5 Dec 2007

Water supply falls. Do prices rise?

California had a drought last year, and this year looks no better. As water gets scarcer, agencies are looking for new supplies, and these suppliers are looking to get paid. Just as you would expect with any other commodity (gas, wine, tickets), the price goes up when demand is greater than supply. That brings us to this great headline, "Southern California plans to buy farmers' water; RATES TO GO UP IN SHORTAGE" [CAPS in original] from this Associated Press story, which goes on to inform us that:
The water sale is being brokered by the state Department of Water Resources, which will look to farmers to voluntarily offer parts of their water supply for sale...

It was unknown how many farmers would sign onto the deal and how much money they would ask for the portions of their supply... Water district officials also did not know how much water user rates would increase as a result of the purchase...

Even if the MWD secures the additional water from farmers, it may still have to ration water supplies among the local agencies that it serves if the shortages persist, agency officials said.
In other, shocking news, water agencies are trying to buy water from willing sellers, but are unable to limit buying by raising prices. Instead, they are resorting to across-the-board limits (one dollhouse per customer, please) to make sure that everyone gets their fair share. [end sarcasm]

But wait, I speak too soon. What is it about farmers selling water? I thought they need it to make food? Not so fast, observes one columnist:
MWD will purchase additional water from Yuba County, in the Sacramento River Valley, and from the Central Valley. Yuba lists among its attributes "thriving farmland." The Central Valley boasts of supplying "fully one-quarter of the food America eats." Nevertheless, the MWD says, both areas are willing sellers. Selling water, after all, can be less dicey and more profitable than growing crops.
Down in San Diego, they really have things figured out. According to this piece, if the price rises, people will use less water. Wow, I love this:
If we truly want people to conserve water, especially during times of lean supply, then local water agencies should let market forces dictate the price of water. Doing so would be both efficient and effective. As water supplies dwindle, its price will go up and people will use less, thereby eliminating the need for expensive and largely ignored public education campaigns urging people to save a precious resource.

It is as common-sense a solution as exists: If folks want to have lush, green lawns as opposed to the xeriscaping more appropriate to a semi-desert, they should pay the real cost of the water needed to accomplish it. The same goes for farmers who want to plant cotton or rice in an arid region rather than crops more appropriate to our climate.

Admittedly, a market-based approach to water rates will require a radical restructuring of the way this state distributes and prices water. But until consumers feel the pain of water shortage where it hurts most ---- their pocketbooks ---- don't expect them to take calls for water conservation seriously.
Bottom Line: Water, in shortage, must be allocated by some kind of price/auction mechanism. We must break the unholy vow to never raise prices for water. Rationing schemes are more complicated and put the water where it shouldn't be. Note that I am in favor of setting aside a basic quantity of water per capita FIRST and then allocating the rest by (market) pricing.