The Big Thirst, page 34
Free water has a cost, and not a trivial cost.
WHY ARE WE SO STUBBORN about the cost of water coming out of our taps?
Well, as a species, as a culture, we are used to finding the water we need and using it. Adam Smith wrote about the gap between the value of water and its price in 1776. But in his footnotes, Adam Smith cites Plato, in his dialogue “Euthydemus,” in which Plato gives Socrates this line: “For only what is rare is valuable; and ‘water,’ which, as Pindar says, is the ‘best of all things,’ is also the cheapest.” As an epigrammatic summation of water, Plato’s is hard to beat: the very best of all things, and the cheapest. Plato wrote “Euthydemus” 380 years before the birth of Christ (and 2,156 years before Smith wrote The Wealth of Nations).14
But it’s not just that we’re in the habit of free water. We certainly got into the habit of free TV—a much shorter habit than free water—and now 90 percent of U.S. homes pay for TV, either cable TV or satellite TV.15
No, our attitude about water and money is more fundamental. It’s not so much that we’re price-sensitive—it’s almost the inverse. We think pricing water would be wrong. Water is one of the very few things that we don’t think should be distributed based on your ability to pay. If you put a price on water, by implication, there will be someone who can’t afford the price, and so won’t get water. Clearly, that’s inhuman—in Indianapolis or India.
Actually there’s nothing unethical about managing water demand with price, and there’s nothing immoral about allowing the market to help allocate water—just so long as we solve what might be called the first-glass problem, so long as everyone has access to water for their basic needs at the lowest possible cost. Beyond that, a little application of the market might help us use water more wisely, more equitably, keep water cleaner, and leave some for Nature herself.
First, let’s clear up a couple things that may be puzzling or contradictory about water and money.
Although the general view in the world of water utilities is that water is “price inelastic”—that people don’t change their water use based on how much it costs—that’s a piece of accepted wisdom that simply isn’t true, even in the confines of reasonable water charges.16 If water coming into our homes cost twice what it costs now, if the monthly water bill were suddenly $60 or $70 instead of $30 or $40, even that would cause people to be more careful with their tooth-brushing and, especially, their lawn watering. If people were receiving water bills of $80 or $100 a month—right where the typical cell phone bill is—they’d start thinking about how full the dishwasher and the clothes washer were before running them, and even whether to buy the new models of those appliances that use much less water.
The problem isn’t that water consumption is price inelastic, it’s that water bills are so low, it doesn’t pay to be sensitive to the price. Water bills may rise by large percentages, but a 30 percent increase in a bill that’s $25 means $7.50 a month. People don’t bother remaking their lives to save 25 cents a day. We’re not behaving with disregard to price, we’re doing just the opposite: instinctively making the judgment that the effort required to change water consumption won’t save us enough to be worth it.
Large consumers of water—factories, farmers—are very price-sensitive. That, in fact, is the point: If water is almost free—$19 for enough to cover an acre of land one foot deep, as in the Imperial Valley—or if it is literally free—as for Campbell Soup in Napoleon, Ohio—there’s no incentive to spend money on expensive, sophisticated systems that use less water but get the same crop or soup production. If the water gets more expensive, then it pays to retrofit your irrigation system, or your soup-cooking system, with equipment that costs money to install, but reduces the amount of water you use.
The water bill that the typical home or business gets simply covers the costs of delivering the water. It costs a huge amount of money to build and maintain reservoirs, pipes, pumps, treatment plants, monitoring systems; to put staff in trucks, in water plants, in testing labs. And water is heavy stuff. Moving it, pumping it through treatment membranes and filters in plants, maintaining water pressure in water mains—all requires huge quantities of energy. Water utilities use 3 percent of the electricity generated in the United States, equal to the output of 162 power plants, making water utilities the largest single industrial users of electricity in the country. In California, 20 percent of the electricity in the state is used to move or treat water. When the cost of gas goes from $2 a gallon to $3.50 a gallon, the cost of moving your water goes up as well.17 But there is no charge for the water itself—the water is “free” to the customers, as it is typically free to the utilities.
Prices vary wildly for water, in the United States and around the world, because while the water itself is free, the cost of acquiring it and delivering it varies wildly. Traverse City, Michigan, which will happily deliver you a thousand gallons of water a day for $20 a month, sits on the shores of Lake Michigan, one of the largest bodies of clean, fresh water in the world. The city doesn’t have to do much work to get the water it is distributing to its residents’ faucets.
Water is a good deal harder to come by in Santa Fe, New Mexico, which also has among the highest rates for water customers in the country. A family of four using just two hundred gallons of water a day would have a bill of more than $40 a month.
In Las Vegas, or the Imperial Valley, the “price” of the water reflects the cost of supplying the water, but it doesn’t reflect the demand for it. Traverse City could supply water to a lot more people without raising the price much. Las Vegas paid people to take out their lawns to avoid the cost of having to find some new supply of water to keep those lawns—and future lawns—green.
