02 February 2012

The link between cheap water and bad finances

While discussing water pricing in Europe the other day, one person mentioned the importance of "affordable" water. I am not a big fan of "affordable" water if it comes at a cost to fiscal balances (having revenue sufficient to operate and maintain the system) or environmental sustainability (cheap water leads to overuse), so my immediate response was to look and see just how expensive water was in European countries.

Conveniently, I had data from GWI's 2011 water tariff survey (see this post), and I looked at the average price of water for 86 cities in eastern and western Europe [XLS].

Guess what? The PIIGS (Portugal, Ireland, Italy, Greece and Spain) in the center of the European financial crisis have 19 out of the 30 cheapest tariffs for water.* There does, indeed, seem to be a connection between badly managed water services and badly managed government budgets.**

Bottom Line: Economic and environmental sustainability are the same, for water AND government.
* The tariff was calculated as the average cost per m3 (1,000 liters), given fixed costs and a consumption of 15 m3 per month. Tariffs in the bottom 30 ranged from free (N Ireland and R of Ireland) up to $1.60/m3.*** 24 of 32 US and Canadian cities also have water prices below $1.60/m3.

** Many water systems in these countries are badly maintained, with leaks, quality problems and poor service to customers.

*** $1.60 for 1,000 liters of water delivered to your home. Cheaper than Evian, eh?

3 comments:

Noah Morgenstern said...

David,

Super relevant post! I read the survey as well, and this it a trending topic in many linkedin groups. Would you mind if I reposted this article on my blog with a link back to Aguanomics?

The path is: http://waterqualityandsecurity.wordpress.com

Thanks,
Noah Morgenstern

Janice Beecher said...

Another interesting post. Water for subsistence can be and should be affordable. Good rate design can accomplish both equity and efficiency in pricing by allocating costs to the use that drives capacity.

Jay said...

I am currently reading "Boomerang" by Michael Lewis. In the book Lewis provides sme anecdotes that reveal the culture of several European countries that have disasterous fiscal policies. He explores Iceland, Greece, Ireland and Germany. (Germany may be included for contrast with the irresponsible countries.)

I'm sure that Lewis could find plenty of material for Italy, Spain and Portugal also, but it is hard to beat having a poet as your chief central banker for pure foolishness.