Managing Water Scarcity

Dealing with water scarcity will require several actors and multiple solutions. One recommendation is to apply the market-based approach used with other commodities. An eight-ounce glass of water can be refilled for 2500 times less than the cost of a can of soft drink. Under these conditions, consumers have little incentive to conserve. A 1998 survey by the American Water Works Association indicates that 33 percent of the 60,000 public water systems in the United States encourage waste by offering volume discounts.30 Virtually no governments have adopted systems that would allow water rates to rise automatically as reservoir levels fall. Such a mechanism would send signals to businesses and consumers well in advance of an emergency, just like the price system for natural gas and other resources. There’s some evidence that water demand is responsive to price changes. When Boulder, Colorado, moved from an unmetered to metered system, water use per person dropped by 40 percent.

A modified market-based approach to water could even work in the developing world. In many countries, consumers are charged a flat rate for household water use. Yet the poor, especially those in rural areas, often end up paying more. In Karachi, for instance, residents connected to municipal supplies pay on average 14 cents per cubic meter of water, while the poor have to pay private vendors up to six times that price. In Manila, the poor pay vendors 42 times more for water for household use. One solution to this problem would be to develop a progressive pricing scheme whereby water prices rise per unit consumed. For example, in 2002, municipal authorities in Beijing set quotas on residents’water use and adopted a progressive water pricing system in order to prevent worsening shortages. Under a progressive fee system, residents pay one price for water until a certain reasonable amount is consumed. After that, the price goes up. In Beijing, demand for water dropped by an estimated 20 percent. The money saved from eliminating wasted water could be reinvested in developing more water-efficient technologies. Business also will have a role to play in promoting water sustainability. The Global Environmental Management Initiative (GEMI), a nonprofit organization of leading companies dedicated to fostering environmental excellence worldwide, has launched a water sustainability tool called “Connecting the Dots: Towards Creative Water Strategies.” Under the leadership of Coca-Cola and ConAgra, GEMI’s Water Group has laid out a business case for strategically addressing water challenges:

• Water costs are increasing in unexpected ways, such as the rising costs of wastewater treatment, pollution mitigation, and worker absenteeism stemming from employee contraction of water-borne illnesses.

• Business disruption risks are growing and there is the potential for water-related constraints on business activity. Current water allocations are not assured into the future.

• Customer expectations related to water use and impacts are evolving. For example, companies report that they are increasingly hearing from customers—shareholders and those who buy a company’s products and services—about the growing importance of water issues.

• Business’ “license to operate” and ability to expand are increasingly tied to water-related performance by financial markets, suppliers, neighbors, nongovernmental organizations, and regulators.34