Water woes: Past, present, and future

Professor of Sustainability and Economics Michael Hanemann, an expert in environmental and resource economics, explores this vital resource in the U.S. and around the world.

Professor of Sustainability and Economics Michael Hanemann, an expert in environmental and resource economics, explores this vital resource in the U.S. and around the world.

Tapping into water

The United States’ water systems range in age, from pre-Civil War to the Civil Rights era. For instance, some of Philadelphia’s water mains were installed in the 19th century — which makes sense since it’s a colonial city on the East Coast. Phoenix, on the other hand, has newer water systems because its population grew during the mid-20th century.

• Many water mains and pipes were laid in the early to mid-20th century with a lifespan of 75 to100 years.
• The U.S. Environmental Protection Agency regulates 155,000 drinking water systems across the United States.
• There are more than 800,000 miles of public sewage pipes in the U.S.
• There are 500,000 miles of private lateral sewers.
• Over the next 20 years, 56 million new users will be connected to centralized treatment systems.

Testing the waters

“The American Water Works Association recommends a percent of pipe networks be replaced each year. That is equivalent to saying a pipe should be replaced after 100 years. But in some municipalities, to keep water rates down, the investment in maintenance is equivalent to replacing a pipe only after 1,000 years,” Hanemann explains.

• Each year in the U.S., 240,000 water main breaks occur.
• Over the next 20 years, the cost to replace urban pipe networks may reach about a trillion dollars nationwide, says Hanemann. Water agencies will have to spend three or four times as much on replacing pipes as they do today. If anything, this might lower rather than raise property values.

“This is the cost to replace the network that we have today. It does not include the cost to meet new drinking water quality standards required for ever more exotic contaminants showing up in our water,” Hanemann says.

The challenge for utilities is to make a profit so broken pipes can be fixed, while keeping water affordable for the poor.

Water is essential for life, but beyond that there’s tremendous sensitivity to making sure people have access to water, says Hanemann. “People freak out if their water rate goes up 5 percent, whereas they don’t freak out if cable or beer or anything else goes up 5 percent. That’s an emotional thing. It’s got a logical basis, but it’s also overdone because water is a much lower cost of living than cable TV for many households. We should be paying more for water, however, because the cost to keep up its infrastructure, and, of course, to clean contaminated water, is costly. In many places, there’s tremendous political pressure to keep water rates low. What gets shortchanged is system maintenance, let alone cleaning contaminated water.”

• A gallon of gas costs a bit over $2.
• A gallon of milk costs about $3.
• A gallon of orange juice, about $3.50.

And, you have to make a trip from your home to get them. Water comes directly into your home, and you pay only 2 or 3 cents for a gallon.

“Across 30 major U.S. cities, a household using 100 gallons per day paid, on average, a total of $140 a month in 2015 for water, sewer, and, in some cities, stormwater service. The water service component averaged $62 a month,” Hanemann says.

Putting a price on water

Around the world, water is seen as something that should not be treated as a commodity. Instead, people see water as a human right, something that is provided but that should not have to be bought. “In 1821, a water activist in London said, ‘Water must be considered one of the elements necessary to existence, the same as light and air; therefore, its supply to a great city ought not to be the subject of [commercial] trade,’” explains Hanemann.

• Water demand is projected to increase by 55 percent globally between 2000 and 2050, according to the Organisation for Economic Co-operation and Development.
• Much of the demand will be driven by agriculture, which already accounts for 70 percent of global freshwater use, according to the Food and Agriculture Organization of the United Nations. The World Resources Institute says food production must grow by 69 percent by 2035 to feed the growing population, which will expand agricultural water needs.
• By 2035, the World Bank says the Earth’s energy consumption will increase by 35 percent. This will increase water consumption by 85 percent, according to the International Energy Agency.

“The economics ought to be simple. Water is not a man-made commodity; it falls from the sky. But, in fact, the economics of water is surprisingly complex,” explains Hanemann. “From an economic perspective, water is a difficult commodity. It is free and yet costly. It is simultaneously a private good and a public good. It helped cities flourish financially, but now it is their financial burden. While water comes from nature at no charge, and three-quarters of the earth’s surface is water, people don’t always live where water is located — in Phoenix, for example. And they need water year-round, not just when it rains. The cost of water is the cost of making it available at the right time, the right location, and the right quality — it is the cost of collecting, storing, transporting, and treating the water.”

Residential water and wastewater bills have steadily increased by 5.7 percent annually over the past five years, outpacing average annual income growth(5 percent) and inflation (1.9 percent), and magnifying the financial challenges facing municipal water utilities. Analysis of the 50 largest metropolitan areas in the U.S. show combined monthly water and wastewater bills averaging US $91.06, based on standard household consumption by geography, according to the new U.S. Municipal Water and Wastewater Utility Bill Index from Bluefield Research.

“The cost of water is overwhelmingly a capital cost, much more so than electricity or gas or telephones,” Hanemann says. “If you supply a bit more or a bit less water, the total cost hardly changes. Operating costs account for more than half the total cost of electricity supply, one third the total cost for natural gas, but only about one-tenth of the cost for an urban water network.

“We will end up having to spend more money to get the same supply reliability that we used to have in the past. This is the larger reality that we will all face: Maintaining the water supply that we have now, and that we take for granted, is going to become far more expensive. Viewing water as a commodity that one pays hardly anything for is just not going to work in the future.”

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Sources:

• Brett Walton and Kay LaFond/Circle of Blue
• Sarah Frostenson/Circle of Blue
• American Society of Engineers 2017 Infrastructure Report Card
• Bureau of Labor Statistics