Water Pricing: How to Value Our Most Elusive Resource

Around 2,500 years ago the Greek philosopher Plato stated that “only what is rare is valuable, and water,  which is the best of all things…is also the cheapest”. In 1779, Adam Smith coined a famous paradox between  value and utility, comparing diamonds, valuable but  useless, with water, useful but worthless. but in the last  few decades, something happened. As we approached the new millennium, the  world realised that water is a finite resource  and that our activities, including the economic ones, demand increasing volumes of  water. Hence, at the 1992 International Conference on Water and the Environment, in  Dublin, it was agreed that “Water has  an economic value in all its competing  uses and should be recognised as an economic good”. But there was another part of the principle agreed in Dublin that received more  attention, stating that access to water at  an affordable price is a basic right of all  human beings. At the time, there were  several instances of private companies buying municipal water utilities and sometimes initiating significant price  hikes on water services. This led to  a situation where most of the attention on water pricing evolved around  pricing of water for domestic uses.  In 2010, the UN General Assemblyrecognised the human right to access to safe  drinking water and sanitation, which  seems to have contributed to loosening  some of the knots of the pricing debate. The human right to water stipulates  that states have an obligation to ensure  that their citizens have access to water for  their basic needs. This does not necessarily  mean that water for direct human use, such  as for drinking or cleaning, shall be free of charge..Nor does it mean that water use for other purposes, for example for producing  food, electricity or industrial goods, shall  be free. When discussing a potential price on  water, it is important to keep in mind that  the water resource and the use of it have  some characteristics that make it different  from many other types of traded resources  and goods. water moves: The liquid freshwater  on our planet is in constant movement; it  falls and flows and seeps. This makes the  establishment and enforcement of ownership of water difficult, which has led to a  discussion of a right to access rather than  a property right over water. This in turn  means that the right to access can be limited; e.g. in volume, in time or in the type  of usage. water revolves: When we use water it  is not consumed. Instead we rather change  its quality or its phase, i.e. we convert it to  vapour. In many cases, nature cleans and  condenses the water back to its original  state, albeit often in another location and  at another time. water varies: Freshwater is unevenly  distributed across the world and there is  great intra- and inter-annual variability  in rainfall, leading to a vast variation in  supply in addition to a very variable demand.  As market prices are generally set by supply  and demand, the significant and unrelated changes in both would mean that market  prices would vary a lot over time. water is local: Liquid water is uncompressible, heavy and often needed in  large volumes. In addition, the biggest  user, agriculture, would not be able to pay much per volume. With high transportation costs, the price for the water per  se would have to be very low to allow for  its conveyance. This means that water to  a large extent is and will continue to be a  local resource. water is essential: For most uses of  water, there is no substitute. For all biological needs, of humans, animals and  plants, water is vital. Hence, the only alternative to using a lot of water is to improve  the water efficiency in order to use less. With demand for water expected to  increase by 55 per cent by 2050, there is  an urgent need to find effective incentives  for managing demand. While there are  several measures in addition to pricing that  can contribute to moderating the global  demand for freshwater, it is likely that economic incentives will play an increasingly  important role. The discussion about how,  and how not to translate the elusive values  of our precious water to monetary measures for managing demand is becoming  more important than ever. As for Plato  and Smith, water is still the best and most  useful of things, but we may have to price  it to start recognising its value. Human  Right to Water Access to safe drinking water is not explicitly recognised as a self-standing human right, but is derived from the  right to an adequate standard of living,  which is contained in several international human rights treaties and  therefore legally binding. It requires  States to ensure universal access  to safe water for drinking, personal sanitation, washing of clothes, food  preparation, and personal and household hygiene. According to the right,  the price of water services must be  affordable for all without compromising the ability to pay for other  necessities guaranteed by human  rights, such as food, housing and  health care. Source : Water Front .http://www.siwi.org/Resources/Water_Front_Articles/WF-4-2013_Water-Pricing-web.pdf