Jun 23, 2008

Putting a Price on Water

by Laura Starita

Why is it that some of the resources useful to the common good are assigned clear market value and some are not? Why do consumers today pay $4 a gallon for gasoline from the pump and virtually nothing for water from the tap? Gasoline clearly isn’t more inherently valuable than water.

When an item seems to cost nothing it’s difficult to think about its value. If Americans paid four dollars for every gallon of water used to flush the toilet or take a shower we would be more careful about how we used the resource. Water, though scarce and getting scarcer, is vulnerable to some magical thinking because it seems like an infinitely renewable resource. We use it, it goes into the ground or the ocean or evaporates up into the clouds and then comes back down again as rain. On such a large scale, we can’t see that what is taken is not replaced one to one, and not every place receives rain sufficient to support its needs. This is a huge reason why consumers and legislators fail to calculate the consider the cost of water when determining the value of an agricultural good, a dangerous oversight in the current craze for water-intense bio-fuels.

The other factor contributing to our indifference is that the real cost of water for Americans and most other Western people is hidden. Water access, like passable roads, or public safety, is considered a right of citizenship, something the government is required to provide. Sure, we pay taxes and fees for these types of services, but the water bills most of us pay do not come close to covering the actual cost of finding, purifying, distributing and treating the water we use. Taxes, municipal bonds and other fees generally make up the difference—though many US communities, most prominently southern California and New York City, are finding that they have dramatically underinvested in their water supply.

The dynamics of global warming and increased water scarcity are possibly changing the historical practice of providing water for free. The staging ground for this change is the world’s water scarce regions. In places such as India’s arid north and the southwest United States water-hungry farming and ranching are counter-intuitively among the primary businesses. Residents of both those regions have irrigated their lands for decades by pumping water out of underground reservoirs at rates many times faster than rains could replace it. In neither case has the water cost enough to cause the farmers to utilize efficient practices. In the United States underground water resources are like gas wells: the landowner is free to pump out anything he can access from his land, even water that actually sits underneath someone else’s property. In the case of India, the government subsidizes the electricity farmers use to run the water pumps, which provides financial incentive for landowners to pump as much as they can and then sell what they don’t use. This dynamic results in extraordinary exploitation between neighbors, and even against the poor, since the farmer with the bigger pump will take the most water. This is one factor contributing to a decrease in India’s agricultural production over the past ten years, as water scarcity, among other things, has driven farmers to see more value in selling their land to industry than in working it.

Meanwhile it has become increasingly apparent that the huge underwater aquifers that have sustained this system of “pump all you want” have run dangerously low. Without intervention, this scarcity may only exacerbate the problem, as farmers and other landowners preemptively pump even more in an effort to get as much as they can for themselves before it is gone. That’s the thinking of T. Boone Pickens, a former oil-and-gas magnate, who is moving into water. Pickens owned a mid-size ranch above a section of the Ogallala aquifer, which supplies water to much of the Plains states of the US. He realized that in Texas his neighbors could pump out the water from under his land and sell it. Not content to let anyone else profit from “his” water, he began buying up water rights and land from his neighbors. Now, he is proposing that the city of Dallas, three-hundred miles away, buy the water he now owns, and has maneuvered the passage of legislation to allow him to build a pipeline from his ranch to the city to make it happen. So far, Dallas has demurred, but Pickens is patient: he reckons all it will take is a year or so of drought for big cities in Texas to realize they need more secure access to water.

That water should be priced according to availability and value seems an idea whose time is overdue. There will be consequences: higher food prices, since agriculture is the single biggest user of water around the world, for instance. But the consequences of ignoring the world’s water issues for too much longer will be even greater. By beginning to assign a real price to water, the biggest users will have an incentive to invest in efficient use techniques, with the end goal of keeping more in the ground for use over time. If we ignore the issue by continuing to think of water as a commodity that every user has an equal right to, than entrepreneurs like Pickens will steal a march on this problem. Given that his aim is to turn water into the next oil, an industry whose profit margins are based on pumping as much from the ground as quickly as possible, that’s an approach we should be aggressively forestalling, not by sticking our heads in the sand, but by being realistic about a limited resource.