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The High Costs of Free Water

Picture of sprinklers watering pavement
Watering the pavement, just one of many ways we waste water. Photo: Di Bédard, Flickr

 

When the well’s dry, we know the worth of water.
- Benjamin Franklin, Poor Richard’s Almanac, 1746

The problem with water, many economists say, is the fact that it is essentially free.

That may come as a surprise to you if you receive a monthly bill from your local water utility.  But the economists are technically correct.  In most places in the world, we pay only for the cost of delivering the water to our homes or businesses, i.e., the cost of electricity to push it through distribution pipes, clean out impurities, or to construct a reservoir to store water.  The water itself is free. (See Ireland’s shift to charge at least something for water.)

Because the water itself doesn’t cost anything, its price doesn’t go up when water supplies become scarce, such as during the wicked droughts that are now wreaking havoc in the bread baskets of the U.S. and Russia, in the heart of Africa centered around Zaire and Uganda, or across India.  In the language of economists, water lacks a “price signal.” (See surprising photos of the drought.)

As a result, our use of water is free of one of the most powerful constraints on human behavior:  its expense.

We’ve all witnessed the power of a price signal when the cost of gasoline rises at the local filling station.  Gasoline consumption drops sharply.  High gasoline prices are so powerful that they can drive up sales of hybrid and other gas-efficient cars.

It’s really painful to pay more for anything these days, but when it causes us to use less it can help everyone get through a shortage.

Lacking a price restraint, water use has spiraled out of control in many parts of the world.  In water we are witnessing the “tragedy of the commons” that ecologist Garrett Hardin so presciently foretold in the journal Science in 1968.  The tragedy of the commons, wrote Hardin, is a dilemma arising from the situation in which multiple individuals, acting independently and rationally in their own self-interest, will ultimately deplete a shared limited resource, even when it is clear that it is not in anyone’s long-term interest for this to happen.

The result:  Once-mighty rivers like the Colorado, the Yellow, the Murray-Darling, and the Ganges are now regularly running dry, and vast aquifers like the Ogallala of the U.S. and the Arabian in Saudi Arabia are being drained rapidly. (See eight mighty rivers run dry.)

Coke’s Hard Lesson

The Coca-Cola Company knows the perils of the tragedy of the commons.  It bit the company in the bum in 2004.

That year, local officials in Kerala, India shut down a $16 million Coke bottling plant blamed for groundwater declines that dried up the wells of many poor farmers.  In a case that has risen to the High Court of Kerala, the company has argued through extensive documentation, computer modeling, and expert testimony that its use of water played only a small part in the aquifer’s depletion.  Regardless of the legal outcomes in this case, anti-Coke protests that spread from India across U.S. and European university campuses certainly tarnished the company’s brand.  In response, the company has become one of the world’s most water-mindful companies today, investing heavily in water-protective measures in the watersheds where it operates.

In India and many other countries including the U.S., government subsidies have further weakened any cost constraints on water use.  The Indian government heavily subsidizes electricity costs that would otherwise restrain farmers from pumping groundwater unnecessarily. The federal government in the U.S. has subsidized the cost of dams and canals that supply water to western farms, amounting to a subsidy of $440 per hectare per year.

The subsidies on urban and agricultural water are in most cases well intended.  We should do everything possible to hold down the price of food and water, particularly for those that can ill afford it.  Our water pricing structures should subsidize water costs for those that most need the help.

But we have to do something to arrest the tragedy of the commons in water, and in the absence of other controls we need to better use the one effective lever we’ve got.  We need to create new pricing structures for water.

The costs of cheap water are far too high.  It has allowed for severe dewatering of the planet’s freshwater sources and caused sea level rise to accelerate.  Twenty percent of irrigated food production is at risk due to groundwater overdraft. Water shortages have pushed millions of hectares of farms out of production, and placed a significant chunk of global GDP at risk.  Because urban water utilities have not been charging enough to cover long-term maintenance costs, we are facing a trillion dollar debt to repair water infrastructure.

When the well goes dry, the fact that the water was free to begin with does no good for the farmer. Nor the rest of us.

Irrigation sprinklers in Utah. NGS Stock photo by James P. Blair
Irrigation sprinklers in Utah. NGS Stock photo by James P. Blair

 

Water Solutions

If you ask an economist for a solution to a problem, you can bet that the answer will have money in it.  In his new book on The End of Abundance, economist David Zetland argues for the imposition of a scarcity premium on water pricing – a sliding scale that causes water to become more expensive as it becomes more scarce — as a way to prevent future water shortages.

There are other ways to manage water responsibly and sustainably other than to raise its cost, of course.  Governments could manage the allocation of water use such that our use does not exceed its natural replenishment.  Your bank doesn’t allow you to spend more money than you deposit.  But to date no government in the world has succeeded in controlling its water bankruptcy.

We could ask corporations to offset their water use in their local catchments by helping other water users use less.  After all, at least two-thirds of all water use globally flows through corporate supply chains.  But to date, very few companies are committing to offset their water use in any way, and even fewer are acting on their commitments.

We could go on enjoying the gift of free water.  But you can damn well bet that you won’t be smiling when the debts of unsustainable water use finally come due.

Comments

  1. Kenneth Decker
    Philippines
    November 24, 2012, 1:10 am

    One more nice script to learn. Very Glad that you shared this to us. It’s some pretty great info and pretty good post. I’m sure some people will really like this information cause this have genuine information for the readers.Thank you for sharing with us.