Price differences have to do with the age of the local infrastructure, variations in the cost of energy and labor, and even with the sophistication of utility managers in handling issues like debt and politics.
Some water utilities have begun to price water use in tiers—it’s not just that you pay more if you use more, but there are steps in the prices, and when you jump up above a basic level of consumption, the price per thousand gallons jumps as well. That’s a modest effort to “price” water in relationship to demand—or more precisely, to price it according to how much it will cost to find more water. Bigger quantities of water require more energy and more infrastructure to deliver. And it is much more expensive to acquire the next gallon of water supply, and to deliver it, than to distribute the water a utility already has access to. It’s expensive to plan and build new dams, new treatment plants, new wells, new canals, or, as in the case of Australia, to build new factories that turn seawater into drinking water.
To be effective, such “block” pricing has to be dramatic. In Santa Fe, the city charges $4.43 per thousand gallons, up to seven thousand gallons a month, a reasonable supply for a family of four. For every thousand gallons you use over seven thousand, the rate jumps to $15.84 per thousand gallons, almost four times the base price.18
FOR A WATER ECONOMIST, Mike Young lives every day with the absurdly perfect example of water and price. Young, one of the most thoughtful and influential voices in shaping Australia’s water policy, is a professor of water economics at the University of Adelaide, and director of its Environment Institute.
He lives in a charming neighborhood of quiet, tree-shaded streets with cafés and well-kept yards, just north of downtown Adelaide.
In Young’s apartment building, there are no individual water meters, just a flat fee for water. The water economist could turn on a faucet on June 1 and let it run until July 1, and not pay a cent extra.
And Adelaide, remember, is the capital of South Australia—the driest capital city, in the driest state, on the driest continent in the world.
As Young puts it, “The marginal cost of running the water twenty-four hours a day, or running it for just a drop, is the same: zero dollars. There is no price signal at all.”
Mike Young, fifty-seven, is an unusual economist in a number of ways. First, of course, he’s a water economist, which makes him something of a pioneer. He’s also an economist who puts the environment first in line for water before even human water needs, and who has a sharp economic rationale to justify putting nature first. And Young is an admirer of the Medicis of Renaissance Florence, but not, like most of us, because of their art patronage, but because the Medicis invented double-entry bookkeeping— debits and credits.
“If you run a really good water accounting system,” says Young, using a phrase rarely heard in either the world of accounting or the world of water, “if you give someone more water, you have to give someone less water. Governments have always been keen to find a way to give more water to somebody, but they forgot to work out who is going to have less water.”
Coming out of a century of unthinking water abundance, the situation of Young’s own apartment building, where no one can even measure the residents’ use, let alone price it rationally, is surprisingly common, a symbol of water so abundant we didn’t need economics to help manage it.
The largest apartment complex in New York City is Peter Cooper Village and Stuyvesant Town, a parklike urban enclave on eighty acres along Manhattan’s East River. Peter Cooper Village and Stuyvesant Town together are a single development that encompasses fifty-six apartment buildings, spanning nine New York City blocks, with 11,232 apartment units and 25,000 residents. And no water meters. Like Mike Young, on the other side of the globe, residents pay a flat fee for utilities, and they can use as much or as little water as they want. Not only no charge—no one even knows how much water any apartment is using.
In London, the situation is even more striking. Just 22 percent of the customers served by the water utility, Thames Water, even have water meters. Three-quarters of Londoners can use as much water as they want for a flat rate. You can’t effectively charge people for the water they use if you can’t measure the amount they use, and you can’t give those people a sustainable water system if you can’t charge what it costs to secure and deliver their water. Thames Water’s current goal: to have half the homes in London on water meters by 2015.19
What the century-long golden age of water has done, says Young, is create an incredibly sophisticated system for gathering water and distributing it—an engineering system. But the engineering system assumes one thing: plenty of water. What we don’t have—in Australia, in the United States, in most of the world—is an equally sophisticated system for figuring out how to allocate the water, particularly when there isn’t enough.
“I think petroleum is better managed than water,” says Young. “With all its ugliness, at least it works.”
That’s where economics comes in. Economics is a way of managing scarcity, and market economics—pricing—is a way of letting the people who want something that’s scarce participate in deciding who gets it. We get to vote with our money on how important something is to us—whether we’re consumers lining up for the latest iPhone, or real estate developers lining up for a block of midtown Manhattan land, or drivers balancing the price of July gasoline against the drive to the beach.
Young is also refreshingly realistic. Ask what seems a really basic question about water economics—Who owns water?—and he says, “Nobody does. You can ‘own’ a glass of water, but only until you drink it and pee. Once you pee, you don’t own that water anymore.
“The debate over ownership of water is misinformed. The question is, Who is allocated the opportunity to use the water?”
