Moving toward real water prices
The seriousness of California’s water shortage is lost on no one. The state’s snowpack is a fraction of what it has been historically and ground water is being depleted at a rate well above replacement. The desolate images of California’s shrinking surface water storage sites confirm what the dire statistics cannot. Our water usage will never be the same. It’s possible the Golden State is not actually experiencing a drought, but is instead transitioning to a new environmental epoch.
Such a transition demands more than a headline-grabbing half-measure. It requires a fundamental reevaluation of how California’s most precious scarce resource is treated. That means moving from management by decree to management by choice.
A decree like Brown’s is inefficient because it does not address the economics of water use. So long as the economic calculus remains the same, the state will continue to suffer from resource misallocation. What’s ultimately required is meaningful market-based water pricing.
By allowing the price of water to rise, California residents would be forced to judge just how much they value their lawns, their pools and their long showers. Price signals would modify, or at least inform, their behavior.
Accurate water pricing certainly would sort out the state’s most egregious example of misallocation, which is how water is used in agriculture. In the midst of a water shortage, it is not without irony that agriculture – an industry that, according to The Economist, accounts for 2 percent of California’s economic activity while consuming a full 80 percent of its water— was exempt from the governor’s executive order.
Regrettably, carving out a distinction between water agricultural and residential water use is easier than actually creating the structure for a functioning price system that would apply to both. The central political challenge is no secret. There is bipartisan interest in the status quo.
California’s Republicans are put in a difficult position by the prospect of true, market-driven, competitive water pricing. On the one hand, they purport to value free markets and competitive enterprise. On the other hand, the Legislature’s Republicans represent constituents that rely heavily on agriculture. No one wants to recognize that the billions the agricultural sector earns mask the even greater cost of the water needed to produce those crops. The sector enjoys a subsidy, plain and simple. Who pays for that?
As the consequences of inefficient water allocation cascade, it would behoove those in government, particularly those who believe in climate change and/or free markets, such as Gov. Brown and the legislative Republicans, to consider the limitations of an illusory cut in water use and focus instead on the need for real prices in water.