Monday, October 6, 2008

Should water be priced according to its market value?

The Economist hosts a debate with the following proposition: "Water as a scarce resource should be priced according to its market value". Go and join a lively debate!

This was my comment:

Freshwater is becoming increasingly scarce. An important benefit of responding to this increasing scarcity with flexible water tariffs is that consumers can respond in a manner of their choice - paying the increased amount, installing water saving technology, reducing their use or a combination of several response options. Too low water tariffs also affects quality of service and it is usually the poor who suffer the most. 

Being flexible and having options in a complex world of wet and dry cycles is a huge benefit. Inflexible water use restrictions create huge losses of welfare and are often implemented too late and after periods of a false security created by low water tariffs. 

It does not end here though. Everyone on earth needs water to live. Governments need to step in to ensure that everyone has access to sufficient water for his/her basic needs. The South African Water Act for example clearly makes this distinction and sees no conflict between the provision of water for basic human needs and the clear need for economically efficient allocation of a scarce resource for productive and consumptive purposes. 

I have voted pro, but under the proviso that the basic needs of all people (and the functioning of the environment) is taken care of.

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