Should people pay more for water?

In modern American history, water has been taken for granted by consumers and businesses alike, thanks to the likes of civil engineers and the Clean Water Act. Sure, water isn't free, but it's certainly cheap, with the average monthly household bill around $28.

But climate change may be changing how American consumers and businesses view -- and pay for -- water. Since the 1970s, the areas around the world affected by drought have increased, according to the National Aeronautics and Space Administration, while the United Nation's Intergovernmental Panel on Climate Change predicts that droughts in dry regions will likely become more frequent by the end of the 21st century.

Closer to home, California is grappling with one of the worst droughts in history, which has pushed up food prices across the U.S. At the same time, research shows that more efficient irrigation techniques for farms can increase groundwater extraction, instead of reducing it. Why? Because such advances mean that farmers sometimes plant higher-profit crops that require more water.

The solution may be to restructure the way water is priced and sold, notes Fortune's Brian Dumaine.

Sure, consumers should have the right to clean, low-cost water, but when it comes to farming and commercial uses, it might be time to create a free market to set the price of water, Dumaine suggests. Like any in-demand commodity, water prices should be set by the "invisible hand" of the market.

A cheeseburger, Dumaine writes, would cost about $23 to produce (thanks to water-intensive products such as beef and wheat), if it were based on the price consumers pay for tap water. But most water that's used by farms is "dirt-cheap" groundwater or bought via the spot market, which costs much less than municipal water, he notes.

Dumaine isn't alone in calling for an overhaul of how water is priced and traded. California has a

"balkanized" system of government management that leads to subsidized projects that only lead to more waste, Wade Graham, an adjunct professor of public policy at Pepperdine University, wrote in the Los Angeles Times in March.

Instead, the U.S. should look to Australia for guidance, Graham says. In the country's Murray-Darling Basin, irrigators can trade water and sell excess to another person, or buy more if they need it.

While there's no clear answer on how water should be managed as climate change is predicted to bring more droughts and shortages, it's clear that the business sector is taking note, with Coca-Cola (KO) among the companies citing climate change and water scarcity as a risk to its business.

Business leaders are already arguing for change. Nestle chairman Peter Brabeck-Letmathe writes in a blog post, "Water to fill a private swimming pool or to wash a car, for instance, is not a free public good; rather it should be a normal commercial good covering at least the full cost of infrastructure, not subsidized or even distributed for free."

Of course, Brabeck-Letmathe's comments may be taken with a grain of salt. After all, Nestle is also in the business of selling pricey bottled water through its Pure Life brand. A glass of tap water, according to Consumer Reports, will set you back about one-tenth of one cent.

  • Aimee Picchi

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