Water Markets

Probe International advocates full-cost pricing for all water used by residential, commercial, and industrial users. No sectors – including agriculture – should be exempt from water charges. Municipal water charges should fully recover the costs of providing water and wastewater services. Provincial water charges should fully recover the costs of managing the resource. They should also reflect the value and scarcity of the raw resource and the amount of water consumed.

Pricing should involve several components. Prices should be designed to fully recover administrative costs, to reflect the value of the water used, and to reflect the extent to which the water is consumed. (These charges should, of course, be in addition to any charges imposed by municipalities or other suppliers to recover the costs of treating and distributing water.)

Water’s value depends on many factors, including where the water is located, how plentiful or scarce it is, and how much competition there is for it. Charges should vary across geography to reflect such factors.

Water charges should be substantially higher for water that is consumed than for water that is returned to the source. (The former water is in effect being purchased, while the latter is merely being rented.) Whenever possible, consumption should be assessed for specific users rather than estimated for an entire sector. Furthermore, the definition of consumption customarily used should be broadened. The conventional definition counts consumptive use as the portion of a withdrawal that is lost or otherwise not returned to the source due to evaporation, incorporation into products, or other processes. We believe that consumptive use should be re-defined to include any use that makes water unavailable for other uses. Pollution, or any other use that precludes water from being used in other ways, should be considered a consumptive use.

Only charging the true cost of water will allow jurisdictions with constrained water resources to conserve water.

Further reading

Elizabeth Brubaker, Environment Probe, The economic water cycle
Jonathan Adler, Cato Institute, Warming up to water markets
Brandon Scarborough, PERC Policy Series, Environmental water markets: Restoring streams through trade
Gary D. Libecap, The Milkin Institute Review, Using water markets to quench the thirst of the American west
Henning Bjornlund, CD Howe Institute, Competition for Water

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