Thursday, July 12, 2012
Putting a Price on Water Becomes 'Sensitive' Issue in India
For four decades, India has encouraged food production through subsidies and other price supports to farmers there. Electricity is cheap, and water is free to whoever pumps it out of the ground. As a result, Punjab grows a fifth of India's wheat and 12 percent of its rice, while covering 1.5 percent of the country's land, according to the Columbia Water Center at Columbia University.
But the "free" water may be exhausting water supplies, some warn. Unless something is done -- including, possibly, putting a price on water -- the future of "India's breadbasket" could hang in the balance.
Now, Punjab and other states must struggle with the question of what matters most: ensuring cheap water today, or having water available, at any price, in the future.
"We really use a lot of water ... there is no water pricing, and it's a very sensitive issue," said Ajit Gulabchand, chairman and managing director of HCC Ltd., an engineering and construction firm based in India. "The good news is we can actually fix it in the next 10 to 15 years if we spend our money more effectively on the subject."
India isn't alone in its dilemma. Around the world, nations rich and poor are struggling with a water crisis that, forecasts suggest, will only worsen with climate change. As populations and economies grow, leaders are grappling with how to manage a resource that is essential to business as well as human life.
Last month, as those leaders convened at the U.N. Conference on Sustainable Development in Rio de Janeiro, they learned that progress is modest. According to a U.N.-sponsored survey, while most countries have taken some action on water, almost none have formed unified plans to balance the competing demands of different industries, the broader public, and the poor (E&ENews PM, June 20).
Instead, the survey showed, most countries said water-related risks have increased in the last 20 years. Most countries had finagled some extra money to address the issue, but almost none had addressed the fundamental economic incentive associated with water: its price.
Meanwhile, Gulabchand and other CEOs pushed the call for reform. In a letter to the Rio negotiators, the heads of firms such as Nestlé SA, Royal Dutch Shell PLC and PepsiCo Inc. said their firms will take action to manage water, but they expect national policies that will preserve water at a larger scale.
The 45 CEOs, who have joined a U.N. partnership called the U.N. Global Compact, weren't just calling for pipelines and plans. They said nations should establish a "fair and appropriate valuation for water for agriculture, industry, and people" -- all while observing the United Nations' dictum that water is a human right. According to the World Bank, 2.6 billion people lack access to clean water.
"For too long, there's been this debate or this notion that these two concepts are in conflict.
Either water is a human right or an economic good. It can't be both," said Gavin Power, deputy executive director of the U.N. Global Compact. He disagreed: "You can protect the human right to water by ensuring that vulnerable people without financial resources are receiving adequate amounts of water, while also ensuring that those that can afford water are paying for what's increasingly a precious resource."
Experts agree that this is technically possible, though they admit it is harder to do in practice.
It's clear, for example, that even a low price on water can shift behavior. According to the United Nations' survey, modest water tariffs in Tunisia have made wasteful practices more expensive. Today, 87 percent of irrigated areas are using some type of water-saving technique.
When the price gets higher, though, it can become a touchy topic. Sheila Olmstead, a fellow at think tank Resources for the Future, outlined a common story: A developing country wants to expand water service or improve water quality, but it doesn't have the funds for it. To get the cash, it lets a private-sector player take the job of the public water provider.
The company needs cash to build infrastructure and meet the national targets, so it raises water prices. There is a public backlash, and the water department is renationalized.
In this way, Olmstead said, many countries find their water systems in limbo: too weak to offer the water service they want to but too cash-strapped to change.
"There's no great answer to this problem ... the problem is that there's billions or at least millions of people in the developing world that need access to this system ... the problem comes in finding the money to provide that service," she said.
Without that option, countries have begun to try other ways of pricing water while protecting the poor. Some have tried "tiered" water rates, which offer free water up to a given level -- a level, it is thought, that meets basic human needs -- but charge for water after that.
The drawback, Olmstead said, is that the poorest may not even have a water connection, so they cannot benefit. Also, some poor households are so crowded that despite their poverty, they end up using enough water to be priced at a higher tier.
From an economist's point of view, she said, the most efficient strategy is to charge everyone for water but return some of the revenue to the poor in the form of rebates.
Even so, it's not obvious what to charge. If the price is too low, a country won't meet its water goals. If the price is too high, the social costs could be calamitous.
Shama Perveen, an associate research scientist at the Columbia Water Center, said India doesn't even have the necessary information to consider the right price level for water. Agriculture is the biggest water-using sector, with some 75 percent of the country's consumption. Other industries, such as manufacturing and power, account for another 15 to 20 percent.
The users are scattered across regions, in different climate zones. They have different water needs and different levels of poverty. All will be differently affected by climate change. Yet she knows of no research that shows where the water users are and what their water resources are. India, she said, simply does not know enough to send the right economic signal.
"It would be a grave mistake to come up with a price of water without doing such a proper assessment," she said.
Before India considers water prices as a nation, she said, it needs rival companies -- and rival ministries -- to finally share the data that can build a detailed map of the country's water needs for companies as well as people.
While visiting Rio last month, Perveen said, she saw other countries battling the same issue. They had ideas about how to handle agriculture, manufacturing and water to make them more sustainable -- but they didn't know how to combine them.
"That's what integration really means. We talk about integrated water management, but we haven't really arrived at integration of any sort," she said. "We cannot afford to operate in silos anymore."