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April 20, 2006
John Quiggin had an important op. ed. in yesterday's Australian Financial Review on water governance and policy. Governance of water supply by the states has been marked poor planning, poor funding, and ignoring problems.
Quiggin says that as water supplies fall short of demand in many Australian cities state governments have responded by imposing a range of restrictions on restrictions on water use whilst exploring a range of options to increase supply. Quiggin's op.ed. questions the widespread use of permanent water restrictions as a policy tool by the states.
His argument is that:
to use price based measures as a relatively modest but sustained increase in prices can be effective in matching long-term supply and demand....If prices are allowed to do the job of matching long-run supply and demand, restrictions are still available as an option to manage short-run shocks, such as droughts. By contrast, if permament restrictions are used to hold down long-run demand, there is little flexibility left to handle unexpected shocks like droughts or climate change. The only options are large price increases or more draconian restrictions on water use, neither of which are likeky to be very cost-effective.
That's good policy advice isn't it? Restrictions are the tools for short term disruptions to water supply, whilst the instrument of prices is to address the long term.
Will the states take heed?
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Sounds like a good idea to me. Alas the reaction to a suggestion to introduce price based measures is generally one of alarm and outrage that water is an essential commodity therefore it is unfair to increase prices.
Pesonally I'd have thought that the essential nature of the resource was a strong argument in favour of price increases, but then old habits die hard.