The Strange Economics of Water, and Why It Shouldn't Be Free: A Guest Post

Photo: Comstock

 

Water is a topic that’s come up repeatedly on this blog. We’ve written about attempts to do away with bottled water; why it’s a bad idea to ban bottled water; whether festivals should hand out free water; and the need for safe supplies of water around the world.

Here now is a guest post from Charles Fishman, whose new book (reviewed today in the Journal, btw) is called “The Big Thirst: The Secret Life and Turbulent Future of Water.” (Fishman’s earlier book is “The Wal-Mart Effect.”) The Big Thirst covers some of the four billion-year history of water on Earth, and its little-known but abundant fourth state: “molecular water,” fused into rock 400 miles deep, which is where most of the planet’s water is located. Fishman tackles the debate around water as an increasingly precious resource while reminding us that water can’t actually be “used up.” But, he makes clear, the era of easy water is over, and that’s something to think about, hard.

What Do the Economics of Bottled Water Tell Us About the Economics of Water? A Guest Post
By Charles Fishman

Just before last year’s NBA season, the Cleveland Cavaliers quietly removed all 18 water fountains from their home stadium, the Quicken Loans Arena, “the Q,” which seats 20,500 people. Q managers taped up signs where each water fountain had been that read: “For your convenience, complimentary cups of water are available at all concession stands through the Q.”

There are many words to describe concession stands at U.S. professional sports arenas; “convenient” isn’t one of them.

For more than three months, through dozens of events attended by almost 1 million spectators, there were no water fountains in the Q. If you wanted a drink of water, you had to stand in line at the concession stand, and when it was your turn, you could receive a free nine-ounce cup of water, or you could buy a chilled bottle of Aquafina for $4.

When the Cleveland Plain Dealer published an article about the disappearing water fountains halfway through the NBA season, the Cavaliers first said they were following advice from the NBA, that water fountains spread swine flu (the NBA never gave such guidance). The Plain Dealer pointed out that the removal was illegal — public buildings are required by building codes to have water fountains, the number based on capacity. Fans were so angry — once the paper pointed out that the fountains were gone; strange they hadn’t noticed — that the Cavaliers set up temporary water stations around the arena, so those who wanted a drink didn’t have to stand in line.

The Q then scrambled to re-install the fountains. By then, the Cavaliers alone had hosted 29 sold-out home games at the Q — almost 600,000 thirsty fans. If just 10 percent of those fans bought a $4 bottle of water they otherwise wouldn’t have, that’s nearly $10,000 in additional concession revenue, just for water, at each game.

When it was suggested to the Cavaliers that selling bottled water had been the point of taking out the water fountains, the team spokesman was indignant. “That’s simply absurd. That never crossed our minds.”

Sometimes the economics of water are as clear as water itself. And sometimes, they’re not. The disappearing water fountains make perfect sense for the arena. But what about the thirsty fans? Those who bought a single bottle of Aquafina at the Q were paying more for a couple swallows of water than they paid for a gallon of gasoline. In the cold case at a convenience store, you can get a half-liter of bottled water for 99 cents — 17 ounces for a dollar. The designer water in the same case, FIJI Water, costs 50 percent more, $1.49 for a half-liter, with the square bottle at no extra charge.

How incredible is that? If you drank the 99-cent bottle today, then took the bottle home and continued to use it, you could refill it every day with tap water until July 3, 2017, before you’d spent 99 cents on the tap water. Even the cheap bottled water is 2,000 times more expensive than the water we’ve got on tap at home.

Bottled water is a brilliant business, in that it depends on our participating in this amazing price paradox. The real question is why we do it, and what it says about water economics.

Three things are clear.

First, when we buy bottled water, we’re not buying the water itself — we’re buying convenience, we’re buying coldness, and we’re buying branding (and some false measure of reassurance about safety). It’s easier to grab a bottle of water from our own fridge than to have a clean reuseable bottle, keep track of that elusive top, fill it, and keep it in the fridge. Bottled water in the cold case is often a good choice — compared to soda — when you just want something to drink. And although all water is essentially the same — a quarter of bottled water (Nestle Pure Life, Aquafina and Dasani) is re-filtered city tap water — we like the statement of carrying a bottle of Evian or SmartWater.

