Market-Driven Water Pricing Could Help Solve Florida’s Water Problems
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Commentary

Market-Driven Water Pricing Could Help Solve Florida’s Water Problems

Privatization, improved water pricing, and innovative wastewater reuse technologies can help deal with rising demand and population growth.

With over 1,350 miles of coastline, more than 30,000 lakes, and 11 million acres of wetlands, water is Florida’s most abundant resource and is essential to the state’s economy, environment, and quality of life. However, rapid growth and development are straining water resources across the Sunshine State. If current trends continue, Florida will be home to 33.7 million residents and water demands could more than double by 2070. Privatization, improved water pricing, and innovative wastewater reuse technologies have the potential to alleviate some of the burden. 

Florida’s water problems boil down to issues of supply and demand.

The timing and distribution of water is often unreliable and can vary depending on weather patterns. Moreover, growth in some areas of the state is driving demand beyond the available supply while other areas have surplus water resources. The majority of the state’s water originates in the north, but the greatest demand lies in population centers in central and south Florida. In fact, 80 percent of water is located north of I-4 while 80 percent of the population resides south of the Interstate. Large quantities of water historically flowed south through the Florida Everglades, but decades of water mismanagement and misguided infrastructure projects have altered the natural flow of water south—causing ecological damage and reducing the supply for consumption.

Efforts to resolve the mismatched supply and demand for water through the political process have been met with resistance. In 2003, a report from the Florida Council of 100 recommended the formation of a statewide water board to oversee the five existing regional water management districts and send water to where it is needed most. While the plan would have allowed water-rich areas to sell their water to communities in need of additional supply, centralized water management is far from ideal. 

A better solution could come in the form of a free market for water with improved pricing mechanisms. Presently, water prices are typically set arbitrarily by government authorities. The process is consequently motivated by political considerations and results in impractically low prices which do not encourage responsible use. In fact, consumers pay less for water in the U.S. than in other developed countries including Canada, Germany, Spain, Denmark, and the United Kingdom.

If prices were allowed to fluctuate with changes in supply and demand, water could be allocated more efficiently. In times of shortage, prices would increase and create an incentive to conserve. Households could reduce consumption and save money by upgrading to more efficient appliances and water fixtures. Moreover, pricing that reflects the costs of providing water would ensure that appropriate funding is available for infrastructure maintenance, operational costs, and capital investments.  

Market-based pricing would also create incentives for private industry to develop innovative technologies. For example, the desalination of saltwater and sanitation of wastewater are growing industries with the potential to greatly expand potable water supplies. The best way to encourage their development and implementation is to provide financial incentives through markets. 

Australia is leading the way in market-based water pricing. Their system of tradable water permits results in prices that reflect the cost of delivery as well as scarcity. In the U.S., some water utilities charge seasonal rates to reflect typical variations in demand throughout the year. Others incorporate anticipated infrastructure costs into their pricing schemes, but neither of these systems relies on actual market forces. Florida should look to follow Australia’s example and embrace the idea of tradable permits to ensure that water prices reflect both supply and demand.  

Vittorio Nastasi

Vittorio Nastasi is a policy analyst at Reason Foundation where he works on Florida policy issues including education reform and water quality management.