With Australia now mostly in drought, and decades of under-investment in urban water infrastructure catching up with our big cities and growing regions, water is quite rightly a hotly debated topic.

There are many options available for the supply side – recycling, desalination, new dams – which are certainly needed now in many places, but the demand-side management has been bungled. Efforts to date have mainly been restrictions, but they can’t last forever. Demand for water needs to be restrained in the long run. Is there another way to reduce water use in cities, other than beating households with a stick to do the right thing?

The problem is that water is, effectively, costless for many people at the moment. Although average household water consumption has fallen recently, it was still 225 kilolitres per year in 2004-05. Almost everywhere it’s charged with a tiered tariff. There’s a low rate – around 82 cents per kilolitre in Melbourne or $1.26/KL in Sydney – for a reasonable amount of water each day (up to about a kilolitre, depending on your city), then anything extra is charged at a higher rate. This is $1.42/KL in Melbourne and $1.63/KL in Sydney.

The rates for Brisbane, Adelaide and Perth, as well as commercial rates, are cheaper, but structured similarly.

On average, household water use in Australia is charged at $1 per kilolitre. That’s one buck per tonne of water.

Quite simply, water is too cheap. One of the best ways to curtail demand for a commodity is through a higher price. To date, cutting back on excessive water use (restrictions) only has an economic incentive for households and businesses insofar as not being caught out and fined.

If state governments were really serious about curbing urban water demand and ensuring it’s used most economically, they would increase the price. Target consumers through their hip-pocket, not their goodwill or the spitefulness of their neighbours.

Low tariffs for the first, say, 150 kilolitres each year should be kept, to ensure poorer households aren’t charged more for a necessary utility (and to make any change politically palatable). However, greater use should be charged at a higher tariff, say, $4-5 per kilolitre.

That’s still 200-250 litres per dollar of a precious, clean resource. Cheap for what it is, in my book.

Reducing water demand in cities would be much more easily achieved through pricing than the current restrictions. The money raised could even be used to invest more in water infrastructure, fixing pipes and promoting water efficiency.

So how about it, Messrs Iemma, Bracks, Beattie, Rann, et alia?

Peter Fray

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Peter Fray
Editor-in-chief of Crikey