Spain uses its natural water resources intensively, mostly in agriculture, thanks to a highly developed dam infrastructure. The limits for extraction of natural resources have largely been reached and climate change is expected to continue lowering natural water endowments markedly in future especially in dry areas of the country. The costs of exploiting alternative supply sources on a large scale, notably desalination and recycling, remain well above water prices paid by consumers at present. The government has recognised that water policies therefore need to switch to demand management, so as to ensure that available resources are put to most efficient and priority use. Scope for water savings is substantial, especially in agriculture, where much irrigation water generates little output. The government has subsidised the use of more efficient irrigation technology at considerable budgetary cost, which has contributed to a modest reduction of water use in irrigation in recent years. Nevertheless low water prices, combined with the free allocation of water concessions, still hamper an efficient use of water resources. Water prices will need to rise further so as to reflect service provision costs in full as well as the scarcity and environmental costs of water abstractions. Steps to better take into account water scarcity should include the progressive inclusion of market instruments, such as the tendering of water concessions as well as the elimination of some barriers to the exchange of such concessions among users. Benchmark regulation of water utilities would contribute to more efficient water supply and treatment services. Further steps need to be taken to halt excessive groundwater abstractions, including through improved monitoring and the introduction of charges on abstractions from overexploited aquifers.