The economics of water

A long piece in The Observer about water, water scarcity and so on. While there\’s lots of scary scary stuff in there if you look for it you can see the solution.

There\’s certainly enough water for every person on the planet, but too often it\’s in the wrong places at the wrong times in the wrong amounts,\’ says Marq de Villiers, author of the 2001 book Water Wars

Hmm, that sounds like a case for trade really, doesn\’t it?

Underlying these problems is a paradox. Because water, and the movement of water, is essential for life, and central to many religions, it is traditionally regarded as a \’common\’ good. But no individuals are responsible for it. From Wadi Esseir to the arid American Midwest, farmers either do not pay for water or pay a fraction of what homeowners pay, so they have less incentive to conserve it and might deprive suppliers of funds to improve infrastructure.

Yup, it\’s a commons problem and we know how to solve those. Either by regulation or by ownership we\’ve got to regulate access to it. Purely as an aside my solution would use both. A basic low cost tariff sufficient to run a frugal household, then market pricing above that.

Another answer to the conundrum was identified by Allan, who in the Sixties became curious about why Middle Eastern countries without abundant water supplies were not suffering from a more obvious water crisis. The answer, he realised, was trade: by buying food, water-poor societies were \’buying\’ what he dubbed \’virtual water\’.

So there\’s  our trade solving at least part of our problem then.

Instead the main focus is on reducing water in agriculture, through more efficient irrigation, by engineering seeds to grow in more arid and salty conditions, and even shifting crops. \’If the world were my farm, I\’d grow things in different places,\’ says David Molden.

Trade again.

And when all options are exhausted at home, countries have another option: to import water in food and even industrial goods. Political meddling with subsidies makes trade a controversial \’solution\’, but by favouring regions with a \’competitive advantage\’ in water it can work. Globally the IWMI estimates irrigation demand would be 11 per cent higher without trade, and quotes a projection that imports can cut future irrigation by another 19-38 per cent by 2025. Saudi Arabia has gone further than most, announcing in February that it would stop all wheat production in a few years, though other countries might now be deterred by higher food prices.


Ultimately governments are being forced down several paths at once: to raise prices to reflect the true value of water to humans and the environment, invest in technology to improve efficiency and supplies, engage in more trade, and make peace with neighbours that can hold up incoming water or food.

Quite….nice to swee that at least some people get the economics of water.

3 thoughts on “The economics of water”

  1. I really dislike phrases like “water wars” (though it seems so too did the author of the book of that title). Some high-up figure in Israeli defence dismissed the idea stating that building desalination plants was cheaper than going to war over water. If those hawks in the hot lands think that then trade will certainly win out.

  2. Those of us working in the US ag sector have been worried about this for years. We’ve already started our water wars (see Nevada, Arizona, Calif). The heaviest water user in Calif is the ag sector. A desalination plant has been approved but I have no idea when it will come online. My fear is that water will become the new oil.

    And that Obama aka the Messiah will try to nationalize the stuff.

  3. Hilary Benn has stated he wants every house to be metered sometime soon, and wants us to reduce our average consumption. Whilst I can see the arguments for this I think the case has been overstated. For a start there has been huge investment in meeting nonsensical EU water quality standards (show me the bodies that are caused by the current standards), money that if spent elsewhere could have solved supply problems. There are almost certainly ways of allowing us to use more water in this rain sodden country, it’s just greenie miserabilsm that is stopping it being done. Look at the battle there was to get the desalination plant built by Thames Water. It’s much the same story with electricity, we could have all we want, but instead we’re all going to have to use less. It’s all about sacrifice to appease the God of Gaia. As John Brignell says sacrifice has two elements, it’s pointless and it’s painful.

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