There are many reasons why our country—and even more so, our world—is facing water scarcity. But when it comes down to it, there is one underlying issue that many feel is the real cause of our troubles: We don’t value water. Yes, more people are starting to understand that water is not a finite resource, but at the end of the day, many of us still take long showers and water our lawns with heavily treated, drinking-quality water. What is it going to take to encourage real change?
Reed Watson, director of Applied Programs at the Property & Environment Research Center (PERC) and co-author of the newly released book Tapping Water Markets, believes the answer lies in our country’s tried and true model of markets. “Markets work for a lot of goods,” Watson says. “How can we bring that tool to bear on a resource as important as water?”
Instead of putting a Band-Aid on water issues by implementing restrictions, Watson contends that water markets create financial incentives that facilitate both conservation and market innovation. The challenge, he says, is that establishing those markets will require substantial policy changes, starting with removing subsidies. “We simply don’t pay the actual cost of water,” he explains. “Most water rates are heavily subsidized by municipalities, so people don’t have much of an incentive to conserve.”
In addition to removing subsidies, Watson suggests replacing flat water rates with block pricing, which bases the cost of water on actual use: The more you use, the more it’s going to cost you. “Some municipalities, especially where water is scarce, are starting to use block pricing,” Watson says. “That, again, creates an incentive—do I need to water my lawn six times a week, or can I get by with four?”
On a macro scale, Watson believes water markets will require states to clearly establish water rights, a process called adjudication that has been effective in other regions of the world, most notably Australia. “In order for water markets to work—to promote efficiency—water rights need to be clearly defined,” Watson explains. “Think about a traditional market good like bottled water, for example. I go to the store, and I don’t have a right to that water until I pay the clerk. It’s clear who owns it. When it comes to water in streams in rivers and lakes, in the East anyway, it’s not so clear.”
Once rights are established, Watson says they must be secure, which means they can be enforced, and they need to be transferrable. “They need to be tradable among water users,” Watson says. “The whole idea here is that when users have been clearly defined [and there are] secure and transferrable water rights, they have an incentive to conserve because if they conserve, they can trade that conserved water to other users. They can make money by doing it.”
According to Watson, as well as the fellow authors of his book, establishing water markets is the key to achieving true water efficiency, where water is being put to its highest valued use. While some may argue that water is a natural resource that we all should have a right to, Watson says that type of thinking isn’t practical nor is it visionary. “On a certain level, I agree that water is essential to life, and everybody should have access to clean water,” he says. “The question is, how do we actually achieve that? Just saying that’s so and that it ought to be the case doesn’t necessarily provide water to the folks who need it. We have to look at the policies and the institutions.”