Young’s laboratory for thinking through his ideas about how to allocate water—how to decide who gets it—is Australia’s Murray River, a sadly perfect case study of the need for an allocation system to match the engineering system. Australia’s rainfall shifted so dramatically in the last decade that from 2006 through 2010, the Murray literally ceased to flow. The result has been a painful mess—economically, politically, socially.
The lack of water in the Murray River, where both farmers and communities are desperate for their share, for their entitlement, illustrates one of Young’s principles: A water market—trading in water, paying for scarce water—is often not a bad solution, or an immoral solution, but just the opposite. A market can be the best, smartest, quickest, even fairest, way to distribute water, especially in the middle of a crisis.
“If you’re running an irrigation system as big as the river Murray,” says Young, “and you have a very dry winter, and you can only give out 30 percent of the water you normally give out instead of 100 percent—how do you organize the political process in a way to have the decisions sorted out in six weeks, before the growing season ends?” No government bureaucracy moves that swiftly, with results that are also effective and widely seen to be fair. But farmers—who know their own situation, their own finances, the state of their land, and the market for their crops—can decide quickly how much water they might buy, or how much they might sell, depending on the price.
A market in water only works, though, if a community, a region, a watershed, has done two things first: set up the water allocation system in advance of the crisis, and set up the water system in a way that acknowledges that water is a different kind of resource. It’s not a new iPhone or a block of valuable city land, precisely because of the first-glass issues.
Some water needs to be secure and guaranteed for everyone, at the lowest possible cost, outside the market system, and some water needs to be unleashed in such a way that the market helps distribute and manage it much more effectively than it does now.
To explain, Young does something that we almost never do with our water systems. Sitting at a café table, he moves aside the coffee cups, takes a clean sheet of paper, and starts to sketch out a water system from scratch.
It’s a water system in the shape of, well, basically a water glass.20
At the bottom of the glass, the first layer of water is for the environment. It’s the water necessary to keep the natural water system itself—the river, the aquifer—alive, stable, and healthy.
Young, who is more economist than poet at heart, calls this “maintenance water.” “That’s the water necessary to maintain the environment, to maintain the system.”
If that seems like a forehead-smackingly obvious way to start, well, in truth it’s a radical concept. Around the world there are rivers that are so overused and so stressed by climate change that they often no longer flow to their own mouths—starting, in fact, with the Murray River, which needs a dam to hold back the sea, and including the Colorado River, the Rio Grande, and the merged Tigris and Euphrates rivers in Iraq, the Shatt al Arab, which no longer holds back the Persian Gulf, so that salt water is now flushed a hundred miles inland.21
“Without water for the system,” says Young, “there is no water for anyone.” That is, a good system starts out safeguarding the very renewable resource you’re trying to allocate.
The next layer of water in the glass has almost the same standing as the “maintenance” layer—it’s what Young calls “critical human needs.” That’s just what you’d guess: “Water to flush toilets, to take a shower, drinking water and water needed by the city and by industries, all operating on very tight water-use restrictions.”
The “critical human needs” layer of water isn’t water to run the hose while washing your car, or take a twenty-minute shower, or run decorative fountains in the plaza of your shopping center. It’s the basic water necessary to keep people and the economy alive—and it’s priced much the way water today is, at cost.
Together, the environmental and the critical human needs might take 20 percent or so of the water from a system—although that percentage depends on the system, how it renews itself, and who depends on it. That’s the solution to the first-glass problem. The first water goes to sustain the ecosystem we all depend on, and to sustain us.
Those first two layers of water in the glass are both simple and self-evident, but in practice, in the way we’ve come to manage water around the world, they are rarely specified and protected with such clarity.
Of course, the volume required for each will not be easy to discover, and certainly won’t be immediately easy to agree on. Upstream users will have every reason to argue that a river needs minimal flows, to keep more water for themselves; urban users will have every reason to argue that decorative outdoor landscaping is a vital economic interest that needs to be protected and watered. Indeed, what qualifies as “critical human needs” beyond sanitation and drinking water will require debate and setting priorities—hospitals are a critical human need, and water parks are not, but what about the auto plant, the steel mill, the plant nursery?
Bringing this kind of economic planning and principles to water will not take the politics out of water, any more than sound economic principles take the politics out of zoning decisions or tax policy. But agreeing on those two numbers in advance—regardless of how fractious the conversation necessary—gives everyone a measure of security, of calm, especially in a crisis.
Above the environmental and critical human needs layers of water, there’s a fat layer of water that Young calls the “sharing” layer. This is all the rest of the water that powers our economy beyond the “critical human needs” allocation. It is everything from swimming pools and factories and luxury hotels to flood-irrigated rice fields. Young’s “sharing regime” is an effort to bring clarity, order, and market pricing to bear on the big bulge of water that, in flush times, has been used with wasteful disregard, and that in times of scarcity, is the source of bitter dispute.
The shared water is divided into two categories—“high security” water and “low security,” or “general security,” water.
The idea is almost transparently simple: People who have high-security water get their water first, and they pay a premium for that guarantee. People who have general-security water pay much less, but they get their water second.
