2 Dec 2009

Why businesses should want higher water prices

I will be attending a Water Footprinting conference today in San Francisco (as a reporter), and I look forward to hearing what people have to say. (I may also ask a few questions...)

Although I predict that many speakers will talk about best practices and shortages, I wonder if any of the speakers will discuss water prices.

If they do, I wonder if they will speak in favor of higher prices. For a business, higher prices (for everyone) make sense. If prices dampen demand, there will not be shortages and rationing. And rationing is much more expensive than paying a higher price. After all, it's better to be in business, with higher costs, than be shut down.

Although some may debate the problem of expensive water in a competitive business (what if your competition has access to cheaper water), I am ok with higher prices that reflect scarcity -- first -- because they prevent rationing in the short run, and -- second -- because they signal scarcity and sustainability in the long run.

Bottom Line Businesses should be concerned about the availability of their inputs before they worry about how much those inputs cost.