12 Aug 2008

The Business of Water

The Southern California Leadership Council, "a voice for the region's business community" has released a report [PDF] on Southern California's Future Water Strategies. In it, the SCLC assesses nine ways to get more water. Among them are conservation, desalination, purchasing water from farmers, etc. The only path awarded four "green lights" is conservation.

Do they mention raising prices? Not really.*

Now, I might say that they are just foolish to ignore prices, but I give the SCLC more credit than that. Why would businesses want to propose higher prices when they are exactly the types of "users" that would face higher prices?

(In my proposal to end the water shortage, I suggest some free water to people and far higher prices for higher consumption.)

Unfortunately, by ignoring the easiest way to save water (higher prices can be cost-neutral, whereas conservation -- the cheapest option -- costs $280/AF), the SCLC is robbing themselves (and the region) of the cheapest source of water around. I think that this report is short-sighted and perhaps even biased.

Bottom Line: Southern California businesses should get behind water price reform. They have the ability to pay and conserve. (Ironically, their "plan" to ignore pricing will only result in homeowners irrigating their lawns with cheap water, which will hasten shortages.) Since businesses may value the marginal AF at $500,000, they should be chasing reliable, not cheap, water.

* In passing, the authors say "Water is too inexpensive for a price increase to motivate conservation" [p. 5]

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