4 Mar 2009

California and Australia

RT writes:
I am an economist from Australia who works on among other issues urban water policy.

I read with interest your nicely-written Forbes article.

We seem to have pretty much a similar situation here in Australia and a few of us make similar suggestions.

I’d love to understand more about the your situation and to what it extent it is similar to Australia.

Australian urban water varies by is typified by:
  • Highly erratic rainfall and very large dams (Sydney can store around 4 years worth of water)
  • Government monopoly providers with regulated pricing which is fixed over a number of years (thus doesn’t move with water shortages)
  • Current water shortages and water restrictions (e.g. I can only water my lawn on Wednesdays and Sundays)
  • With rare exception every household is metered
A big issue for some Australian cities is thus how much to use today vs store for future use. Is this similar to California? Other areas in the US? I am not aware of the extent of the size of the dams and the extent to which there are water restrictions.
In prior posts on Australia, I have discussed environmental problems, water markets [and here], drought prediction markets, excellent urban management techniques, etc. My overall impression is that Australia's water policies are more advanced for two reasons:
  1. The State is more assertive about reallocating water from existing users (agriculture) to essential users (urbans). Australians do not have water rights -- they have water licenses that are easier to revoke.
  2. The situation in Australia is worse, which requires more-radical thinking...
Interestingly, the issues that RT describes (erratic rainfall, large dams, regulated pricing, water shortages and restrictions, and metering) are almost identical to those in California (and much of the western US) -- leading to the same failures. The main failure is that low water prices give weak incentives to conserve. Australia is AHEAD of California on its water markets (within and across sectors), lower average water consumption (mostly through restrictions on outdoor use, use of dual pipe systems, and higher indoor water efficiency), and politicians willing to make bigger changes. That doesn't mean that Australia is home safe, however, as their water situation appears to be more dire. I am not sure about the situation with groundwater. Please feel free to add your own contributions, observations, etc.

Bottom Line: The economics of water are the same everywhere. Scarce water should be expensive water. If it is not, then shortage will result.

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