1. Copyright © 2013 Jonathan M. Harris
Environmental and Natural Resource Economics 3rd ed. Jonathan M. Harris and Brian Roach Chapter 15 – Water Economics and Policy
Copyright © 2013 Jonathan M. Harris

2. Figure 15.1: The Hydrologic Cycle
Water is both a renewable and a depletable resource. The water cycle leads to a continual, but limited, flow of fresh water, while lakes and aquifers, along with human-made dams, provide stored water. Many aquifers require centuries to fill, so that drawing water from aquifers is essentially exploitation of a non-renewable resource. Overdraft of groundwater is a problem in all water-short areas of the world including the U.S. West, Central and South Asia, and North China.

3. Figure 15.2: Global Freshwater Availability, 2007
Water stress or scarcity conditions confront many countries in Africa and South Asia. By 2025, it is projected that more than 2.8 billion people in 48 countries will face water stress or scarcity.
Source: UNEP, 2008.

4. Figure 15.3: Water Consumption per Capita, Select Countries
6000
97%
5000
Percentages show the portion of total water consumption used for agricultural purposes.
4000
Cubic Meters per Person per Year
3000
79%
2000
40%
88%
63%
77%
1000
Irrigation is a primary driver of water demand. Some countries, including the United States, are heavily dependent on irrigated agriculture.
90%
12%
20%
65% 1%
55% 4%
38%
Iraq
India
Japan
Mexico
China
Brazil
France
Russia
Sweden
Uganda
Germany
Turkmenistan
United States
Saudi Arabia
Source: Food and Agriculture Organization, Aquastat database.

5. Figure 15.4: Global Water Demand, 2000 and 2050
6000
Electricity
5000
Manufacturing
4000
Livestock
Cubic Kilometers
3000
Domestic
Irrigation
2000
1000
Global water demand is growing steadily, and is projected to increase 50% between 2000 and The increase in demand will come almost entirely in developing countries. Irrigation demand may actually decline, due to increased efficiency, but this will be outweighed by increases in manufacturing, domestic, and electricity needs.
2000
2050
2000
2050
2000
2050
2000
2050
OECD
BRIICS
RoW
World
Source: OECD, 2012.
Note: BRIICS = Brazil, Russia, India, Indonesia, China, South Africa??; OECD = Organization for Economic Cooperation and Development; ROW = rest of world.

6. Figure 15.5: Effects of Subsidizing Irrigation Water
Price
Quantity of Water
Demand
Supply (MC)
Marginal Social Costs (MSC) Q* QE QS PS PE P*
Widespread government policies of subsidizing water supply, especially for agriculture, worsen the problem of excessive demand, placing pressure on governments to fund large-scale water supply projects such as dams and water transfer projects. These supply projects have significant economic and environmental costs (areas B and C on graph). In theory, a market price solution could reduce quantity demanded, avoid excessive costs, and gain net social benefits (area A). But major issue of equity arise with water privatization and higher water prices.

7. Figure 15. 6: Average Monthly Water Bill vs. Precipitation in U. S
Figure 15.6: Average Monthly Water Bill vs. Precipitation in U.S. Cities
San Diego
Santa Fe
San Francisco
Seattle
Memphis
Fresno
Water prices do not always reflect water scarcity. Some arid regions, such as Las Vegas and Fresno, charge very low rates for water.
Source: Walton, 2010.

8. Figure 15.7: Water Pricing Structures
Price per Unit
Quantity of Water Used
Uniform Rate Structure
Increasing Block Rate Structure
Decreasing Block Rate Structure
An increasing block pricing structure for water encourages conservation by large users, while a decreasing block structure encourages excessive use. As concerns about water conservation have grown, there has been a gradual shift in the U.S. from decreasing to increasing block pricing.

9. Table 15.1: Value of Water in Various Uses
Water use
Average value per AF
Median value per AF
Navigation
$146
$10
Recreation/wildlife habitat
$48 $5
Hydropower
$25
$21
Thermoelectric power
$34
$29
Irrigation
$75
$40
Industrial
$282
$132
Domestic
$194
$97
The value of water varies in different uses. Economic principles suggest allocating water to its highest-valued use, but this is often not accomplished in practice.
Source: Frederick et al., 1996.