Water: pricing is the key to equitable access

Despite a wet winter, water shortages are set to persist in the south-west of the US. States such as Arizona and California have an opportunity to show how to allocate access to water equitably. At present, their squabbling highlights self-interest and wastefulness partly responsible for the problem.

Water is the most vital of natural assets. Supplies are under growing pressure because of climate change, population growth and unchecked consumption. Nearly one-fifth of humanity lives in stressed river basins. These include some 40mn people across seven US states and Mexico who rely on the 1,450-mile-long Colorado River.

Demand vastly outpaces supply. Lake Powell and Lake Mead, the largest reservoirs in the US, are just 23 and 29 per cent full respectively. Negotiations between states on consumption cuts are at a stalemate.

Incredibly, households in Phoenix pay less for water than those in rain-soaked cities like Seattle. The typical charge was $12.22 a month for water in 2018, compared to $59.30 in Seattle, according to Circle of Blue, a charity.

Differential pricing of water per gallon would make a lot of sense. Basic household supplies would be cheap to reduce regressive impacts. Cost would rise above a fixed threshold to encourage conservation. The average American uses 156 gallons of water per day. That is more than twice the average in France.

Heavy manufacturing, leisure industries and agricultural users should pay more per unit, nudging them to reduce their own consumption.

In Arizona, agriculture generated less than 2 per cent of the state’s gross domestic product of $420bn in 2021. Yet farming consumes about three-quarters of the water in the state. Low-cost water have even attracted the likes of Saudi food giant Almarai. Its subsidiary Fondomonte has been buying and leasing land across western Arizona. Lax groundwater laws allows it to pump unlimited water to grow alfalfa, which it exports to feed cows 8,000 miles away back home.

Anomalies like this show that the US’s legacy system of water allocation is failing.

Creating a fair water pricing scheme for a whole river basin would be tough. Reformers would need to create monitoring and trading systems while overcoming fierce political resistance. But in a world where water scarcity is growing, this would be a better way of allocating the resource than a free-for-all.