Wednesday, 2 June 2010

Drought Fears, Hosepipe Bans and Bad Economics

There was a story reported by the BBC this morning about concerns over water shortages in the North-West of England due to an exceptionally dry few months.

We are told in the report to take showers instead of baths in an effort to conserve water and that we may be facing the prospect of 'hose-pipe bans' in the near future.

There are a couple of problems with this analysis and with the way of thinking which underlies it:
First, it is questionable whether or not showering rather than bathing actually uses less water.  There are a number of variables which impact on this:

How big is your bath?
How much do you actually fill your bath?
How powerful is your shower?
How long do you spend in the shower?

Without answers to questions such as these we can't say for sure which uses less water.

This, however is a moot point.  Banning use of hose-pipes is comparable to banning particular types of shower-head.  Everybody suffers as a result of the ban because no-one was willing to cut back on their own water consumption.

People seem to forget that we pay for water.  If there is not enough water it is because the price of water is inflexible to changes in supply and demand.  For any other free-market commodity if the supply were to dry up* like this the price would increase, people would cut back their own consumption and there would be no shortage, no need for a ban.

The problem is our water isn't priced appropriately.  The rate you pay for the water coming out of your taps is paid alongside your Council Tax and is linked not to the quantity of water used, but to the value of your property.  If you have a big house and live in a nice area you are likely to pay more for your water consumption, even if you use less, than someone living in a crappy one-bedroom flat in a dodgy part of town.

The appropriate response to a water shortage is not to institute a ban on certain types of usage, but to have an appropriate system of pricing water:
  • Water consumption should be charged per unit used.
  • The price charged per unit should fluctuate dependent on prevailing market conditions (i.e. water should cost more in summer and less in winter).
People would then adjust their consumption accordingly and, assuming you don't live in the Atacama desert, there should be no fear of there ever being a shortage of water.

* Excuse the pun.

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