water stream over rocks


A Win-Win Approach to Water Pricing and Watershed Conservation

A Win-Win Approach to Water Pricing and Watershed Conservation

U.S. Geological Survey

3/1/2003 - 2/28/2005

An integrated model of water pricing and watershed conservation was developed. The benefits of adopting the efficient integrated policy were compared to the status quo policy of under-pricing water and under-maintaining the watershed and to the policy of adopting efficient pricing without efficient watershed management. The model was applied to Leeward Oahu. In particular, we explored the hypothesis that efficient watershed maintenance will lower the efficiency price of water enough to offset the increase in price required for efficiency pricing without proper maintenance. This lead to the possibility of a win-win-win situation: current consumers would avoid the severe water rationing that would accompany the continuation of current pricing policies in the face of substantial watershed damage; future consumers would avoid the inevitably high prices associated with the required use of desalinated water. Tourists and other consumers of the environment also win, making the policy a prototype for sustainable resource management and sustainable tourism.


Current water management policies on Oahu are pushing the county towards premature and relatively expensive use of desalination. Two sources of waste were of paprticular concern for the research. First, water is underpriced at the margin, weakening incentives for water conservation by residential, agricultural, and commercial users. Second, water supplies from the Ko’olau watershed and other sources are taken for granted, leaving these sources at risk from environmental degradation. Should any of the potential damages from fire, feral ungulates, and the spread of exotic botanical species such as Miconia calvescens be realized, natural water supplies will be diminished, accelerating the dependence on desalination.

Previous proposals for efficiency prices have been widely criticized as being unaffordable, especially by low-income households. This fear is partly due to the failure of economists to clarify that raising marginal prices will not necessarily increase actual water bills, especially when higher marginal prices are combined with lower intra-marginal prices through a block-pricing scheme. Similarly, proposals to fund watershed conservation through higher water prices have been politically unsuccessful. The political feasibility of combining efficiency pricing with watershed conservation had yet to be explored, however.

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