Considering Markets on World Water Day

Published: 
Friday, March 22, 2013
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Colorado RiverWhen the Ancient Mariner observed “water, water everywhere, nor any drop to drink” he would have no intention of sharing a freshwater source, had he found one. Indeed, we are awash with water here on the Blue Planet, but only a small fraction is in the location, volume, and quality needed to satisfy our demands. Yet the slogan for this year’s World Water Day is “Water, water everywhere, only if we share.”

Altruistic sharing, however, is not the solution to water scarcity. Rather, we must rely on self-interest, entrepreneurship, and markets to bolster accessible water supplies and to allocate our scarce water resources to their highest valued uses.

Markets are the quintessential mechanism for overcoming resource scarcity. Markets motivate entrepreneurs to find new supplies, deliver them to the marketplace as cheaply as possible, and compete with other producers on price. They also discourage waste by forcing consumers to pay the cost of their consumption.

We can harness market forces to align the incentives of water users with the practical realities of water scarcity.

For an example of how water markets can spark the entrepreneurial spirit and increase the supply of usable water, consider the Cadiz Valley Water Conservation, Recovery and Storage Project in the Mojave Desert of California. On its property in San Bernardino County, Cadiz, Inc. is attempting to capture 50,000 acre-feet of groundwater per year and deliver it to the 18 million water users served by the Metropolitan Water District of Southern California.

Not only would the Cadiz project make use of water otherwise lost to evaporation and salt contamination, it would also create a banking opportunity for participating water users to store excess water in wet years for later consumption in dry years. To be sure, the owners of Cadiz stand to make money if the project garners regulatory approval; and it’s this profit opportunity that is growing the proverbial pie of accessible water resources.

Aside from augmenting existing supplies and tapping into new ones, markets can foster cooperation and voluntary agreements between otherwise conflicting water users. In central Texas, for example, a consortium of businesses and communities along the Lower Colorado River has floated the idea of paying more than $100 million to downstream rice farmers to reduce their annual water usage. 

Rather than expanding reservoir capacity to the tune of $206 million, or using to the political process to reallocate the water without paying for it, the Central Texas Water Coalition would acquire rights to the water legally and to the mutual benefit of the parties involved. The idea is particularly appealing for Texas rice farmers who, for the past two years of drought, have gone without reliable irrigation supplies.

The opportunities for markets to enhance supplies and foster water cooperation are not limited to the United States, nor do they necessarily favor the rich to the detriment of the poor. For example, in the years following the privatization of Chile’s water management system, access to water increased from 63 percent to 99 percent in urban areas and from 27 percent to 94 percent in poorer rural areas. Privatization, combined with tiered pricing, dramatically increased water access across the socio-economic spectrum.

On this World Water Day, as calls for water sharing crowd the opinion pages and blog roles, consider the mechanisms by which we might actually increase water access and conservation. Water markets can enhance accessible supplies, promote voluntary trading, and increase relative abundance so that there truly is water, water everywhere.

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Reed Watson is the executive director at PERC. He is also the Director of PERC's Enviropreneur Institute, an educational program and launchpad for environmental entrepreneurs. Watson’s research focuses on the implementation of market-based solutions to natural resource conflicts. With Terry Anderson and Brandon Scarborough, he coauthored Tapping...
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