recovering energy and materials from wastewater treatment. Guided by the OECD Principles on Water Governance, the report evaluates governance gaps and offers policy recommendations to establish regulatory frameworks, financing mechanisms, and capacity-building measures necessary to transition from a linear to a circular water economy.
The Circular Water Economy in Latin America
Abstract
Executive Summary
The circular water economy aims at reducing water use and enhancing water efficiency in production and consumption processes, reusing and recycling water, and recovering energy and materials from wastewater treatment. Globally, three main factors are driving the move towards circular water solutions: megatrends affecting water quality, quantity and infrastructure resilience, such as climate change, demographic growth and rapid urbanisation, heightening water demand and stressing existing infrastructure; technological advancements and digitalisation, allowing circular water business models to become more attractive and viable for water operators; and socio-economic costs of the predominant linear approach of “take, make and dispose”, including impacts on the health and economic welfare of communities and on the viability of businesses dependent on water resources.
The Latin American region faces a complex array of challenges in relation to water resources and services. First, despite having the highest share of renewable water resources globally, the region is highly exposed to the impacts and costs of water‑related disasters such as floods, droughts, and storms. Second, access to safe drinking water and sanitation remains a pressing concern. In 2020, one-quarter of the population in Latin America and the Caribbean lacked access to safely managed drinking water, meaning a reliable, onsite water source free from contamination. Additionally, two-thirds of the population, especially in rural areas, did not have access to safely managed sanitation, which requires private sanitation facilities that safely dispose of or treat waste. Third, 54% of domestic wastewater flow in the region is untreated, compared to 14% in Europe and North America and 42% globally. This lack of treatment leads to medium to extremely high physical water risks, with rural areas disproportionately affected: while 40% of household wastewater is treated in urban areas, only 9% is treated in rural communities.
This report builds on the OECD/Inter-American Development Bank (IDB) Survey on Water and Circular Economy to shed light on the circular water economy and identify the main challenges to the transition in ten Latin American countries, namely Argentina, Brazil, Chile, Colombia, Costa Rica, Honduras, Mexico, Paraguay, Peru, and Uruguay. The survey shows that 8 countries out of 10 consider water scarcity as the main driver to transition to the circular water economy. In addition, 6 out of 10 consider the circular water economy as an opportunity to address water pollution, ensure access to water and sanitation, and adapt to climate change.
The survey highlights that most countries predominantly adhere to a linear model for drinking water supply, sanitation and water resources management. Among the ten surveyed countries, seven have already implemented broad circular economy policies, while Mexico is currently developing one. Encouragingly, six countries – Brazil, Chile, Colombia, Costa Rica, Peru, and Uruguay – explicitly include water resources in their circular economy policies. The survey shows that when water is embedded in circular economy policies, measures mostly relate to reducing water use, reuse and recycling and, to a lesser extent, the recovery of materials and energy. For example, Brazil’s Circular Economy Roadmap emphasises the need to optimise water use through water recycling technologies in both rural and urban settings. In Chile, the Circular Economy Roadmap includes specific measures for water resources, such as drafting a regulation for greywater reuse systems. Costa Rica includes water-related goals in its National Circular Economy Strategy and its Circular Economy Bill, stressing consumption reduction and wastewater treatment. Peru highlights efficient water resource use through initiatives such as the Circular Economy Pact and the National Circular Economy Roadmap.
Three main types of governance obstacles impede the transition towards circular water economies. First, inadequate regulatory frameworks and misalignments within and across policy areas emerge as prominent obstacles in Argentina, Brazil, Costa Rica, and Mexico. Institutional fragmentation and a lack of co‑ordination among actors in water, waste and energy policy hinder the implementation of coherent circular economy initiatives in Paraguay and Peru. Second, insufficient financial resources hinder access to the technologies, infrastructure and capacities required for the reuse of by-products in Chile, Colombia, and Uruguay. Finally, the lack of awareness and education among key stakeholders, including policymakers, operators and civil society, the main barrier for Honduras, underscores the need for targeted outreach and capacity-building efforts to promote circular water management practices.
Building on the Survey results and the OECD Principles on Water Governance, this report presents a Roadmap to transition to the Circular Water Economy in Latin America composed of three key governance areas with 13 concrete actions:
Strengthen regulatory and policy frameworks, by: (1) updating and streamlining regulations, particularly in the areas of material and energy recovery, and explicitly embedding circular economy principles into existing water policies to enhance urban wastewater management, water reuse, and sewage sludge management; (2) integrating circular water criteria into public procurement for by-products, and focusing on identifying and promoting markets for treated wastewater, biogas, and biosolids; (3) encouraging experimentation through regulatory innovation, such as sandbox regulation, allowing for temporary exceptions to current regulatory practices; and (4) adopting a systems approach that mainstreams circular water economy principles across sectors – including water and sanitation, agriculture, energy, urban and regional development, and industry – to ensure cohesive and effective policy alignment.
Adapt financing and economic tools to promote innovative business models, through: (5) assessing and reducing investment needs, prioritising cost-effective measures such as reducing non-revenue water (NRW), which can be more energy-efficient and economical than building new infrastructure; (6) applying a life-cycle approach to investment decisions to reduce operational and maintenance costs while pinpointing externalities and generating revenues through the recovery of biosolids, nutrients, and energy; (7) diversifying financial sources, including engaging the private sector under transparent regulatory frameworks to ensure sustainable financing; (8) collaborating with regional development banks to close infrastructure gaps and promote innovation and research; (9) allocating financial resources to innovation in circular economy practices; and (10) incentivising regenerated materials and energy through economic mechanisms such as tax discounts, environmental taxes, or differentiated tariffs.
Engage stakeholders and build capacity, through: (11) raising awareness and promoting effective stakeholder engagement in circular water practices through transparent communication and dissemination of accurate information, (12) ensuring that water-related decision-makers and practitioners are equipped with the skills needed to shift the paradigm; and (13) strengthening transparency and accountability of circular water systems and related data by quantifying key metrics such as NRW, water savings from conservation techniques, volumes of treated wastewater reused, recovered sludge repurposed as fertilisers, and energy savings achieved through recovery during treatment.
