We are not running out of water, as so many headlines proclaim. Certain areas, at certain times, are running out of water, but it’s a localized, economic problem, solvable by the usual economic solutions: property rights and institutions that enable transfers of assets.
Planet earth has approximately as much water today as it ever did. There’s a tiny little bit of water that gets converted into other molecules in chemical processes, and a tiny little bit created when hydrocarbons are burned. Relative to the world’s stock of water, these losses and additions are trivial.
Some of our water is not readily usable. Sailors have died of thirst upon the ocean. (“Water, water everywhere, nor any drop to drink,” wrote Samuel Taylor Coleridge.) Ice locked in mountain glaciers may be within sight of deserts. Or a running stream may be downriver from a community that dumps its waste into the water.
dry corn field with young corn plants
“Shortage” is commonly used to describe the problem, but when an economist hears that word, the response is usually, “Shortage at what price?” Before going into economic solutions, let’s lay out the potential problems.
Water challenges arise from poverty in many cases. A webpage headed “The Water Crisis” says, “Today, 785 million people – 1 in 9 – lack access to safe water and 2 billion people – 1 in 3 – lack access to a toilet.” That’s an odd usage of “crisis” given that it describes the condition of most people throughout human history. It seems so bad to us because most people have escaped poverty. And as countries have become wealthier, their citizens have demanded environmental protection. In Europe and North America, rivers are much cleaner than they were a hundred years ago. Areas with high-income populations can also afford to treat water to make it potable.
People move to areas of opportunity, even if that area lacks water for all the newcomers. This is our second problem, illustrated by the rapid population growth of arid places like Los Angeles and Israel.
Rancher Bruce Boettcher sits on a flowing well. He is fighting TransCanada to move the Keystone XL ... [+]
Drawing down aquifers constitutes the third problem. For example, the Ogallala Aquifer in the high plains beneath eight states, including Nebraska, Kansas and Texas, is being depleted by water wells. The first withdrawals were replenished by rainwater, but as irrigated agriculture expanded, water withdrawal exceeded additions to the aquifer. The current withdrawals are unsustainable, but the aquifer is so large that the crisis point is years away. But it will come unless some change is made to irrigation practices.
Natural variation in rainfall is the fourth problem. Atypical trends can last a decade or longer, and it’s not just drought that’s dangerous. Rainfall on the American plains was above average in the 1870s and early 1880s, leading settlers to believe they could live in the region with adequate water supplies. The theory of “rain follows the plow” was based on weak science that was sometimes connected to the manifest destiny approach to the frontier. The abnormally heavy rainfall periods are, at some point, followed by abnormally light rainfall periods, producing water shortages such as the Oklahoma dust bowl.
Finally, global warming is now associated with every deviation from average, such as California’s drought from 2012 through 2018 or the excessive water currently in the Great Lakes. Before blaming anthropogenic climate change for every drought, however, note that history shows wide variation in rainfall and loss of glaciers well before industrialization.
Global warming should increase rainfall, on average, as warmer weather causes more evaporation and humidity, spawning more rain clouds. However, the warming climate may trigger regional changes that lead to more droughts in some areas, more rainfall in others.
With such variability of rainfall, plus growing population on the planet, how can there be optimism about water availability? Water in short supply is a solvable problem with today’s technology and understanding.
For any region, water is used by people for drinking, washing and other household uses. It is also used in agriculture, industrial activities, and for the environment. Environmental demand occurs when people choose to let the water run downstream naturally to accommodate native plants and wildlife.
On the supply side, water flows through a region in rivers and streams. Ground
Glacier National Park in Montana
water (some replaceable and some not) comes from wells. Occasionally sewage reclamation or desalination adds to supply. Atmospheric water can also be harvested, though at high expense.
When demand exceeds supply, the easiest approach is to reduce less-valued demands, through conservation. The universally acclaimed approach to reducing demand is conservation by others. Everyone is in favor of someone else using less water. In reality, a price system works best for water, as it does most everywhere else in the economy.
