Tuesday, 5 May 2015

Why Australia doesn't have California's problems with water - free markets


Lots of angry lefties tweet that slightly crass quote about water rights from the boss of Nestlé. They do this because they care about people having the water they need, something we can all agree with. However, the transfer of this concern from rhetoric into public policy is a problem. Quite simply because, as Californians have discovered, the supply of water is a really big deal. And it's down to the weather (you can all argue the toss about whether it's climate change or not if you like but that won't change a thing):

California has a history of droughts lasting as long as 200 years.  You can dam every canyon in California and line the coast with desalination plants, and you won’t solve the water shortage in a 200-year drought, or even a ten-year drought.  Under the current allocation and pricing system, California will simply consume every new drop of water produced. We will have a water shortage all the same. 

So the question is what to do to ensure that the need for water in the Sunshine State is met. And most solutions offered are either stupid (ban the extraction of water for bottling) or totalitarian (rationing the supply of water). The right approach is (and this is why the Nestlé chap has a point) about ownership of the source and pricing.

By way of contrast, Australia - just as dry and drought-prone as California - doesn't have the same supply problems:

Water markets equipped Australia to endure the 1995-2009 Millennium Drought. This was the worst Australian drought since European settlement. Total water stored declined to just 27 percent of capacity. Yet water trading allowed Australian cities to avoid the most severe water restrictions. It protected agricultural businesses, and it ensured that the country’s endangered habitats and species received adequate water.

Remarkably, in an end-of-drought survey, over 90 percent of Australian farmers reported that water markets were important to their businesses’ survival. There are many lessons for California here. A key one is that the tension between water users is completely the creation of policy. There is no need for the tensions between the agricultural industry and California’s cities, between growers and endangered fish, between Hillsborough and Westborough, between neighbors. Water markets can balance competing uses in a way that benefits all.

To work, markets need something to trade. The basis for trade in a functioning water market is exclusive access to a share of water from a specific body. Australian water laws provide this. California’s water laws do not.

Sadly the article concludes that politicians in California are unlikely to be liberalising water markets. Just goes to show how stupid us politicians are really.


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