Water Shortages Wouldn't Exist if the Price Were Right

On April 22, the Deseret News reported that Salt Lake residents will be asked to voluntarily curtail lawn-watering through the late spring and summer, while mandatory restrictions will be placed on many water users from North Salt Lake to North Ogden. Water managers insist there is no present "crisis," although Salt Lake City officials were told that the capital city will receive only 60 percent of its allocation from Deer Creek Reservoir, the city's single biggest source of water—an unprecedented reduction.

Reservoirs throughout the Wasatch Front are unusually low this year. What can be done? Ivan Flint, manager of the Weber Basin Water Conservancy District, stated, "We pretty much have to rely on people to be patriotic enough to conserve."

Mr. Flint, like most managers of the government-run water districts in Utah, is making a serious error. Relying on "patriotism" to get people to conserve has sketchy success outside wartime. A mundane commodity like water raises patriotic fervor in few people, and many of us may respond by taking advantage of our neighbors' patriotism! Rather than solving a water-shortage problem, patriotic conservation is a formula for increasing civic strife.

Fortunately, there is a better solution that doesn't rely on water districts pandering to our patriotism. It relies on a far more reliable and equitable behavior: self-interest—in this case, consumers' wallets.

Given the incentive, Utahns can and will conserve water voluntarily. The Utah Division of Water Resources noted in 1999, "60 percent of [Utah's] potable water is used exclusively for landscape irrigation," and in 1997 estimated that Utahns use 30 to 50 percent more culinary water for outside watering than is needed to maintain current lifestyles and landscapes. But if Utahns can use less water, why don't they?

The principal reason is that Utah, a desert where water is supposed to be scarce and valuable, has ridiculously cheap water. Utahns enjoy the third-lowest culinary (potable) water rates in the United States, and are second only to Nevada in most water used per capita.

Basic economic theory postulates that price influences how much of a commodity is demanded. Demand for necessities is relatively inflexible, or "inelastic," but demand for luxuries like expensive foods is "elastic." Water demand is very interesting: for drinking water, a necessity of life, demand is very inelastic. But demand for other water uses, such as lawn irrigation and even indoor use, is not.

In a 1990 study of household water consumption in six Utah cities, the consulting firm CH2M Hill found that for every 10 percent price increase, water demand decreased by 5.74 percent. And this finding was for water use in winter, when residents were not watering their yards. In a study of 44 northern Utah communities, one of this article's authors found that demand for urban water was even more elastic: a 10 percent increase in the price corresponded with a 7.7 percent reduction in the quantity of water demanded. Since Utahns can maintain the same yards with much less water, it stands to reason that summer demand could be quite elastic, so that a 10 percent price increase would decrease use by 10 percent or more.

Inappropriate water pricing likely contributed to our present "shortage." According to Flint, last year's long, dry summer caused residents to use "record amounts of water," so last fall the district's reservoirs started only about 35 percent full, compared with 50 percent for a normal year (and winter's minimal precipitation did not make up the difference).

With no price incentive to conserve, residents rationally chose to use more water to sustain their lawns and gardens. Higher prices would have given residents considerable incentive to curb water use by watering more efficiently or even changing their landscaping. Unless prices are changed this year, this shortfall is likely to recur, no matter how patriotic some residents are. If the price is raised, all water users will have monetary incentives to conserve.

Why, then, are price increases conspicuously absent from the debate on water conservation? This logical solution is overlooked because although water is used and sold like a commodity, it is too often also viewed as a community resource to which people have entitlement. Instead people talk about conservation, patriotism, and, worst of all, mandatory restrictions.

"We think if we get the 20 percent reduction [in water consumption] that we can make it," LeRoy W. Hooton Jr., director of Salt Lake City's Public Utilities Department, told the Deseret News. We have a great idea to achieve that goal—increase the cost of water 20 percent. It's a lot more likely to work than Flint's plan to get culinary water users to reduce consumption: "We've just asked them to do their part." Will people do their part when their grass starts to turn brown?

Utah's growing water demand means water supply problems will not likely be temporary. We foresee that in the next 10 years, water managers will have to raise prices—especially summer water rates—and institutional pricing rules must be devised that will permit them to do so. If they don't do it now, the cost to the community will be higher later.

Deborah E. Moeller is the Director of Publications of the Sutherland Institute, a Utah-based public policy research institute; B. Delworth Gardner is a member of the Sutherland Institute Board of Scholars.

Permission to reprint this article in whole or in part is granted provided credit is given to the author and to the Sutherland Institute.