Agriculture around the world accounts for about 70% of water demand, followed by industrial usage and then household usage. Where farmers own water rights, or must buy water at a market price, they compare the water’s value in agriculture to the value in other uses, which is given by price. In many cases, farming practices can cheaply reduce water usage while maintaining output. Common pivot irrigation systems now use 25% less water than the original design, with additional reductions of 17% proven in test applications. Small gains in efficiency tend to come fairly easily. There are many other water-saving options, depending on the crop and location. With the huge water usage by agriculture, only small gains are needed to provide large availability to households.
Farmers might also shift to less water-intensive crops. Barley needs less water than wheat, a fact that ancient farmers used during periods of low rainfall. In some cases, farming may just be abandoned if the water is more valuable elsewhere.
Shifting crops works well on a regional level, but the world overall does not want a lot more barley and a lot less wheat. The global price system makes this adjustment easily. Farmers in relatively water-abundant regions would see a small rise in wheat prices and respond by shifting their production to wheat. This could also lead to more land being cultivated in water-rich areas, and less cultivation in water-poor regions. The world would end up producing all the food it needs with less water usage.
Industrial usage can also be reduced. Energy analyst and fellow Forbes contributor David Blackmon has found numerous cases of creative solutions to local water challenges, including using municipal waste water and recycling fracking fluid. He offers a valuable insight: “The pre-existing water situation is unique to each part of the country, so solutions to water-sourcing challenges vary by region.” Although Blackmon was writing about water for the oil and gas industry, his insight is valuable across the board.
Bristish Professor Ronald Coase who was awarded the 1991 Nobel Prize for Economy
Voluntary conservation of water is a lot more likely if the farmers or industrial users have marketable rights or are buying their water from someone with marketable rights. If they own their rights, they will sell them to city folks who place a high value on water. If the farmers or industrialists buy their water, they’ll see rising prices that incent them to conserve. The Coase Theorem, developed by Nobel laureate Ronald Coase, holds that who owns a right is irrelevant to the use of a resource so long as someone owns it and the right can be sold at low transactions costs.
Marketability of water rights becomes a critical issue for efficient water usage. Unfortunately, lack of marketability is the root of many water shortages. Water rights in the west typically contain “use it or lose it” clauses. If a farmer installs drip irrigation to reduce water usage, that farm’s allocation will be reduced. Marketability would lead to transactions that move water from lower-valued uses to higher-valued uses. It could also help keep water in reserve for drier years.
Marketability could come from either of two approaches: giving farmers and industrial users marketable rights, or compelling farmers and industrial users to purchase water at market prices. The first is seen by municipalities as a gift to people who will use it to extract excess returns from city dwellers. The second approach is seen by farmers as destroying their farms by depriving them of what they have always enjoyed as if they owned it. A compromise approach might give farmers full marketability in exchange for a small percentage of their water rights.
Selling water rights is much more difficult when water is pumped to the surface from large aquifers that underlie multiple properties. A specific solution could be imposed by the government or developed by water users with governmental sign-off. Usage allocations could be based on date of first use, as in Western water law, or in proportion to land area, or by some other formula. Then a long-term total water usage path would be established for sustainable development. Water rights would be limited to sustainable withdrawals, recalculated every decade or so in response to environmental change or updated information. In this sort of scheme, users would be limited to a certain allocation, but would be allowed to sell an allocation either temporarily or permanently.
Environmental use of water presents an additional challenge, but one also solvable through water transactions. If water rights are associated with land ownership, water could be purchased by the government or by conservation groups to ensure environmental values. If water rights were, instead, owned by a conservation trust, they could look at the value to their work of having money from farmers. Governmental allocation of water tends to be determined by small special interests, which include agriculture, industry and environmentalists. These decisions do a poor job of considering the value of water in marginal changes for alternative uses.
Water shortages are created by humans, either by living in a dry area, using more
Children playing in a sprinkler.
water than is readily available, or failing to develop usage systems that are flexible enough to handle variable rainfall. Shortages are a human problem, solvable by that good old human solution, markets.