Second, we are not willing to pay much for water at home. Any time a water utility moves to raise water rates, the outcry is stupendous. Residents act as if increasing the water bill from $23 a month to $30 a month will force them to choose between their heart medicine and their water. In fact, the average household water bill in the U.S. is $34 a month, $1 a day. That’s less than half the cable TV or cell phone bill. Water at home is perhaps the best deal any of us get (now that The New York Times is no longer free online) — and a symbol of the very human instinct that basic water service should be cheap. But since a single half-liter of bottled water costs as much as a day’s worth of cooking, washing, showering, and toilet-flushing for a whole family, it’s clear we can learn both to appreciate water, and to pay for it.

Which leads to the final point about water economics. “Free” is the wrong price for water. In fact, the lack of a price for routine water service is the most important thing that’s wrong with water — resources that are free are wasted; there’s no incentive to learn to use them smartly; there’s no money to maintain and modernize the existing water system; there’s no incentive to reach back and protect the source of something that’s free.

If it’s free, the message is that it’s unlimited.

In the U.S., we spend $21 billion a year on bottled water. We spend $29 billion maintaining our entire water system: the pipes, treatment plants, and pumps. We spend almost as much on crushable plastic bottles as we do on our most fundamental infrastructure system.

That’s why, in Philadelphia, where I live, we have 3,300 miles of water mains — and the water department replaces 20 miles of main a year. A 160-year replacement cycle. It’s fine to indulge in a bottle of FIJI Water, just not at the expense of the water system itself.


Chris

"we spend $21 billion a year on bottled water"... to be fair, "we" do not spend this money. Middle class Americans spend this money. I'm in favor of charging for water in principle for all the reasons given above, but let's be careful how we couch this discussion so as not to disenfranchise poor communities who in fact do NOT spend billions on bottled water.

Also, it's not fair to say that water is free in the US. We already pay for water, typically through a specific water bill or via taxes. If more people understood the basic idea that we already to pay for water, they'd be more amenable to this line of reasoning.

Paula @ AffordAnything.org

In the City of Atlanta, where I live, city water is expensive ... our household water bill ranges between $200 to $300 per month, with 5 people living there. As a result, we've installed every water-saving device you can imagine: aerators on every tap, dual-flush toilet systems, low-flow shower heads, and a yard covered with drought-tolerant groundcover rather than grass. The savings from all these retrofits is minimal compared to our overall bill -- we save about $30 per month -- but that still makes the savings worthwhile.

phil

In what parallel universe is municipal water free? Am I the only person paying my water bill?

Erik

I could not agree more.

The water we get isn't free. It comes from our income taxes and other fees and taxes. The difference is: if we paid for water directly ($ per ounce), rather than indirectly (use water as if it's unlimited, and then increase taxes to pay for it), we would use far less of it, and we would pay less per gallon for it. Subsidies always make the whole system less efficient.

Take, for example, my home association. 200 units pay $200 per month each for services, maybe half of which is the water bill. If I use twice as much water next month, that increases the water bill by 0.5%, and maybe I'll have to pay $201/mo if I keep it up. If everyone thinks the same way, we all pay $400/mo. We're left with a situation where everyone tells their neighbors "if we all use less water, we save money!" But then each person goes home and says "well, I only pay 1/200th of the price of this water I am wasting" so they waste it anyway. If the units were individually metered, and everyone paid their own water bill, I would wager that would cut our overall water consumption by as much as half.

If the water utilities (government) were required to be revenue-neutral (pay for replacing pipes and digging new wells by increasing tap water prices), we would all use less water, and we'd all have more money in our pockets at the end of the day. Everybody wins.

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Dan

Where i live (Denmark) we can pump clear clean water right out of the ground - and still people pay 30,000 times the price in a store and carry it home to drink ( next to the tap) And we call a cow stupid - lol !!!!!