Water Price

There is a saying from the book and movie Memoirs of a Geisha (2005) “Water is powerful. It can wash away earth, put out fire, and even destroy iron. Water can carve its way through stone. And when trapped, water makes a new path.” There is also a famous Chinese proverb about water: “not only can water float a boat, it can sink it also.”

And with global water shortages on the horizon, climate change supporters say an extreme response will be needed from international governments to provide enough drinking water in some parts of the world. The World Bank in a report said that 1.4 million people could be facing water scarcity by 2025. But the Organization for Economic Co-operation and Development (OECD) forecast is even gloomier. It estimates that 47% of the world’s population could face water stress in the same period–equivalent to more than three billion people.

The issue isn’t restricted to countries that typically see temperatures soar like ones in the Middle East. Northern hemisphere nations like the U.K. are also finding themselves in the midst of a drought in some regions, forcing governments to start to take action. The U.K. government, for instance, plans to issue a Water White Paper this December (2011) that will focus on the future challenges facing the water industry and measures to increase protection of river flows during summer months. No one really knows whether this year’s snows and rains in California are providing only a temporary respite from a long dry spell or signaling a return to normal—or at least what much of the developed world considers normal.

Maybe Israel’s entrepreneurial approach to the issue is the way forward. In the recent book “The Big Thirst” Mr. Charles Fishman, makes an interesting argument for a market-based approach to water’s distribution and usage… But the fact remains that water scarcity is now firmly on the agenda of the world’s governments, and isn’t going to evaporate overnight.
“The Big Thirst” offers a torrent of statistics. It is overflowing with stories large and small about water: The average American flushes the toilet five times a day, the author says, using 18.5 gallons of water. That comes to “5.7 billion gallons of clean drinking water down the toilet.” An Australian rice farmer with 10,450 acres uses six gigaliters of water—that’s six billion liters, or enough to hand almost everyone on the planet a bottle of Evian.

Water is a local problem. The wastefulness (and water conservation) has little or no effect on people in other watersheds because water is so difficult to ship. Shipping consumes energy. Energy production generates GHG. Hence a close relationship between water and climate change. Compared to other big problems facing society today, such as finance, climate change, and energy consumption, they are all interconnected in some way. No way out. And water will move to the top of agenda during this decade.

Mr. Fishman predicts that we will arrive at a water solution by putting a market price on water, because in most places today, neither farms nor industry nor residents pay what it costs to develop, purify and deliver water to their faucets. Rather than pay a market price for their water—which would direct the resource to where it provided the most economic value—most users pay a rate set by the government or their water utility, a rate usually aimed only at recouping the portion of the cost not subsidized by the general taxpayer. This distortion tends to keep the retail price of water lower than it would otherwise be where water is scarce, encouraging consumption rather than conservation.

Mr. Fishman asserts that pricing water beyond a basic ration for all would “help fix everything else,” including scarcity, unequal distribution, misuse and waste. Putting the right price on water would stop us from using purified water to flush our toilets or water our lawns, and it would lead us to more aggressively tap our own wastewater—the water from your shower could be used to wash the car or water the lawn. “The right price changes how we see everything else about water.”