The Price and Value of Scarce Water Resources
Dr Colin Fenn Chair of CIWEM’s Water Resources Panel and Director, CFonstream
“Our children will enjoy in their homes electrical energy too cheap to meter ...” Lewis L. Strauss, 16 September 1954.
The “too cheap to meter” phrase thus coined carries high meaning. That it didn’t turn out as predicted for electrical energy (or nuclear) is not the point. The point is that is we undervalue that which we don’t pay for on an incremental basis.
If it’s not charged on an incremental basis, it can’t be worth much.
That the said generation of children here in the UK have enjoyed unmetered supplies of water in their homes, and that their children in turn still do, in the main, speaks volumes as to the value we place on water, and its removal from the environment. Put plainly, without metering and charging by volume taken, water has zero marginal cost to consumers, irrespective of its high value to the environment, especially where and when it starts to become scarce. What message does that send out? That water is a commodity, or a social right, even, something that falls from the sky and whilst not entirely free, is plainly cheap and plentiful enough for us to expect to be able to turn on the tap and have fresh, pure supplies wherever, whenever and whatever the circumstances (rationing of water supplies is, after all, an unacceptable prospect in government policy 1 company plans2
and nearly all water ).
... with consequences for the environment we take our water from, particularly where and when it is scarce. Little wonder that a third of the catchments across England and Wales are now judged by the Environment Agency to be either over-abstracted (15%) or over- licensed (18%)3
– meaning that unacceptable damage
to the environment occurs during low flows under existing levels of abstraction, or would do if licensed amounts were fully used, respectively. The Agency’s (2009) estimate of the cost of restoring abstraction |94| ENVIRONMENT INDUSTRY MAGAZINE
to sustainable levels at sites England and Wales then identified as being in need of attention was £448 million. Defra has separately estimated that to achieve environmental flow indicators (EFIs) across England & Wales by 2015 might cost anything from £3.7 billion to £27 billion.4
Under a phased approach with the
timescale extending to 2027, the cost could be reduced to £0.93 billion. Uncertain as they are, the numbers are big. <Photo 1 here>
.... and things look set to get worse Climate change, population growth and lifestyle preferences are making and will continue to make matters more challenging. Valuing the environment more, as rich societies are meant to do, is not assisted by the current economic climate. The adoption of higher environmental protection standards (to meet the requirements of the Habitats Directive, and the Water Framework Directive, particularly) will lead to beneficial (but costly) reductions in abstraction at sites with European designations, for which a statutory basis for compensation of lost water rights exists. Over-abstraction from sites with national and local designations, however, are often trapped by the absence of a statutory driver for revocation and compensation, on the one hand, and, on the other, by the inability to make good the loss from reductions in abstraction in the ‘cost effective to customers’ way required by Ofwat for funding through price increases (whether through demand-side or supply-side measures; maybe special case relaxations could be provided for demand-side measures, here?). The Environment Agency’s Environmental Improvement Unit Charge (EIUC) scheme was set up to support sustainability reductions of abstraction falling into this category, but it is under-funded and uncertain in operation.
So demand seems set to keep on rising (driven up by population growth, even if per capita consumption can be managed down), resources seem set to fall and the environment seems set to remain trapped between the two. Water is becoming scarcer, and the unit cost of providing new savings (from demand-side schemes) or supplies (from supply-side schemes) is becoming costlier.
Cue the price signal. So is water too cheap? No, according to customers who are used to paying what they have been paying for water, and have other rising demands on their disposable income. And no, according to CC Water, the water customer ‘watchdog’; to Ofwat, the economic regulator; and to water companies, who face the flak from rising prices. But yes, according to many water and environmental practitioners and their professional Institutions. The majority opinion of the many straw polls I’ve enjoyed over the years (at meetings of such practitioners) is invariably that the price of water (to users) needs to increase significantly, to include the full (and variable) value of environmental externalities5
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