WATER

Priceless: The Market Myth of

Water Pricing Reform
&ACT 3HEET s 3EPTEMBER 

I n many regions across the United States, rising water demand is straining
available supplies. In theory, increasing water prices to drive down
consumption appears to be a neat and easy solution, but it alone is no panacea
for our country’s water management challenges. Communities need effective
strategies to promote sustainable water use, encourage conservation and renew
our valuable water infrastructure.

What Is Water Pricing Reform?
To tackle the tension between dwindling supplies and
growing demand, many economists, market-oriented
environmentalists and think tanks have advocated market-
based pricing of household water rates — essentially
charging consumers more for water service with the inten-
tion of encouraging conservation. These proponents argue
that raising water prices — especially charging higher rates
for using more water — should reduce water use.1
But this simple-sounding proposition is not so simple. It
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1. Because household water use is a mere drop in the
bucket, reducing it alone will fail to address our country’s
water supply problems.
Pricing reform focuses almost entirely on residential water
use. A Food & Water Watch literature review found that
three quarters of pricing studies looked only at household
water use.2 Residential water use is a small fraction of
water withdrawals in United States — only about 8 per-
cent of freshwater goes towards household water use.3 Any
strategy that ignores more than 90 percent of the problem
is inadequate and doomed to fail.

2. Households will reduce their water consumption only

so much, regardless of the price.

The theory of pricing reform assumes, often incorrectly,

that households can or will reduce their water use when
faced with higher prices, but much of residential water
goes toward essential and basic uses like drinking, cook-
ing and sanitation. Even skyrocketing prices will not cut
household water consumption substantially.

