What is the value of water?

duane.paul

How is water valued? It’s not the amount we pay our water providers to deliver water to our homes. That’s the price, which economists separate from value. And it’s not the amount spent by our water providers acquiring, treating, and delivering the water. That would be the cost, and because many water projects in this country have been built as public works by government agencies, the current cost of water to U.S. consumers does not necessarily reflect its value. Consequently, water’s worth, its value, is harder to pin down. But as our populations and industries consume ever more water, we need to consider just what water is worth to us.

The value we place on water changes as our water uses change. In a developing country with scarce drinking water supplies, the value of water ties most closely to its life-giving properties. In Saudi Arabia, where oil is plentiful but water is scarce, desalination plants powered by oil or natural gas turn salt water into drinking water to meet community needs.  In the U.S., the value of water reflects not only those properties that meet our needs, but other uses which meet our wants – bathing, landscape irrigation, dishwashing, or even washing cars and sidewalks.

The value of water is also dependent on its use.  When used in agriculture, the value of water can be measured against the value of the crops. If the net income to farmers from their crops doesn’t support the cost of the water, farmers won’t grow the crops. In contrast, urban consumers expect water to be available whenever they turn on the tap, and rarely think about the per-unit cost. They generally do not weigh the cost of a shower against the cost of another tangible good that they could purchase for the money spent on the water for the shower.

The apparent low price of water has led to building desert cities like Las Vegas and Phoenix. Like Saudi Arabia, we rely on a costly system to deliver water supplies to population. But our system has arisen not because it is the best or most efficient, but because our decisions are influenced by water’s apparent price rather than its true value.

Consequently, there remains a discernible gap between what we pay for water and its true value. However, the costs of water to urban consumers are increasing as supplies become more limited and regulations more stringent, directly affecting the costs which purveyors incur to provide water on demand at any time. And because the prices that water agencies charge are related directly to their costs, we can expect that the prices we pay will also increase in the future.

As the prices of water increase in the future, urban consumers will increasingly be forced to consider the value of that resource in different uses. Drinking water is a necessity. But how much will we be willing to pay for a green lawn or a pool? These calculations will be more important as we assess the true value of the resource.

Posted in Economics |