One thing that's not mentioned in the article is that if the price of water was high enough, water suppliers could afford to use desalination and build a system of pipes to transport the water from the ocean to wherever the demand was. The cost of desalination is currently less than a penny a gallon.

My personal experience with talking with environmentalists who complain about water shortages is that most of them want people to feel as if water shortages are inevitable, and that there is nothing we can do to end the shortages. Most environmentalists get really angry when I suggest the idea of solving the problem of water shortages by raising the price, and using desalination. I think they are more interested in complaining about water shortages than they are in actually solving the problem.

Bjorn Lomborg, of course, is an exception. In his book "The Skeptical Environmentalist," he suggests solving the problem of water shortages by raising the price, and using desalination. Of course, most enviornmentalists got angry at Lomborg for suggesting this. The truth is that they are more interested in complaining about the problem than they are in actually solving it.

I certainly agree that desalination plants should be built to provide adequate water supply where other sources are overburdened and inadequate. And I also agree that water rates should be raised to cover the increased costs of supply.
However, I believe that this should be done under the "Public Utility" Model, not some "deregulated privatization" scheme.

Water supply is a natural monopoly at the local level. I certainly can't envision the private sector ripping up our roadways to provide separate, competitive water mains to our homes for consumers to choose from. And controversial financial deregulation proposals such as those that are intertwined with the Enron scandals don't do a blasted thing to address local water supply problems.

If immigration stopped we wouldn't have to worry about water.

I don't know about where you live but in New Mexico We are worrying about water because we are in a severe drought and those damned Texans down-stream of us insist on getting there share.

Most of our immigrant problems come from the other 49 states.

Come to think of it if we passed a law forcing all non-Native New Mexicans to return to New York, California, Texas, Mexico or wherever, we could bring propery values down to where they should be. But we would probably still have a water problem and those damned Texans would still want their share.

Thanks for the idea! Now lets see if we can get a law passed.

Water supply is not a natural monopoly. For instance the owners of the pipes could charge a set rate to carry the water. The water could be supplied to the pipe system by any producer. After paying the cost to carry the system the producer could charge any amount he would like. Premium water could be trucked to houses willing to pay for it. Not unlike propane v. natural gas. The only monopolies are the ones that are allowed to exist by government fiat.

For instance the owners of the pipes could charge a set rate to carry the water.

Unless there's a second, competitive set of pipes in the ground, the "owners of the pipes" have a natural monopoly to set whatever rate they want to carry the water.

Spare me the poppycock about trucking in "premium" water.
The private sector already supplies that where people want it.
But it is NOT an economic alternative to tap water for general use.

OK, let's bring in more immigrants since more people drinking more water does not make a drought worse.

I agree. All non-native born New Mexicans must leave the State and all new immigration must cease. We can post the National Guard at our borders and keep out all the undesirables, particularly Texans.

Evicted immigrants must forfeit all of their property other than what can be carried on their backs. Motor vehicles are to be forfeited at the State border. All forfeited property including legal tender shall be divided equally among Native Born New Mexicans (but some are more equal than others you understand).

Native born New Mexican's not yet of legal age with Non-Native born parents must leave with their parents but they may apply for Citizenship when reaching 18 years of age.

Can you think of anything I've forgotten?

Native born parents must leave with their parents but they may apply for Citizenship when reaching 18 years of age.

Can you think of anything I've forgotten?

Yeah.

People born here of non-American citizens should not automatically qualify for citizenship.

But nevermind me--I'm just a selfish hater.

Enjoy your rationing.

People are being so naive to think that our resources can handle a constant increase in the population. Water, electricity, schools, roads ... all are being stressed because of the insane immigration that is taking place in this country. A town in NC is contemplating not allowing restaurant's to use dishes that require washing because the water levels have reached very low levels. Yes, the drought is the cause but it is reckless government that does not plan for drought conditions.

What people don't realize is that conservation and pollution controls and recycling are all names for rationing.

They think that their beloved technology will just find a way to make more of less--but it escapes their understanding that most of the more is watered-down less.

They, like the frogs in boiling water, have become so accustomed to a watered-down existence and a watered-down freedom, that they have no understanding of high quality existence.

Yes, the drought is the cause but it is reckless government that does not plan for drought conditions.

What's the government care--it's not the government that pays the price--it's the citizens who suffer the downward creep in quality of life.

But you know something? Those citizens deserve it for their stupidity.

It's just a shame that the entire country is changing forever and for the worse.

And yes, as they point out, immigrantion doesn't cause drought.

Immigrantion doesn't cause drought any more than building houses on a beach causes hurricanes.

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