The (Real) Price of Water
Flint Michigan, Jackson Mississippi, Pittsburgh Pennsylvania, Baltimore Maryland, Houston Texas … just a few cities in the United States that today, suffer with sketchy drinking water infrastructure. The discovery of harmful chemical or biological agents in city drinking water usually makes national news. But, there is more to municipal water treatment than simply polishing the drinking water supply.
Municipal water infrastructure also includes sewerage collection and treatment … where biological toxins are collected from distributed locations and transported to a central treatment facility. Since Roman times sewerage management has been at the vanguard of public health.
So, what is the real role of sewerage treatment? Sewerage treatment protects the integrity of the drinking water supply. That is, sewerage collection networks and treatment plants are a type of protection system.
From an economics perspective, clean publicly available drinking water is a positive economic externality, while untreated sewerage is a negative economic externality.
The bottom line is that economic externalities lead to free market failures (i.e., an inefficient equilibrium allocation of resources) and government often steps in to correct the inefficiency.
When it comes to safe drinking water, local governments through taxation create drinking water treatment and distribution system (yes … your municipal water bill is really a tax), and through regulation and taxation create sewerage collection and treatment systems.
So, the price of clean drinking water includes not only polishing the water supply (i.e, treatment prior to distribution), but also operating a protection system that insulates drinking water from toxic water … i.e., sewerage.
In the engineering world, the key to insulating drinking water is to contain sewerage. Sewerage containment is a concept that has changed little since the
Roman times.
So, recognizing that sewerage containment is an essential element of protecting drinking water supplies, we might fairly ask, “What causes loss of containment of sewerage?” Answer: By far, the dominant cause of un-contained sewerage is flood.
This is where things get tricky.
Sewerage containment in most major U.S. cities was designed many decades ago … prior to concerns about the effects of climate change. Today, the risk of major floods far exceeds the forecast risk in the 1960’s … especially in coastal regions. Thus, the protective systems (i.e., sewerage systems) safeguarding drinking water in coastal cities face a monumentally higher risk of economic catastrophe due to loss of sewerage containment.
Can these protective systems be upgraded to ensure adequate sewerage containment?
Off course. But, the question of who will pay for reestablishing adequate safeguards is unanswered. And since, municipal water & sewerage systems are governed locally, don’t expect the Federal Government to swoop in with free dollars to bankroll essential sewer system upgrades.
The Federal government is much better at responding to catastrophes than preventing them.
So, who pays for upgrading drinking water protection systems? You do … locally. Typically, local government will undertake a cost-benefit analysis prior to entering the bond market for infrastructure financing. But, local bond issues are highly political since they raise property taxes and utility bills. Unlike funding positive externalities (public schools, parks, and roads) protection from negative externalities are often unpopular with taxpayers.
Further, “big business” often uses its political muscles to resist passing bond initiatives that impact their short-term profits. And, when the public does vote in favor of a bond initiative, big business rarely absorbs their fair share of the financial burden because of sweetheart property tax deals made with local government in the name of economic development. In short, bond initiatives to upgrade sewer systems that have yet to seriously fail are often unpopular.
In the meantime, climate change marches forward ever-increasing the risk of failure of drinking water protection systems. With this increasing risk, coastal cities slip closer to the consequences of a catastrophe induced market failure.
Market inefficiency is today being felt in property values, insurance premiums, mortgage financing, and public health … all increasing the real price of water. But, the most profound economic consequences of the failure to protect drinking water will be suffered following serious loss of sewerage containment incidents associated with flooding.
The real price of water includes risk not reported on your monthly water bill.
To read more of Marty ‘s writing and research, go to ORCiD.