Let's consider water, perhaps the most precious resource that sustains our lives, next to oxygen in the atmosphere. Fresh water is a finite resource needed by every living organism on a daily basis. Despite occasional droughts, we have taken its availability for granted for a long, long time. Our assumption that water will be accessible for everyone's unlimited uses at near benthic prices needs refreshing.
I believe that California's current
drought is caused in large part by market failure in the water market. This
failure is a fine example of a liquid "Tragedy of the Commons" in the
making, coupled with misguided government policies. These policies have allowed
the price of water to be too low for way too long. Simply put, the price of
water that's charged to users everywhere – including you and me– usually does
not cover the private or social-environmental costs of providing it. For example, analysts have estimated that over
the years farmers have paid just
15% of the capital costs of the federal system that delivers much of their
irrigation water.
At such prices the quantity demanded
exceeds the available supply, primarily in (but not limited to) recurring drought
conditions. Federal government subsidies for agricultural water use in the US –
which accounts for over 75% of all freshwater use in California – reach a
staggering $4.2
billion to landowners since 1997.
The market for freshwater in
California and elsewhere is highly regulated by public agencies. But the
regulated price of water has never reflected the actual private cost of using
it. Public regulation and sizeable subsidies have kept water prices very low,
so there has long been over-consumption and inefficient usage. Generations of
residential and non-residential water users have benefited from these
continuing subsidies, which we are barely aware of. That is, until they
disappear.
The Irish are rebelling at having to actually pay for the
water they use for the first time. A growing number of Irish citizens have
assembled in large protests against their government's plan to begin charging
many of them a flat $285/year fee for their water consumption. That works out
to less than $24/month. In the face of stiff and vocal resistance, the
government rapidly abandoned their initial plan to install water meters to
determine how much to charge each customer. The flat-rate $285/year price was
recently sweetened when the Irish government provided households with a €100
(~$109) payment as an inducement for households to register for the water fee.
Despite the offer, few households have registered.
Meanwhile back in parched California
where our now 4-year old drought continues, the idea of a residential customer paying
a mere $24 a month for whatever amount of water you use seems downright cheap,
especially for folks whose water use is actually metered. Over 250,000 water users in California do not even
have meters to determine their actual water usage. These unmetered customers
are charged a flat fee, sometimes as low as $20/month. Cities and areas where
unmetered water usage is significant include South Lake Tahoe (62% unmetered), Merced (52%) and Sacramento
(47%).
Today (Apr 1st) marks the end of the
"water-year" in terms of measuring seasonal rain and snowfall in
California. This past year has been as dry as previous years in our continuing
drought. How bad is our current drought? California has 12 major reservoirs
from which water is distributed to all users. These reservoirs are no more than
45% filled; versus an average of 65% over the pre-drought past. As of yesterday, the California snowfall is an all-time low of 6% of normal. Last month the
California's State Water Resources Control Board (SWRCB) renewed its restrictions
on water use because of the continuing drought. Residents of California have had to restrict
their water usage as a way to conserve the limited amount of water available.
People have been advised to reduce watering plants, grass and washing cars, and
be mindful of water usage in daily tasks (brushing teeth, taking showers, and
doing laundry). In the face of the severe drought, these
restrictions are so feeble that Felicia Marcus, chairwoman of the SWRCB stated,
"We are not seeing the level of stepping up and ringing the alarm bells that
the [drought] situation warrants." Few if any residential, commercial or
industrial consumers are now paying more for their water.
Thus, it's no surprise that we haven't
reduced our water consumption much, in spite of Gov. Jerry Brown's declaration
to cut water use by 20%. Last summer, statewide water usage was cut 7.5%,
compared to a year ago. Southern California consumers reduced their usage a
trifling 1.7%. Is it time also to raise non-irrigator water prices as well as
that of irrigators? Yes, but it's also time to further incentivize water
conservation by giving bill credits to customers who have reduced their usage
more than 15% to 20% and/or installed water-saving methods that will reduce
future usage. Surprisingly, very few local water districts that set local prices
have created such conservation credit or rebate programs.[1]
Are they waiting for the major reservoirs
to be completely bone dry before initiating such programs? Seems so.
Water policy economists are not at all
popular when they support such needed price increases. Every water user is completely comfortable with their long-time, subsidized,
all too miniscule water prices. But water pricing policy must change from a
subsidy-based system for 2 reasons: (1) if we are to avoid a true liquid Tragedy
of the Commons; and (2) if existing water resources can ever sustainably
accommodate both the arid West's significant population growth and increasing agriculture needs. Appropriately
set market-based, subsidy-free prices can make every user recognize that water
is indeed a precious, common and limited
resource that must always be used wisely.
[1] Only 21 water districts or water utilities
were listed – out of the 600 operating in California – as having a water
conservation rebate program for their customers.
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