How much should water cost?
Posted by Daniel Hall on September 30, 2008
Water rates should be designed to fully recover the costs of providing water by charging customers in accordance with how they contribute to the costs. Schedules of water rates that charge customers in accordance with the cost of service would be efficient from the economic point of view, in that the price of a unit of water would be equal to the cost of the resources used to obtain and deliver that water. Further, they would be equitable in that no customer would be required to subsidise any other customer. To sum it up, the dictates of efficiency are clear: water should be allocated so that the marginal net benefit is equalised for all users. If marginal net benefits are not equalised, it is possible to increase net benefits by transferring water from those uses with low net marginal benefits to those with higher net marginal benefits. Again, the pricing of water at the ‘market’ value is the only way to make these determinations.
We need to focus our thinking on water cycles rather than water markets, on human rights to water rather than profits to be made from commoditising a scarce resource. It is our relationship with the ecology of water that has the capacity to sustain water supplies for us and other species. Trade in water can help water markets grow in the short term, but unregulated markets will make our scarce and fast-disappearing water resources disappear ever faster. It is the discipline of ecology and hydrology that we need to guide our efforts at conservation, not the ecological indiscipline of markets.
These are from the opening statements of the debate on pricing water over at Economist.com. The debate continues with contributions from several other participants over the next 10 days.
Here is David Zetland’s excellent (and very active!) blog Aguanomics about water economics and policy. I have added it to the blogroll.