Know Thy Water: The First Commandment of Water Pricing

Recent blogs by the Commission have explored water pricing as an ecofiscal solution to the current water drought in California and in British Columbia. It’s a hot issue in Canada, especially now.   In recent weeks the BC government committed to re-review its groundwater and surface water rates after a petition, signed by over 200,000 people, sparked concerns that rates are too low ($2.25 per million liters).

The call for a more stringent water pricing system has raised fears of commodifying water, therefore creating a precedent under NAFTA. Andrew Gage from West Coast Environmental Law recently wrote a great commentary providing insight on the dangers of conflating a water pricing system with the process of commodifying a good. Water fees can cover more than just the administrative costs of water supply, Gage explains, they can also cover the environmental costs of withdrawing water. Water pricing for environmental objectives safeguards NAFTA obligations.

Water Pricing for Environmental Costs

Excessive extraction of water is costly. If water extraction levels exceed the regeneration threshold of the resource, that can lead to increased pumping costs, and environmental costs, such as the depletion of the water table, risk of deterioration of the quality of the water or saltwater infiltration. For drought prone regions, there are costs to not maintaining buffer groundwater stored for use in drought years and costs in over-exceeding the renewal thresholds in dry years without compensating with replenishment in wet years.

In order to account for these environmental costs, Quebec imposes water rates up to $70 per million liters and Nova Scotia has rates that start at $145 per million liters.

Where Your Water Comes From Matters

Pricing water is different than pricing GHG emissions. A tonne of carbon emitted anywhere in the world has the same impact in terms of exacerbating climate change. However, the environmental costs of withdrawing water have everything to do with where you are drawing that water from, which makes water-pricing systems all the more complicated. For example, different types of groundwater (confined or unconfined) have huge differences in replenishing rates. Important input/output relationships can exist between surface water and groundwater.

Blogger and chemist, Blair King provides an illustrative example of the diverse potable water supply situation in Lower Mainland British Columbia. Most of Metro Vancouver’s supply is from reservoirs fed by watersheds sourced from precipitations and snowfall runoff. However, within some municipalities residents are served by different water systems. In Langley, King explains, private water wells supply 23% of local water while the rest is a mix of the municipal groundwater system and water supplied from Metro Vancouver. Given the threatened nature of some (but not all) of these groundwater sources, the marginal cost of extraction can vary significantly for different water-users within the region.

Water Pricing by Watershed? Alberta’s Example

For water pricing, this means that efficient prices — in theory — would be differentiated by the source. While far from perfect, an example of a watershed-specific pricing system in Canada is Alberta’s Water Act, which requires organisation and individuals to obtain licenses to use or divert ground or surface water. The availability of licenses is “river basin” specific and transfer (or trades) of licenses is allowed. Hence, this is essentially a cap-and-trade market where the cap is the specific renewal threshold per basin (the figure below from Alberta WaterPortal shows the allocation of caps within the province). Many license trades happen per year. Each goes through a public process and a review by Alberta Environment to understand impacts, including those on the aquatic environment.

We Can’t Price Water Unless We Understand It

It is possible, practical, and arguably necessary to use water pricing policies in Canada that account for the environmental costs of over-extraction, even in the context of NAFTA . But given that the state of a watershed is dependent on its type, location and depletion rate, determining the proper environmental cost of extraction requires a deep understanding of our water systems. Proper monitoring and data collection within provincial watersheds is an essential component of developing smart water pricing policies. B.C. can do better and arguably so can most provinces.

If there is a critical lesson for all Canadians in B.C’s drought it’s this: know thy water to value thy water (and to price it accordingly).