Consumer demand for essentials like water does not re-

ally change, regardless of price. Economists call this price
inelasticity. Consumers will not drink twice as much water
if the price of water falls by half, nor will they reduce the
amount of water they drink by half if the price of water
doubles. A Food & Water Watch literature review found
that households generally reduce water use only slightly
even in the face of steep price increases.4
Water Use in the United States: Total
Freshwater Withdrawals in 2005
8%
House-
hold
40% 52%
Industry,
Irrigation, Mining, Power,
Livestock, Nondomestic
Agriculture Public Supply
Source: U.S. Geological Survey, Estimated Use of Water in the United States in 2005
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An Integrated Water Strategy as a
Better Solution
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management needs. Any water policy must be tailored to
local conditions and address both residential and industrial
water use.5 There is a range of policy alternatives. Focus-
ing solely on increasing household water prices to reduce
consumption is unfair to ratepayers and doomed to be inef-
fective. We must recognize the collective impacts of water
use, from agricultural needs to industrial needs to home
needs, and demand collective responsibility.
Water pricing should be part of a more integrated water
strategy, not the only strategy. While some increases in wa-
ter price might help curtail excess demand for non-essential
water use, sharp increases in household water rates alone
will do little to curb total water demand. Public educa-
tion campaigns to promote conservation and incentives for
OV\ZLOVSKZ[VHKVW[TVYL^H[LYLMÄJPLU[HWWSPHUJLZJHUKV
more to reduce water use than water price increases alone.6
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Charging higher prices for industrial water users can gener-
ate more water savings than hiking prices for residential
users. Unlike households that predominantly have essential
water uses, business users have real incentives to reduce
wasteful water use in the face of rising prices — and do,
according to many studies.7 Nonetheless, today in many
places, businesses pay less for a gallon of water than
nearby residents.8
Renew America’s Water
Great water savings can be achieved through restoring
the country’s aging and leaking water systems, which lose
about 1.7 trillion gallons a year — equivalent to one out
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renewed federal commitment and a dedicated source of
federal funding, we can rejuvenate our nation’s water re-
sources, curtail wasteful water losses and begin to address
the water shortages facing many of our communities.
Society’s interest in ensuring environmentally sustainable
water use and universal access to affordable water service
is poorly served by a market model. Water is essential to
life; commodifying access to water treads on the basic hu-
man right to water.
Endnotes
1 Ayoo, Collins A. and Theodore M. Horbulyk. “The potential and promise of
water pricing.” Journal of International Affairs. Vol. 61, No. 2. Spring 2008 at
91-2; Arbués, Fernando, María Ángeles García-Valiñas and Roberto Martínez-
,ZWP|LPYH¸,Z[PTH[PVUVMYLZPKLU[PHS^H[LYKLTHUK!HZ[H[LVM[OLHY[YL]PL^¹
Journal of Socio-Economics=VSH[":PISL`/\NO¸,MÄJPLU[<Y-
ban Water Pricing.” Australian Economic Review. Vol. 39, No. 2. 2006 at 227;
Liu, Junguo, Hubert H.G. Savenije and Jianxin Xu. “Water as an economic
NVVKHUK^H[LY[HYPMMKLZPNU!JVTWHYPZVUIL[^LLU0);JVUHUK09;JHW¹Phys-
ics and Chemistry of the Earth. Vol. 28. 2003 at 212.
2 Of the 33 econometric modeling or empirical industry studies Food & Water
Watch examined, 25 only covered household response to price, four included
industrial/commercial water use, two included agricultural water use and four
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Market Myth of Water Pricing Reform.” September 2010 at 10 to 11.
3 Kenny, Joan F. et al. U.S. Department of the Interior, U.S. Geological Survey.
“Estimated Use of Water in the United States in 2005.” Circular 1344. 2009 at
7, 17, 20.
4 Pint, Ellen M. “Household responses to increased water rates during the Cali-
fornia drought.” Land Economics. Vol. 75, No. 2. May 1999 at 247, 251, 252,
259, 260; Duke, Joshua M. and Robert Ehemann. “An Application of Water
:JHYJP[`7YPJPUN^P[O=HY`PUN;OYLZOVSK,SHZ[PJP[`HUK+LÄJP[¹Journal of Soil
and Water Conservation. Vol. 59, No. 2. March/April 2004 at 64; Borisova, Ta-
tiana, Burcin Unel and Colin Rawls. “Conservation pricing for residential wa-
ter supply.” Institute of Food and Agricultural Sciences, University of Florida.
5V-,5V]LTILYH[")LSS+H]PK9HUK9VUHSK*.YPMÄU¸(U
annual quasidifference approach to water price elasticity.” Water Resources
Research. Vol. 44. August 14, 2008 at 8.
 .HYJPH3\PZ,¸>H[LYWYPJPUN!HUV\[ZPKLY»ZWLYZWLJ[P]L¹Water Resources
Development. Vol. 21 No. 1. March 9-17, 2005 at 4.
6 Savenije, Hubert and Pieter van der Zaag. “Water as an economic good and
KLTHUKTHUHNLTLU[!WHYHKPNTZHUKWP[MHSSZ¹Water International. Vol. 27,
No. 1. March 2002 at 100; Terrebonne, R. Peter. “Residential water demand
THUHNLTLU[WYVNYHTZ!HZLSLJ[LKYL]PL^VM[OLSP[LYH[\YL¹.LVYNPH:[H[L<UP-
versity, Andrew Young School of Policy Studies. Water Policy Working Paper
#2005-002. January 2005 at 4.
 .HYJxH=HSP|HZ4HYPH(¸,MÄJPLUJ`HUKLX\P[`PUUH[\YHSYLZV\YJLZWYPJPUN!H
proposal for urban water distribution service.” Environmental & Resource Eco-
nomics. Vol. 32. 2005 at 191-192; Jordan, Jeffrey L. and Rick Albani. “Using
conservation rate structures.” American Water Works Association Journal. Vol.
5V(\N\Z[ H[;HISLH[ ":[HSS^VY[O/VSS`,JVUVTPZ[6MÄJL
of Wastewater Management, U.S. Environmental Protection Agency. “Water
HUK>HZ[L^H[LY7YPJPUN!(U0UMVYTH[PVUHS6]LY]PL^¹,7(-
November 2003 at 4.
8 Cameon, P.J. “Water Sense begins detailed look at rates.” Water Sense. Vol.
1, Iss. 4. Summer 1995 at 7; Organisation for Economic Cooperation and
+L]LSVWTLU[¸4HUHNPUN>H[LYMVY(SS!(U6,*+7LYZWLJ[P]LVU7YPJPUNHUK
-PUHUJPUN¹ H["MVYL_HTWSL!4HYPL[[H7V^LY
effective October 1, 2008. Available at O[[W!^^^THYPL[[HNHNV]KLWHY[-
ments/utilities/water/consumption.aspx, accessed September 22, 2010; Brown,
Amanda K. “The real thing.” Atlanta Magazine. June 2008 at 78.
9 U.S. Environmental Protection Agency. “Research Areas- Water Resource Ad-
aptation Program.” Available at O[[W!^^^LWHNV]nrmrl/wswrd/wqm/wrap/
research.html, last updated September 1, 2010, accessed September 22, 2010;
<:,U]PYVUTLU[HS7YV[LJ[PVU(NLUJ`6MÄJLVM9LZLHYJOHUK+L]LSVWTLU[
National Risk Management Research Laboratory. “Addressing the Challenge
through Innovation.” (EPA/600/F-07/015). September 2007 at 2.
For more information:
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