 | Around the World in 80 Ideas |
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ENVIRONMENT 28: The right stuff User rights and water conservation The problem: free means over-used Since water is so essential, most governments feel that people should have free and unlimited access to it. But in many parts of the world, water is also very scarce. How can we ensure that people have access to the water they need, but do not over-use and waste it, or over-exploit reservoirs and underground water resources, just because it is free? The idea: water as property The best way is to recognize that water is a commodity like any other. Allow people to protect and conserve water stocks by owning them or the right to exploit them, and allow those rights to be traded so that they end up in the hands of those who need them most, rather than marginal users. Example: water rights systems Water shortages have become a serious problem in many countries, particularly where urban development has expanded into relatively dry areas, as it has in the western United States. As well as the constant threat of the water supply to households and businesses being cut off, the over-exploitation of reservoirs can lead to saltwater intrusion and other serious and expensive problems. However, the problem is often caused not by any long-term shortage of water, but by a faulty system for allocating water resources. In the western United States, for example, the 'prior appropriation' rule means that those who first started to extract water from a stream long ago have priority over those who came later. But to maintain this right, the original users have to keep on extracting - even if their use of the water is marginal or inefficient. Similarly, most western US states require that water must be put to 'beneficial' use - but this concept that is vague and under constant legal review. Meanwhile, water for fish, wildlife, and other public purposes becomes scarce. In the early 1980s, PERC - a Montana-based environmental think-tank - began promoting the use of markets to encourage water conservation and more efficient use. The idea caught on. States began to remove obstacles to water trading, and water rights markets are growing. In 1991, drought-stricken California established a water bank to allow temporary water transfers from farms to cities. In 1995, Montana passed legislation allowing anyone to lease water rights to maintain instream flows for fish. Arizona looked at how to market its unused share of Colorado River water to California and Nevada. But legal obstacles remain. Some of the rules used to determine groundwater rights do not specify the quantities of water that rights holders are entitled to use, for example. Often the right to use water exceeds the flow into the reservoir - so rights-holders rush to get their allocation, however marginal their use, before the water runs out. Many states do not allow water to be sold outside their own boundaries. Elsewhere, however, there is a flourishing trading system that helps reallocate water to higher valued uses. Rights over the use of groundwater and underground water resources can be bought and sold, a system which discourages the marginal users who do not really need fresh water, or who can use recycled water. The water rights market now stretches throughout the western United States, from Washington to Texas, and from California to Colorado. Through websites such as www.WaterRightsMarket.com, people can advertise water rights for sale, or buy them. Water metering in the UK Throughout the world, market principles are also used in the allocation of piped water to households. Most developed countries use at least some water metering to charge users for the water they use, with positive results for conservation. And those where metering is uncommon are moving towards it as demand rises. In the United Kingdom, households traditionally paid for their water through a tax related to the value of their property, rather than their use. Not surprisingly, demand rose by about 70% between the 1950s and the 1980s, leading to frequent droughts and bans on the use of hosepipes, car washes, crop irrigation and other 'less essential' uses. However, the privatization of the UK water industry in the 1980s led the new private companies to experiment with alternative ways of charging. National water-meter trials began in 1988. In the Isle of Wight, 53,500 properties were covered by the trial, and a further 8,570 were included in eleven other small-scale trial sites. These demonstrated that metering was practicable for about 95% of households, and that it did promote conservation of this precious resource: consumers cut their consumption by about 10% on average when meters was installed. Installing meters is expensive, and some water companies in areas where water is plentiful and cheap have chosen not to fit meters, unless individual customers demand them. Others, however, have found that a useful by-product of metering is better management of the flow of water across their network. Reconciling meter returns can often reveal where water is leaking from underground pipes, and remedial work can be carried out, saving waste, reducing unnecessary production costs, avoiding accidents, and keeping stocks high so that occasional droughts can be resisted. In extreme cases, it can even help water producers to postpone the creation of expensive new reservoirs or treatment plants. But what about the poor, if water is priced? Surely they cannot afford this essential resource? Actually, differential pricing can solve the 'public good' problems in water supply. Most developed countries now meter water routinely, and a two-part tariff is the most common payment method, where customers pay a standing charge towards general service costs, plus a charge per unit of water used. Economy during periods of drought can be encouraged by raising the charges for the amount used. Standing charges can be waived for people on low incomes, so that their bills are lower but so that they still pay according to usage. And lower use charges on the initial amount of water considered essential for hygiene and health are applied in Italy, Greece, Portugal and other water-short countries. Conclusion: water rights work Water is a commodity like any other. Essential commodities like food, clothing, and shelter are all traded on the market, and income-redistribution, vouchers, or other mechanisms are used to ensure that everyone, including the poor, have fair access to them. Water, however, is commonly perceived as being different, which has led to heavy-handed political intervention and has disrupted the operation of a market. Fortunately, policymakers are beginning to understand that we can both protect the poor and foster optimal use and conservation by applying market principles to this vital resource. For further information:
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Copyright 2002: Adam Smith Institute
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