The Value of Water Water as a Public versus a Private Good Water Affordability Water Marketing Water Banking Pollution Fees and Credits Environmental Values Value of Water A resource is cheap ID: 782489
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Slide1
Chapter 13. The Economics of Water
The Value of Water
Water as a Public versus a Private Good
Water Affordability
Water Marketing
Water Banking
Pollution Fees and Credits
Environmental Values
Slide2Value of Water
A
resource is cheap when it is plentiful:The price goes up as it becomes scarceThis is a scarcity valueThe water-diamond paradoxAs the price goes up, we begin to substitute:one product for another one location for anotherWe can also become more efficient
Slide3Slide4Role of Governments
As
water provider:Many utilities are started for the purpose of providing water and wastewater servicesNeeded to promote industry and developmentLarge reservoirs in the West as well as TVA in the SoutheastAs water regulator:Must allocate based on efficient and equitable usesMust protect the environment
Slide5Slide6Chapter 13. The Economics of Water
The Value of Water
Water as a Public versus a Private GoodWater AffordabilityWater MarketingWater BankingPollution Fees and CreditsEnvironmental Values
Slide7Public vs. Private Good
Public: A
shared resource that the general public directly benefits from, but does not interfere with or diminish the use by others (air, water recreation, national defense)Private: A commodity that can’t be shared with others (milk, gas)Public vs. Private UsePublic: Use by the general public
(fountains, rivers, lakes)
Private: Use
by
individuals
(agriculture, industry, water
mill
)
Slide8Privatization
The delegation of water management to the private sector
Private utilities provide 15% of US water and wastewater servicesIn 1999, Atlanta decided to privatize their water systemUnited Water, a subsidiary of Suez (French company) received a 20-year lease in operate a drinking water plant, three wastewater plants, their water distribution system, as well as operation and maintenance (O&M)United Water received $21.4 million per year, and was projected to save Atlanta $400 million during the 20-year leaseJanuary 2003, Atlanta withdrew the leaseHigher than expected O&M costsPoor water service and water quality problems
Slide9Chapter 13. The Economics of Water
The Value of Water
Water as a Public versus a Private GoodWater AffordabilityWater MarketingWater BankingPollution Fees and CreditsEnvironmental Values
Slide10Water Affordability
1.1
billion (out of world population of almost 7 billion) people don’t have access to safe drinking waterEven more don’t have access to wastewater systemsAverage cost of water in US is small (0.5% of income)But this is harder for low-income peopleIn 1990s, France passed laws to guarantee access to waterCan’t cut off water to homes with children or elderlyAverage residential water use in the USToilets => 36% Bath & shower => 28%Outdoor => 16% Laundry => 20% Some water agencies use price incentives to reduce water use
Many states (including GA) require low-flow toilets in new homes
Slide11Chapter 13. The Economics of Water
The Value of Water
Water as a Public versus a Private GoodWater AffordabilityWater MarketingWater BankingPollution Fees and CreditsEnvironmental Values
Slide12Water Marketing
According to most economists, letting the market put a price on water is a way to ensure it is used efficiently
Water marketing is common in Western statesBetween individual irrigatorsBetween irrigators and citiesBetween irrigators and industryConflict between desire to use local resource for economic benefit and concept that water is a public resource
Slide13Unregulated water markets
Example: Farmers sell their water to cities
Direct impacts: Farmers makes a lot of money, cities builds a lots of new homesIndirect impacts: The local economies go broke Local counties lose taxes that farmers paidLocal businesses lose sales (fertilizer, feed, seed, farm equipment)Regulated water marketsWater transfers restricted to local region Water transfers restricted to type of use Ag => Ag, City => City, Industry => IndustryNon-local water transfers must be approved by the local region
Slide14Murray-Darling Basin
Australia’s largest river system
19 inches (500 mm) annual rainfall50% of Australia’s cropland75% of Australia’s irrigated land10% of populationThree states: New South Wales, Queensland, & Victoria1917 => Water management agency adoptedMurray-Darling Basin CommissionUnlimited water use for irrigation1980s => shortages, low flows, soil salinization1981 => limits imposed and trading was allowed1990s => water selling for $86 per acre-foot per year
Slide15Slide16Chapter 13. The Economics of Water
The Value of Water
Water as a Public versus a Private GoodWater AffordabilityWater MarketingWater BankingPollution Fees and CreditsEnvironmental Values
Slide17Water Banking
The
state buys and sells water resourcesTakes surplus and/or unneeded waterStores it and then sells it to usersLakes for surface water, aquifers for ground waterCan also require that a certain percentage (say 10%) of every private water transfer goes into the bank - a transfer fee.
Slide18Chapter 13. The Economics of Water
The Value of Water
Water as a Public versus a Private GoodWater AffordabilityWater MarketingSurface water marketingGround water marketingWater BankingPollution Fees and CreditsEnvironmental Values
Slide19Pollutant Trading
An example is
Cap and TradeA cap is placed on how much point sources can emit (lbs of phosphorus per year, for example)If a point source is emitting less than cap then they can sell excess credits (in lbs of phosphorus)Trading system in the Tar-Pamlico River, North CarolinaNitrogen and phosphorus creditsMostly point source tradesTrading system in the Murray-Darling basinSalinity credits
Slide20If a point source exceeds their cap they can
:
Install advanced technology to remove pollutantsVery expensiveLimited reduction in pollutionMuch cheaper to reduce nonpoint sources or tradeBuy credits from point source that has credits to sell Price is determined by buyer and sellerTrades are restricted to watershedFree market determines the most efficient way to reduce total watershed pollutionTrades between point sources are commonTrades between point sources (buyers) and nonpoint sources (sellers) less common due to uncertainty in nonpoint source control
Slide21Chapter 13. The Economics of Water
The Value of Water
Water as a Public versus a Private GoodWater AffordabilityWater MarketingSurface water marketingGround water marketingWater BankingPollution Fees and CreditsEnvironmental Values
Slide22Environmental Values
What are
the economic values of improved water quality or leaving more water in streams to support wildlife?Difficult question for economists...Use studies to measure the public’s willingness to payWhat are the values of ecosystem services?
Slide23Chapter Summary
The
value of water increases as it becomes more scarceTwo views of water: a public resource or a private goodRegulated water markets are being used to re-allocate water between users. Regulations are needed to ensure efficiency and equity.Assigning an economic value to water’s environmental benefits is difficult