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Wow! An Article on Water That Actually Focuses on Price

November 29, 2009, 3:27 pm

For years it has aggravated me that politicians claim the need to make command and control decisions on water conservation, and they run advertisements trying to shame me for my water use, all while the state government has subsidized some of the cheapest water in the country.

This is crazy!   If we are really drawing down reservoirs like Lake Mead and Lake Powell as well as underground aquafers, then raise the price until demand matches a sustainable supply level.  Duh.

But water is one of those commodities like gasoline that politicians love to meddle with prices for populist ends.  So we continue to have cheap water, and as a result we have 1) no incentive to find new sources and 2) no incentive to conserve.  As I pointed out in the earlier post linked above, we here in the desert have water less than half the price of Seattle!.  All while the government pays farmers over $100 million a year to grow water-hungry crops in the Arizona desert, using price-subsidized water.

Well, miracle of miracles, and for the first time in my experience, the AZ Republic actually published an article focusing on the absurdity of water subsidies. The article focuses narrowly on the cross-subsidy of our municipal power and water authority, charging higher electric rates to keep water rates lower.

Unfortunately, this is only a small part of the effective subsidy, for like most of the economically ignorant the Republic focuses only on the difference between the current price and cost (which is about $33 million).  The real subsidy is the difference between the current price and the true market clearing price at a sustainable supply rate (sustainability defined here as the rate that maintains reservoir, both above and below the ground, levels constant or rising over the long term.)  This is a MUCH larger number than $33 million.

Tags: , , , ,
Category: Economics
  • http://gmsplace.com/ John Moore

    I suspect the true clearing price is far lower than what some of us (customers of non-subsidized private water companies) are paying.

    However, all we really need to do to clear up our water issues here is to remove the subsidies from the farmers. Their use of water is so high that land converted to urban uses has lower water usage (with all those people living on it) than when it was growing cotton or whatever.

  • http://www.itsaboutmakingbabies.com/ Brad K.

    One user of Arizona water, in astonishing quantity, is the Diablo Canyon nuclear power plant. I was surprised to find they purchase Phoenix sewer water, and do the treating to create the clean water they need to operate their power plant. That is a lot of piping, to tap into such a resource.

    I like the Sun City approach - the home owners are not permitted to plant a grass lawn, it has to be rock or gravel. Elsewhere you have the sprinklers, the drip systems to sustain the trees, or in older neighborhoods, flood irrigation for the yard and pasture. I lived for a time near the Waddell post office, north of Goodyear. There was a seldom-enforced restriction set by the state to some number of acre-feet of water per year per acre. We got water every two weeks, that worked good for Bermuda pasture and lawn. Many of us tried to get by with as little as needed - others wanted a foot of water each time.

    Just consider when you criticize farming use of water, it is similar to criticizing use of farm chemicals. Reducing farm output doesn't push the farmer to someplace more appropriate - it pushes the farmer into some other business, and less food, less cotton, or less animal feed is produced in the state and the nation. At some point, long after the situation is easily reexamined, more people will start going hungry because this food or that item isn't available, or costs too much to purchase. Raising costs to farm accomplishes the same thing, there are very few really obvious choices, providing you care about feeding the people that are being fed today.

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  • Bobby L

    @Brad: I remember learning that economics was "the study of how people allocate and manage their scarce resources." Today we usually use (or in this case of water allocation, pretend to use) price signals coupled with supply and demand.

    So when you talk about a farmer having to choose between spending a lot of money that isn't his in the form of water subsidies, or bear the true cost himself, I say let the farming be allocated on it's own to a region (or perish the thought, another country!) that has the comparative advantage to do so. The opportunity cost to the private sector lost in taxes taken to pay for this scheme (or any other) is so oft overlooked, I honestly think the concept is completely lost on anyone in government.

    AND - we are not going to run out of food, as long as free people can choose to trade goods and services at the prices they agree on. For example, if too many people abandon farming and food becomes more scarce and therefore more expensive, some people would go back into farming because they would see an opportunity for profit. EVERY market has an equilibrium point, as long as it's not being effed up by micro-managing technocrats.

  • http://www.friendsofwater.com timothy

    Certainly agriculture uses far more water than households. At least with agriculture the goal is something we can't do without - food. While green lawns in a water-poor area serves no purpose. But likely there are better places to grow food than in the desert. For information to save water and filter water (and a water softener alternative) please visit http://www.friendsofwater.com.

  • perlhaqr

    *applauds Bobby L.*

  • http://www.zimfamilycockers.com/DiabloCanyon.html Jim Zim

    Brad K:
    The Diablo Canyon nuclear power plant is in California. It does not use any water from Arizona. The Diablo Canyon power plant uses only seawater from the Pacific ocean. It's possible you may be thinking of the nuclear power plant which is located in Arizona, which is called the Palo Verde Nuclear Generating Station.