What I Learned Today - Water Rights Trading

Sounds a bit esoteric, right? Well, listen up cause it may affect you and the rest of the world pretty soon.

You may not be aware that there is a whole market that buys and sells the rights to water. It doesn’t involve the trade of actual water, but just the ownership of the water. It’s a commodity, just like the pork bellies and frozen orange juice you say in Trading Places. In most areas, the government owns the rights to water, deciding who gets how much and when. However, in some areas of the US, and in South Africa, Chile and especially Australia, the market is in full force. Even you can trade!

Why trade water rights? Well, to make money of course! If I buy the rights to water in, say, the Murray-Dangling Basin in Australia, I can wait a while (assuming the price of water increases) and sell it to someone else to make a profit. See?

Reasons water rights trading is good:

Economically speaking, putting a price on water incentivizes users to allocate the resource wisely. Thus, putting a price on water will curtail the waste of water. Over 70% of water used for agriculatural purposes is wasted.
Some countries, like Chile, South Africa, & Australia, have used water rights to improve agricultural output and benefit the poor. Chile has increased the access to water for its poor rural users.

Reasons water rights trading is bad:

Water trading will increase the cost of water, worsening economic inequalities and preventing the poor from getting water. Globally, water scarcity already affects four out of every 10 people. The situation is getting worse due to population growth, urbanization and increased domestic and industrial water use.
The control of local assets will be taken away from local communities or government, and put into the hands of multinational companies who give little regard for individual suffrage and care only about money.
It may result in improper protection of water quality, as we saw in Atlanta, GA.
It will seed deadly conflict. The UN has identified 70 areas of water-related friction stretching from the Near East to West Africa, the drylands of Latin America and the Indian sub-continent.

But it’s imminent, regardless of the consequences. Case in Point: Atlanta, GA. You may have read about Atlanta’s water shortage earlier this year. In 1999 Atlanta was the first city in the US to privatize its water system, turning it over to United Water under a 20 year contract. However, the deal was a miserable failure, resulting in shortage and poor quality water this year. The deal was recently abandoned, which has caused a more bearish outlook for water privatization.

So keep you eyes out – this may be the biggest environmental factor affecting the 21^st century (bigger than oil!)

Suggested Reading (which I need to do over my winter break):
The Great Thirst: Californians and Water — A History. Norris Hundley, Jr.
All the Water in the World. Rodger Bate

Tagged: economics