Carmen Revenga
The Nature Conservancy
April 16, 2010

Freshwater ecosystems are under siege in many parts of the world — and one often overlooked driver of this crisis is how we value and price water.

Water doesn’t cost the same everywhere. In fact, the price of water varies widely between countries, between cities and rural areas, and even between economic sectors such as irrigation agriculture (whose water use is generally subsidized) or industry.

Regardless of who you are, however, the price you pay for water is but a small fraction of what it actually costs to extract water, deliver it to users, and treat it after its use.

Price Water To Reflect All Its Costs

And other hidden costs of using water — such as the ecological degradation of rivers and lakes that results from taking too much of their water, or the time girls in developing countries spend fetching water from common wells instead of attending school — have been universally ignored.

These ecological impacts can be devastating to local communities that depend upon fish and other benefits of healthy freshwater ecosystems for their livelihoods and well-being.

As the global population has grown and industrialized, we have tapped (and in many cases, polluted) most of the easily-accessible sources of fresh water. As water scarcity increases, so does the cost of supplying it from remote sources.

These increasing costs have slowly provided incentives to change the way we value water. The next big idea in freshwater conservation is to treat water as an economic good and price it accordingly to reflect its true cost.

What Should the Cost of Water Include?

Supporters of the concept of full-cost water pricing argue that, to improve water-use efficiency and better meet our water needs, the price of water has to reflect the cost of supplying, distributing and treating it.

There is some evidence that this principle works: The more people pay for water, the less they waste. Price increases for water in Bogor, Indonesia, for example, reduced domestic consumption by 30 percent.

But in addition to improving efficiency, the true cost of water should go even further to include the costs of sustaining healthy ecosystems and species — the basis for current and future water provision.

These costs would include measures that reduce pollution and soil erosion in the watersheds that supply our water, including conserving natural forest and wetland habitats. They would also include the price of mitigating the impacts of water infrastructure such as dams.

Big Political Obstacles

While pricing water to reflect its true cost is relatively simple in theory, the political obstacles are formidable.

Many developed countries have already adopted the “polluter pays” principle — either mandating treatment or charging fines for effluents released into rivers and streams, although enforcement is still weak.

In the developing world, however, between 90 percent and 95 percent of all sewage and 70 percent of industrial wastes are still dumped untreated into rivers and lakes.

And with only a couple of notable exceptions, no country has imposed limitations on the total amount of water that can be extracted from rivers and lakes — thereby leaving those natural systems extremely vulnerable to over-extraction.

The Poor Already Pay Too Much

Opponents to the idea of full-cost water pricing claim that access to water is a not a commodity but a fundamental human right — and that subjecting it to market forces would risk pricing it out of the reach of the poor and marginalized.

But the reality is that more than 1 billion people — most of them poor — do not have access to clean water today, primarily due to a lack of funding to supply water to them. Consequently, poor communities are already paying higher water prices because they have to get water from informal water vendors rather than a water delivery system.

One analysis in urban areas of Asia show that prices charged by informal water vendors are more than 100 times that from domestic connections.

By charging water users for the full cost of water delivery, more money would be available to governments to enable them to deliver water to the poor.

Full-Cost Pricing is Key to Sustainability

Full-cost water pricing is essential if we are to manage water resources to fully meet people’s needs while protecting watersheds and freshwater ecosystems.

In Brazil and Ecuador, a small percentage of the water fees paid by city dwellers is used to protect the watersheds that supply their water. This strategy is extremely cost-effective, because healthy watersheds produce clean water that requires less water treatment.

Full-cost pricing can also enable water utilities to upgrade their distribution systems, thereby saving significant quantities of water. Many cities lose 40 percent to 60 percent or more of their water from leaky pipes. By saving water, cities don’t need to take so much from rivers and lakes.

However, when adopting a full-cost water pricing scheme, it is critically important to consider its affordability for poor populations.

This issue can be addressed by implementing subsidies for the poor or a tiered rate structure based on ability to pay that ensures that all have water for their basic needs. South Africa has already adopted such a scheme.

By paying the full, real costs of water, each of us can help ensure that everyone has access to affordable, clean water — and that the lakes and rivers that supply our water are well-managed and protected.