J. Water Resource and Protection, 2010, 2, 1042-1056 doi:10.4236/jwarp.2010.212124 Published Online December 2010 (http://www.SciRP.org/journal/jwarp) Copyright © 2010 SciRes. JWARP Desalination and Alternative Water-Shortage Mitigation Options in Israel: A Comparative Cost Analysis Nir Becker 1 , Doron Lavee 1 , David Katz 2 1 Department of Economics and Management, Tel-Hai College, Upper Galilee, Israel 2 Recanati School of Management and Porter School of Environmental Studies, Tel Aviv University, Israel E-mail: nbecker@telhai.ac.il, doron@pareto.co.il, katzdl@post.tau.ac.il Received September 18, 2010; revised October 20, 2010; accepted November 21, 2010 Abstract Costs for seawater desalination have dropped significantly over the past decade due to technological ad- vances. This has increased the attractiveness of desalination to policy-makers as a means to address water supply shortages. Israel, a country that faces chronic water scarcity, is in the process of developing wide- scale desalination capacity that is projected to supply all of the nation’s domestic water use within a few years. Two issues are often neglected, however, by policy-makers pursuing desalination. The first is that seawater desalination is associated with a number of external costs, consideration of which may influence the optimal scale and timing of desalination implementation. The second is that alternative measures for manag- ing water scarcity, including conservation techniques, are often more cost-efficient. This study estimates the full cost of desalination in Israel, including externalities, and then compares this to the costs of several alter- native options for addressing water scarcity, including both demand management and supply augmentation measures. We find that desalination, despite being the primary policy option pursued by Israel, is among the least cost-efficient of all the alternatives considered, even without taking into account the externalities in- volved. Keywords: Cost-effectiveness Analysis, Desalination, Israel, Water Policy 1. Introduction Annual water consumption in Israel has outstripped the nation’s renewable freshwater supply since major water supply systems were put in place in the 1960s. To supply growing water demand, Israel has looked towards alterna- tive sources, including use of reclaimed wastewater, treat- ment of brackish water, and more recently, large invest- ments in seawater desalination. Israel’s approach to manag- ing water scarcity has focused largely on supply manage- ment rather than demand management. Supply management concentrates on developing additional or alternative sources of water supply, including production of water from mar- ginal sources such as wastewater or seawater or through import of water from other countries. Demand management solutions focus on reducing demand for water, and may include price adjustments, increasing the price of water, introducing trade in water allotments (totaling the available amount of renewable water supply), etc. [1-3]. Two main arguments have been raised in support of supply side management which has led policy makers in Israel to develop plans to increase the amount of water produced beyond the natural renewable level [4,5]: 1) Producing additional water can reduce costs associ- ated with the uncertainty of water supply. 2) Water can be thought of as a “bridge to peace.” Since water is a scarce transboundary resource in the Middle East, a greater supply of available water can re- duce political tensions [6,7]. In recent years, seawater desalination has increasingly been viewed as a basic instrument to solve problems of water scarcity. This is true not only in Israel but in other parts of the world [8-10]. Prior to 2006, Israel produced only about 30 million cubic meters (MCM) annually by desalination (out of a total of more than 1500 MCM consumed). However, in 2006 a desalination plant in the city of Ashkelon began operation, producing over 100 MCM each year. As of 2010, Israel has three large sea- water desalination plants, and a total desalination capac- ity of nearly 280 MCM, over a third of municipal water consumption. The national plan is to increase desalina- tion capacity to between 600-1,000 MCM per year with-