Supply and Demand: Does Water Capitalism Offer a Solution?

Feb. 18, 2016

It never ceases to amaze me that two tiny hydrogen ions, hand-in-hand with oxygen, form one of the earth’s most precious resources—a molecule essential to all life.

With rising demand and diminishing supply, the value of this vital liquid continuously compounds. Water usage worldwide has steadily increased at more than twice the rate of population growth within the last century. According to a recent NASA report, more than 4 billion people are at risk as our planet’s water table diminishes. And for some, water’s increasing scarcity translates into dollars, making it a lucrative investment.

It never ceases to amaze me that two tiny hydrogen ions, hand-in-hand with oxygen, form one of the earth's most precious resources—a molecule essential to all life.With rising demand and diminishing supply, the value of this vital liquid continuously compounds. Water usage worldwide has steadily increased at more than twice the rate of population growth within the last century. According to a recent NASA report, more than 4 billion people are at risk as our planet’s water table diminishes. And for some, water’s increasing scarcity translates into dollars, making it a lucrative investment. [text_ad] This week Abrahm Lustgarten published an article on ProPublica that captivated me with its brilliant prose and a unique perspective. It explores the topic of water capitalism through the story of Disque Dean Jr. and his Water Asset Management hedge fund.Many of us agree that the current water allocation and distribution system in western states is critically flawed. It’s a system that encourages waste and leaves insufficient supplies for cities and industry. As Lustgarten explains, Gold Rush-era policies grant water rights to earliest settlers, which 150 years ago, was most likely a farmer. Consequentially, today 80% of the West’s water is allocated to agricultural purposes. Water is kept artificially cheap and farmers must put all of their allocation to “beneficial use” or risk losing it. Enter capitalism.Water is valuable and water capitalists believe that water should be reallocated according to modern economic priorities. This would shift quantities from agriculture to urban and industrial usage. The West’s millions of acres of farmland account for less than 2% of the region’s economic output. Moving a mere 10% off of farms, the article asserts, could resolve current shortages. By allowing water to be openly bought and sold, water capitalists feel that water’s dollar value would begin to match its importance and waste would become cost prohibitive.What if we allowed people to buy and sell water rights as a way to redistribute the West’s water?  Could capitalism be a viable solution? Investor Disque Dean Jr. and his partners think so. And they also believe that it could make investors very rich.Citing effective water market in Australia’s Murray-Darling River Basin, water capitalists assert that there would be sufficient water if we used it more effectively, ie: not on low-value, water-intensive crops like alfalfa and hay, and if water were valued appropriately; if you want to fill your swimming pool, irrigate a golf course, or farm cotton in the desert, you would pay a premium for it.While I find many of these arguments compelling, my concern is that if water is sold to the highest bidder, the poor could be priced out of an essential resource. Water is a fundamental human right. Should a person’s ability to pay determine his or her access to water?I welcome your thoughts.

This week Abrahm Lustgarten published an article on ProPublica that captivated me with its brilliant prose and a unique perspective. It explores the topic of water capitalism through the story of Disque Dean Jr. and his Water Asset Management hedge fund.

Many of us agree that the current water allocation and distribution system in western states is critically flawed. It’s a system that encourages waste and leaves insufficient supplies for cities and industry. As Lustgarten explains, Gold Rush-era policies grant water rights to earliest settlers, which 150 years ago, was most likely a farmer. Consequentially, today 80% of the West’s water is allocated to agricultural purposes. Water is kept artificially cheap and farmers must put all of their allocation to “beneficial use” or risk losing it. Enter capitalism.

Water is valuable and water capitalists believe that water should be reallocated according to modern economic priorities. This would shift quantities from agriculture to urban and industrial usage. The West’s millions of acres of farmland account for less than 2% of the region’s economic output. Moving a mere 10% off of farms, the article asserts, could resolve current shortages. By allowing water to be openly bought and sold, water capitalists feel that water’s dollar value would begin to match its importance and waste would become cost prohibitive.

What if we allowed people to buy and sell water rights as a way to redistribute the West’s water?  Could capitalism be a viable solution? Investor Disque Dean Jr. and his partners think so. And they also believe that it could make investors very rich.

Citing effective water market in Australia’s Murray-Darling River Basin, water capitalists assert that there would be sufficient water if we used it more effectively, ie: not on low-value, water-intensive crops like alfalfa and hay, and if water were valued appropriately; if you want to fill your swimming pool, irrigate a golf course, or farm cotton in the desert, you would pay a premium for it.

While I find many of these arguments compelling, my concern is that if water is sold to the highest bidder, the poor could be priced out of an essential resource. Water is a fundamental human right. Should a person’s ability to pay determine his or her access to water?

I welcome your thoughts.
About the Author

Laura Sanchez

Laura Sanchez is the editor of Distributed Energy and Water Efficiency magazines.

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