Tradable usage rights are a good tool for tackling the world’s water problems

Water rights
Awash in waste Apr 8th 2009
From The Economist print edition
Reuters

THE Chinese word for politics (zhengzhi) includes a character that looks like three drops of water next to a platform or dyke. Politics and water control, the Chinese character implies, are intimately linked.

Such a way of thinking contrasts with the usual view around the world, which argues that since humans cannot live without water, it should be a basic human right, available to all, preferably for nothing. The Chinese character points to a more useful approach. In many places water is becoming scarcer. Treating it as a right makes the scarcity worse. Some of the world’s great rivers no longer reach the sea. In many cities water is rationed. Droughts and floods are becoming more extreme. These problems demand policies. Ideally, efficient water use would be encouraged by charging for it, but attempts to do so have mostly proved politically impossible. A more practicable alternative is a system of tradable water-usage rights.

What used to be seen as separate, local difficulties—in California, the desiccated Aral Sea, the Sahel—now look more like manifestations of a global problem. As our article explains, many water problems have global causes: population growth, climate change, urbanisation and, especially, changing diets. It takes 2,000 litres (530 American gallons) of water to grow a kilo (2.2lb) of vegetables but 15,000 litres to produce a kilo of beef—and people are eating more meat. The problems also have global implications. Without a new green revolution, farmers will need 60% more water to feed the 2 billion extra people who will be born between now and 2025.

Yet there is, globally, no shortage of water. Unlike other natural resources (such as oil), water cannot be used up. It is recycled endlessly, as rain, snow or evaporation. On average, people are extracting for their own uses less than a tenth of what falls as rain and snow each year.

The central problem is that so much water is wasted, mainly by farmers. Agriculture uses three-quarters of the world’s water (urban use is trivial: most people drink two or three litres a day, on average, but 2,000-5,000 litres are used to make the food they eat). Because water is usually free, thirsty crops like alfalfa are grown in arid California. Wheat in India and Brazil uses twice as much water as wheat in America and China. Dry countries like Pakistan export textiles though a 1kg bolt of cloth requires 11,000 litres of water.

Any economist knows what to do: price water to reflect its value. But decades of trying to do that for agriculture have run into powerful resistance from farmers. They reject scarcity pricing for the reason that water falls from the skies. No government owns it, so no government should charge for it.

Cap and trade

There is a way out. Australian farmers have the right to use a certain amount of water free. They can sell that right (called a “usufructuary right”) to others. But if they want more water themselves, they must buy it from a neighbour. The result of this trading is a market that has done what markets do: allocate resources to more productive use. Australia has endured its worst drought in modern history in the past ten years. Water supplies in some farming areas have fallen by half. Yet farmers have responded to the new market signals by switching to less thirsty crops and kept the value of farm output stable. Water productivity has doubled. Australia’s system overcomes the usual objections because it confirms farmers’ rights to water and lets them have much of it for nothing.

Tradable-usage rights have another advantage: they can be used in rough and ready form in huge countries such as China and India that do not have meters to measure usage, or strong legal systems to enforce usage rights. Instead of sophisticated infrastructure, they depend on local trust and knowledge: farmers sell a share of their time at the village pump. A system like that works in parts of Pakistan’s Punjab.

Usage rights have flaws. At first, they confirm existing patterns of use that are often inefficient. Farmers can cheat, as Australians have found. They are, at most, a good start. But they would be better than what exists now, which is sporadic rationing and the threat of a giant crisis. Or what may come next, a mandatory mass conversion to vegetarianism.