(Corrects para 11 name to Institute from Agency, Xylem para 12)
By Environment Correspondent Alister Doyle
OSLO Nov 27 (Reuters) - Sharply higher spending on water supplies, twinned with a crackdown on corruption, would yield more than a trillion dollars a year in economic, health and environmental benefits, a U.N.-backed study said on Wednesday.
"Corruption is the elephant in the room" for improved water supplies, said Zafar Adeel, director of the U.N. University's Institute for Water, Environment and Health, which was a co-producer of the report.
The study said investments of $840 billion to $1.8 trillion a year, or up to about 2.2 percent of world gross domestic product, would be needed over 20 years to provide universal access to safe drinking water and sanitation and to improve other services such as irrigation and hydro power.
That would mark a sharp rise from the current $500 billion invested each year but yield benefits of at least $3.0 trillion a year, or more than $1.0 trillion above the highest projected spending, it said.
Benefits would include "direct economic return, livelihood creation, health system savings, and the preservation of nature's ecosystem services", according to the study, which said it was the first long-term estimate for water costs.
Adeel told Reuters the benefit and cost estimates were intended to help debate about water, a sector that faces strains from a rising world population, pollution and climate change.
Almost 2.5 billion of the world's 7 billion people lack access to sanitation, and about 770 million lack safe drinking water, U.N. data show.
The report cited a 2008 study by Transparency International that said about 30 percent of spending on water-related infrastructure in developing nations today is lost to corruption.
Transparency International said, for instance, that aquifers in 90 percent of Chinese cities were polluted because of lax enforcement of environmental laws. In Mexico, it said irrigation subsidies were skewed towards the biggest farmers.
"I've no indications that the fight against corruption, except perhaps for some small cases, has made much progress" since 2008, said Teun Bastemeijer, director of the Water Integrity Network in Berlin, which has ties to Transparency International.
"Much of the impact of this corruption falls on the poor and those without access to water," according to Wednesday's report, produced with the U.N. Office for Sustainable Development and the Stockholm Environment Institute.
Adeel said that companies and aid agencies could try to invest directly in local projects in developing nations, bypassing central governments, to limit the risk of corruption.
Major companies in the water sector include France's Veolia and Suez, and Xylem Inc and GE Water of the United States. All say they try to stamp out corruption. (Editing by Mark Trevelyan)