Professor Ron Griffin, an environmental and resource economist at the Department of Agricultural Economics in Texas A&M, visited the Centre for Global Food and Resources from Nov 8th to Nov 10th to collaborate with the water group and to conduct a workshop on Water Economics and Policy. In the workshop, several issues of water policy and policy instruments were discussed with the audience.
Price policy is one of the main tools of demand driven water policy. Prices constitute a powerful yet unused instrument. The widespread belief that water is a public good (non rival and non excludable) and that water is a “need” not a “right” has led to the implementation of inefficient water policies. For instance, block tariffs conceived to favour the poor as well as low water users are inefficient and tend to increase consumer surplus for higher income/larger water user, rather than supposedly benefiting lower income/low water users. Price policies that will equate prices to the marginal cost of water are likely to be more equitable in comparison to the widely used block tariffs. Pricing water at its marginal cost will increasingly send valuable signals to water users of its relative scarcity.
Currently used water policy instruments are not flexible enough to adjust to changes in water availability. For instance, in the United States water prices can be set and maintained fixed between one and five years by utility companies. In a scenario of climate variability prices do not reflect what is happening with the resource. For example, the price of petrol fluctuates reflecting the availability of oil, the price of the water that we get in our homes does not always reflect what is happening with the “raw” water from rivers, streams, and lakes.
Prices can also serve as a tool to signal places with relative water scarcity. In some areas of California, connection to the water supply is in the hundred of thousand dollars, sending a signal to potential housing buyers of water availability in the area. This tool can be used to prevent more people moving to areas where household consumption and climate conditions are putting a lot of stress on water resources.
The discussion in the workshop also compared the distribution of water rights in the United States and Australia, water leasing, water policy issues in developed and developing countries, the need for further research on the welfare impacts of marginal cost pricing, and the lack of studies on water supply and water supply policy instruments.