    Daniel Schmitt & Company

  2. McGee Young
    Milwaukee, WI
    September 28, 2012, 9:22 am

    “We could ask corporations to offset their water use in their local catchments by helping other water users use less.”
    Brian, my organization, H2Oscore is trying this idea out in Milwaukee next month. Keep an eye out for our results.

  3. David Zetland
    September 11, 2012, 4:36 am

    Good article and thanks for the shout out. Note that your “other ways to manage water responsibly and sustainably other than to raise its cost” ALL involve direct and indirect increases in costs (to install high-efficiency appliances that help others use less, for example).

    Your replies to other commentators are also excellent.

  4. Ron
    South Dakota
    August 31, 2012, 11:05 am

    “But to date no government in the world has succeeded in controlling its water bankruptcy.”

    That statement is not true in all cases, at least not in South Dakota’s case:

    South Dakota Codified Law 46-6-3.1. No application to appropriate groundwater may be approved if, according to the best information reasonably available, it is probable that the quantity of water withdrawn annually from a groundwater source will exceed the quantity of the average estimated annual recharge of water to the groundwater source. An application may be approved, however, for withdrawals of groundwater from any groundwater formation older than or stratigraphically lower than the greenhorn formation in excess of the average estimated annual recharge for use by water distribution systems.

    • Brian Richter
      September 2, 2012, 2:50 pm

      Thanks very much, Ron, for sharing this citation from South Dakota’s regulations on groundwater use. There are a number of states and national governments that have similar groundwater protection policies on the books. However, as you know, successful water management requires both good policies and effective implementation. Success in implementation is particularly hard to find. However, I did a quick search through available websites and databases for South Dakota, including the South Dakota Dept. of Environment and Natural Resources database on water level measurements in observation wells, and things are looking quite good in your state! Most of your observation wells showing increasing rather than declining trends. If you can provide me with any other statewide data on groundwater conditions (such as a statewide map of changes in groundwater levels over recent decades), I’d be happy to write a future blog about your success.

  5. Sally
    Decatur, IL
    August 31, 2012, 1:00 am

    My neighbors, who have a home in Germany, say rain barrels are mandatory there. Also, we have to much paved area in our cities, there needs to be more greenspace, and not jut for the sake of the water table.

  6. Deb
    Arizona
    August 30, 2012, 12:56 pm

    Is the Water Cycle no longer cycling???

  7. James Ehlers
    Vermont
    August 30, 2012, 7:28 am

    There are then the costs associated with continuing to utilize our waterways and waterbodies as repositories for our waste. This practice is neither economically nor environmentally sustainable.

  8. Bharathi
    Bangalore, India
    August 30, 2012, 6:54 am

    I agree. Here is and example how Bangalore is drying out. In Bangalore, lot of multistoried residential complexes has come up. And they purely depend on the ground water to fed thousands of people. They pump in ground water so ruthlessly, with in few months, the entire well dry’s out. No measures taken in order to enhance the or restoration of water. To feed water for the populations. Now there are lot of small time farmers in nearby villages, who just let their land for rent only to draw ground water. Builder tie up with these farmers and start digging water. In this case, i bet.. most of the farmers are not aware of the bigger picture of ground water scarcity. More and more awareness, education, ownership and accountability is needed in order to safe guard water.

  9. Wes
    Santa Barbara, CA
    August 29, 2012, 6:45 pm

    In general, I think the article is spot on, since I agree with the economists you cite. In response to earlier comments, the past couple years of increasing block rate structures have actually shown quite a lot of impact on water usage. In economic terms, we used to say that the price of urban water was basically inelastic, but not anymore. In California the past 2-3 years, increasing rates have led to water usage reductions by 10-20 percent across many areas.

  10. Brian Richter
    Charlottesville, VA
    August 29, 2012, 1:25 pm

    Mark, I take your points, but those are really only minor caveats on the much bigger picture that I was trying to portray. Addressing the problems I’ve highlighted will require comprehensive pricing reform across all sectors of use — urban, industrial, agricultural. It’s true that many US cities do charge a bit more as you use more. But as you point out, those modest surcharges have done little to limit use. It’s also important to understand that the volume of water used by those cities is almost always a small fraction of overall water use in their respective basins (agriculture uses the lion’s share), so those urban surcharges don’t do much to change the big picture — all the urban water use in the world adds up to less than 10%. Similarly, water trading (such as in the Colorado) affects only a tiny portion of all water use, even in the few places globally where such trading takes place.

  11. Mark
    Maryland
    August 29, 2012, 11:14 am

    I think this is a sweeping generalization that mostly misses the mark. Many U.S. cities, for example, have increasing block rate structures (the more you use, the more expensive it is, and people generally want to use more when it’s hot and dry and water is scarce). This supresses demand only slightly (as economists say, water demand is relatively price inelastic). Further, in many western US rive basins (e.g., the Colorado) water itselt is a privately owned and traded property right. Spot markets, such as they are, sky rocket during droughts.

    The problem is more complex. The externalities of water use are not sufficiently priced. Governments or other insitutions impose no (or very little) constraint on water users to reflect the ecological impact of water use. Water users will continue to drain rivers/lakes/aquifers until there is an incentive or requirement (which could be a price signal) to maintain enough water to sustain ecosystems and future use.