Wednesday, March 5, 2008

Water pricing

There seems to be renewed interest in letting the market ration water rather then government restrictions.

Professor Peter Cullen, from the Wentworth Group of Concerned Scientists, said such a move would mean water restrictions would be used only as a last resort.

"We don't ... ration petrol," Prof Cullen told ABC Radio.

"As petrol gets scarcer the price goes up and we make our individual choices.

"So the opportunity to really use the water market to confront the water scarcity that we are now (facing) is very important."

Prof Cullen's comments came after Treasury Secretary Ken Henry proposed a national user-pays water trading system, in which water use would be controlled by price instead of restrictions.....

The Center of Independent Studies has been looking at water markets too. They make this observation:

The first thing we notice about the price of water is that it is astonishingly cheap. The current price of urban water in most Australian cities, excluding fixed charges, is between $1 and $2 per kilolitre. That is less than 0.2c per litre delivered to our homes. It is hard to think of anything else that we pay to consume that is even close to that cheap.

We have a reasonably good understanding of the costs of alternative sources of supplying water. These include a range of options from the very small (rainwater tanks) to the very large (desalination plants). It has been estimated that the cost of desalination ranges from $1.15 to $3.50 a kilolitre, plus an additional 6 to 18c a kilolitre if we wish to include the costs of greenhouse gas abatement.(11) This is still very cheap, so we might ponder why we would have restrictions if people were prepared to pay this price....

Water markets make sense to me, if people choose to water their lawns why shouldn't they if they are willing pay for more expensive water? If there was demand for more water expensive alternatives such as desalination would have clearer justification.

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