Water prices rising, worldwide

USA Today (Society for the Advancement of Education), April, 2007

The price of water is increasing--in some places dramatically--throughout the world. Over the past five years, municipal rates have risen by an average of 27% in the U.S., 32% in the United Kingdom, 45% in Australia, 50% in South Africa, and 58% in Canada, reports Edwin H. Clark II in the Eco-Economy Update Series from Earth Policy Institute, Washington, D.C.

A survey of 14 countries indicates that average prices range from 66 cents per cubic meter in the U.S. up to $2.25 in Denmark and Germany. Yet, consumers rarely pay the actual cost of water. In fact, many governments practically (and sometimes literally) give water away for nothing. The average American household consumes about 480 cubic meters (127,400 gallons) during a year. Homeowners in Washington, D.C., pay about $350 (72 cents per cubic meter) for that amount. Making the same purchase from a vendor in the slums of Guatemala City would cost more than $1,700.

Water prices largely are determined by three factors: cost of transport from its source to the user, total demand, and price subsidies. Treatment to remove contaminants also can add to the expense. The cost of transporting water is based on how far--and how high--it has to go. Growing cities and towns may have to venture hundreds of miles to find the water needed to satisfy their increasing thirst. California cities long have imported water from that distance, while China is constructing three canals--two of which are more than 1,000 miles long--to transfer water from the Yangtze River to Beijing and other rapidly growing areas in the northern provinces, notes Clark.

Pumping water out of the ground or over land to higher elevations is energy-intensive. Pumping 480 cubic meters of water a height of 100 meters requires some 200 kilowatt-hours of electricity. At a price of 10 cents per kilowatt-hour, the cost is $20--and that does not include the pump, well, and piping. One-hundred meters is not an unusual lift for wells tapping falling supplies of groundwater. In northern China, lifts of 1,000 meters sometimes are required. Mexico City, at an elevation of 2,239 meters, has to pump parts of its water supply over 1,000 meters up a mountain. The operating costs alone amount to $128,500,000 annually Pumping this water requires more energy than is consumed overall in the nearby city of Puebla, home to 8,300,000 people. Amman, Jordan, faces a similar problem related to delivering water to higher elevations, Clark points out.

In most places, water is not purchased or exchanged in a market, although formal water markets are developing in the western U.S., Australia, and Chile, providing examples of how high the scarcity value of water--that is, the amount that other potential users would be willing to pay for it--can be. Water prices in the Australian markets peaked at near 75 cents per cubic meter in December 2006--climbing 20-fold in a year--due, in part, to a prolonged drought. In the American West, water prices typically range between three and 10 cents per cubic meter. This is just the cost of the water itself and does not include the expense of treating or transporting it. In some western cities, water is so scarce that municipalities are selling sewage effluent for as much as one dollar a cubic meter to be used for irrigating gardens. In India, water scarcity has prompted some farmers to profit by selling their water instead of actually farming. The water they formerly used to irrigate crops instead is pumped from their wells and trucked to nearby cities.

Water subsidies, meanwhile, can be very large, documents Clark. For instance, water revenues in the city of Delhi are less than 20% of what it spends each year to provide the valuable liquid. On average worldwide, nearly 40% of municipal suppliers do not charge enough for water to meet their basic operating and maintenance costs. Subsidies often benefit only higher-income families. Frequently, urban slum residents in developing countries have no access to municipal water supplies and instead purchase what they need from private purveyors who bring it in by truck. Yet, water subsidies are not limited to the developing world. Farmers in California's Central Valley employ roughly one-fifth of the state's water and pay, on average, slightly over one cent per cubic meter, just two percent of what Los Angeles pays for its drinking water and only 10% of its replacement value. One analysis of a new project in central Utah found that the water it will provide will cost just about 40 times more than irrigators pay for it.

Clark suggests that a key step in moving toward more rational water management is to place a price on water that reflects its value and scarcity. This can, of course, result in substantial price increases that particularly hurt low-income families. The best way to avoid this dilemma is to use a block rate pricing system where a low level of consumption--that required to satisfy basic needs--is inexpensive, while prices increase at higher levels of consumption. In Osaka, Japan, users pay a set monthly fee that includes 10 cubic meters of water; beyond that, prices escalate in steps from 82 cents per cubic meter up to three dollars or more for high-volume users.