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By Roger Bate : BIO| 03 Aug 2020
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As Summer temperatures are set to be some of the hottest on record, and much hyperbole is written about whether this is influenced by man's activities, Skeptical Environmentalist, Bjorn Lomberg, is about to set off to Australia to promote his new book, How to Spend $50 billion - a book on how to get the best bang for the buck on interventions in the developing world. One of his simple conclusions is that trying to correct human-induced climate change is not a cost-effective intervention, whereas improving water supply is a far better initiative. And in the heat, ready access to water, whether in California or the Sahel, or the most arid continent on earth (Australasia), is vital.

Unfortunately Lomborg's analysis doesn't address the world's largest water problem -- gross misallocation of agricultural water. This is a pity because his destination, Australia, has a well-honed solution -- the market.

The Problem

Alarmists have been crying wolf about water wars for years, but like many green exaggerations they have a kernel of truth. Freshwater is being overused and polluted in many parts of the world. Aquifers from as far afield as Beijing and Dallas will last only another two or three decades; perennial rivers in many places are now often running dry at least during some parts of the year. In short, we have a problem: there is enough water but it is being used inefficiently almost everywhere and at current rates it will run out soon.

In India over one million children die due to diarrhea and other easily preventable water-borne diseases every year. Few Indians (perhaps 30 percent) have close access to decent sanitation and high quality drinking water. Not only does this expose the majority to dangerous dysenteries and other water-borne disease, but it provides requires back-breaking toil for those (usually women and children) who have to make long journeys to collect it every day. The indirect costs are even more staggering with salinity levels rising in so much irrigation water that crops fail, farmers commit suicide and thousands of the poorest starve.

The main water allocation problem is the result of Soviet-style management over agricultural water. In most places around the globe, governments decide who gets how much water, when they can use it and often what for, and if they don't use their allocation (regardless of how they use it) they will lose it. Once governmental allocations are made, officials rarely reallocate, even when massive changes in agriculture, industry, mining, domestic and rural demand occur. The result is politically favored allocation and grotesque situations where farmers often pay 100 times less than other types of users, and the poorest in slums often pay 10 times what rich domestic consumers pay, and for unsafe water.

While human access to drinking water and sanitation is obviously vital, far more water is used -- about 70 percent of globally withdrawn freshwater -- and vastly more water wasted in agriculture than in any other allocation. Improving agricultural water allocation use and assigning flexible rights to it can result in more efficient outcomes and ultimately fairer allocations to the world's poor in the aridest parts of the world.

Water reallocation is also becoming vital in the fastest growing areas of South East Asia. Due to burgeoning agriculture, China's surface water is rapidly depleting, and according to the respected think tank the Rand Corporation, water shortages could indefinitely lower annual growth by as much as 2 percent. India's quasi-illegal water rights trading system was valued at over US $1 billion a year in 1999 by the World Bank. While this questionable system is improving agricultural output, it is also leading to even faster aquifer depletion and pollution than in China. China needs to adopt individual and communal water rights, and India should legalize its own system, in order to prevent an ecological and health-related disaster in the coming decades; both nations can learn a lot from Australia's rights trading system as well as from successes elsewhere.

A partial solution

Countries and regions that have redefined and traded water rights have seen water access for the rural poor increase in volume and fall in price. All users -- agricultural, industrial and domestic -- have seen their supplies increase in reliability and quality with infrastructural improvements. Aside from making economic sense, there is a moral imperative for pushing for such a reform of water rights -- access to better quality water reduces disease and death.

Chile, South Africa and Australia provide the best examples of how trading can take place, improving farm output while benefiting the poor. Chile's trading has increased access to water for the vast majority of poor rural users. Meanwhile, the US has lost its way: Its western states initially led the pack with legal structures to encourage trade but overburdening federal environmental regulations and perverse litigation against market trades by environmental groups have limited flexible allocation.

Australia's trading system along the hundreds of miles of the Murray Darling Basin (MDB) is now the most sophisticated and effective in the world and should be analyzed closely by all countries where agriculture dominates water usage. Progress is perhaps best exemplified by the 'Watermove' website now operating in the MDB. This sophisticated system allows users to trade water on the internet. Moreover, it breaks down the right to water into its constituent parts, including access and distribution.

Trading has promoted a reduction in low-value cropping activity like cereal production; it has encouraged non-farming enterprise owners (including municipalities for domestic water use) to buy traded water in the very arid state of South Australia. Trading has lowered water use and increased farmer productivity; as some farmers leave the business others flourish and choose crops more suitable to the climate (including grapes to make great Australian wines). But regardless of which specific sector buys the water, the clear pattern has been a shift to higher value production and more efficient water use.

Only time will tell whether China and India, and western US states, which within 20 years will also have chronic and acute water problems, will adopt the sophisticated trading techniques of Australia, but it will be a great deal better than decision by government fiat. Water trading allows time for individuals to adapt to changing conditions -- man-made or natural -- and the conditions are changing. Sticking one's head in Gobi or Mojave sand won't help future Chinese or Californians.

Roger Bate is a Resident Fellow of the American Enterprise Institute. His book, All the Water in the World is published by Australia's Center for Independent Studies on 14th August, where Dr Bate and Bjorn Lomborg will discuss development issues.

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