Near all freshwater availability problems come from the fact that farmers get it cheap or for free, diverting it from much more valuable uses like keeping people alive if they drink it. This is true in California – we’ve actually cases of farmers using $400 of water to grow $100 of alfalfa – as it is in Pakistan. There are cases of people growing water hungry crops in near drought areas just because they get that water too cheaply.
[…]
Gaining revenue with which to build dams is useful, it most certainly is. But that’s not the only function of pricing. The cash to increase supply, great, but the very fact of charging will reduce demand. And we should be charging what it costs to produce the water too. So charges should cover 100% of the costs of the dams, not just 25%.
It’s entirely possible that charging that full cost will mean that no farmers want the water. OK, then we shouldn’t build the dam, should we? For if the value of the water – measured by what people will pay – is less than the cost of its provision, then that’s value destroying, providing the water. The dam makes us all poorer, therefore we shouldn’t build it.
The point here being – and it’s an important one – that prices affect both supply and demand. They’re what brings them into balance even. So, yes, charge for water, but not just so that we can pay to increase supply, also so that we, merely by charging, reduce demand.
Tim Worstall, “Pakistan’s Chief Justice Almost Right – Charge For Water, Not For Dams, But To Charge For Water”, Continental Telegraph, 2017-07-17.
November 3, 2020
QotD: Water pricing
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