Like what you've read?

On Line Opinion is the only Australian site where you get all sides of the story. We don't
charge, but we need your support. Here�s how you can help.

  • Advertise

    We have a monthly audience of 70,000 and advertising packages from $200 a month.

  • Volunteer

    We always need commissioning editors and sub-editors.

  • Contribute

    Got something to say? Submit an essay.


 The National Forum   Donate   Your Account   On Line Opinion   Forum   Blogs   Polling   About   
On Line Opinion logo ON LINE OPINION - Australia's e-journal of social and political debate

Subscribe!
Subscribe





On Line Opinion is a not-for-profit publication and relies on the generosity of its sponsors, editors and contributors. If you would like to help, contact us.
___________

Syndicate
RSS/XML


RSS 2.0

A simple solution to those annoying water restrictions

By Andrew Leigh - posted Tuesday, 29 March 2005


Can raising the water price reduce water usage? The evidence seems to suggest that consumers and businesses respond to price signals with water, just as they do with other commodities. Reviewing 50 studies from various countries on the effect of water prices on demand, the Dutch researcher Jasper Dalhuisen (pdf file 477KB) and his co-authors found that on average, a 10 per cent increase in water prices led to a 4 per cent drop in consumption.

Higher water prices have another advantage: they create incentives for the market to discover new ways of increasing supply. If we allowed the price to rise to an appropriate level, and permitted competition in the market for supply, alternatives such as recycling sewage into water for industrial use might flourish.

The most common objection to raising the price of water is that it may hurt the poor. This is an important consideration, but one which is easily addressed by a direct rebate to low-income households. Some of these households will use the money to cover the price rise, while others will reduce their usage, and put the money towards something else.

Advertisement

Low-income households should be compensated for a rise in the price of water, but we should not forget that the rich use more water than the poor. As a result, artificially low water prices primarily benefit the affluent. Maintaining water restrictions to help low-income Australian households is about as efficient as sending your bank details to a Nigerian scam-emailer to reduce poverty in Africa.

Most urban water authorities recycle only a small amount of their water supply at present, with demand for it constrained by the low price for fresh water. This makes it difficult for the utility to justify the outlay involved in getting more recycled water into the market. For example, half of Sydney Water's recycled water is used in-house.

Scrapping water restrictions comes down to one simple insight: when it comes to managing demand, individuals are smarter than governments. Setting the right price for water will force consumers to decide how best to conserve water, empower us to use water when and how we choose, and create incentives for suppliers to find new ways of increasing the amount of water available. Ultimately, this is the best way to manage Australia's scarce water resources.

  1. Pages:
  2. 1
  3. Page 2
  4. All

This is an edited version of an article first published in the Sydney Morning Herald March 23, 2005.



Discuss in our Forums

See what other readers are saying about this article!

Click here to read & post comments.

12 posts so far.

Share this:
reddit this reddit thisbookmark with del.icio.us Del.icio.usdigg thisseed newsvineSeed NewsvineStumbleUpon StumbleUponsubmit to propellerkwoff it

About the Author

Andrew Leigh is the member for Fraser (ACT). Prior to his election in 2010, he was a professor in the Research School of Economics at the Australian National University, and has previously worked as associate to Justice Michael Kirby of the High Court of Australia, a lawyer for Clifford Chance (London), and a researcher for the Progressive Policy Institute (Washington DC). He holds a PhD from Harvard University and has published three books and over 50 journal articles. His books include Disconnected (2010), Battlers and Billionaires (2013) and The Economics of Just About Everything (2014).

Other articles by this Author

All articles by Andrew Leigh
Photo of Andrew Leigh
Article Tools
Comment 12 comments
Print Printable version
Subscribe Subscribe
Email Email a friend
Advertisement

About Us Search Discuss Feedback Legals Privacy