POISONING WATER WITH POLITICS,

You get what you pay for, the saying goes. But sometimes you get what you don’t pay for. Water is a good example, as a new report from the Ecofiscal Commission reminds us. Water is precious, lifegiving, a seminal part of our Canadian heritage, never ever, activists insist, to be exported to the Americans. In sum, water is priceless. Except that leaving something so valuable literally priceless, as many Canadian jurisdictions effectively do, seems more than a little loony. If it’s really so valuable, why do we give it away — which is what happens when municipalities don’t charge users for it by the litre or cubic metre but instead levy a fixed rate or even no rate at all but subsidize their water system with other revenues?

The Ecofiscal Commission, a self- appointed group organized by my McGill colleague, Christopher Ragan, who was recently named director of McGill’s new School of Public Policy ( first class entering September 2019), is best known for its studies and recommendations regarding carbon pricing. How to price carbon and, in particular, exactly what price to charge for it, are very tricky questions, given that the big “negative externality” carbon produces, climate change, is hard to measure and, if anything, even harder to cost. Not surprisingly, the commission’s carbon policies have met with controversy, especially on this page.

Pricing water should be a lot less controversial. The goal here is not mainly to capture a big, amorphous externality but rather, to charge people the full costs of delivering water to them. Running a water system has very obvious costs that both fairness and efficiency suggest should be borne by the people who use the water. Beyond that, there’s a harder question of what price to put on a natural resource that literally falls from the sky and flows to us through streams and rivers, but in some areas is verging on scarce in the sense that the demand for it at the current price, which in some cases is zero, exceeds supply.

Deciding the intrinsic value of this resource gets us into... well, deep water. But covering the full costs of delivery with prices should be a slam dunk, at least among economists. Why should anyone else pay for the water I consume? Newfoundlanders, the commission shows, use almost 600 litres a day of water for residential purposes while, for the country as a whole, the average is about 200 litres, with the lowest consumption being in Alberta. The report doesn’t speculate as to what Newfoundlanders are doing with all that water. Do they bathe more than the rest of us? Are they over- hydrating: drinking dangerously more than the Mayo Clinic’s recommended 2.7 to 3.7 litres of water a day? Do they all have backyard pools for their three weeks a year of good swimming weather? Are they lawn obsessives?

Whatever explains Newfoundlanders’ outlandish love of water, most economists will agree that so long as they pay the full costs of supplying themselves with it, that’s fine. Just don’t ask the rest of us to contribute. When each of us pays for what we consume, we get both the right amount of consumption and the intuitively fairest allocation of payments for it.

So why do I think — regretfully — that the Ecofiscal Commission’s recommendations that all Canadian municipalities meter residential water use and move toward full- cost pricing probably won’t go anywhere?

In a word, politics. The commission’s report does include a page on “governance issues,” mainly about how dividing fiscal responsibility for water can cause complications between municipalities and provinces. But the larger governance issue is that people don’t trust government. If governments do move from tax finance to “volumetric” user charges, will we get our taxes back? Or will governments just keep both the new user charges and the old taxes and start funding other services — in some cases probably not actual services but just activities or causes of one kind or another — that so far hadn’t been judged important enough to supply?

And what will prevent government water- pricers from jacking up the price to be greater than the actual cost of water delivery, with the excess to be used for purposes they decide? For that matter, what will prevent the costs of delivery from becoming inflated in the first place? In most cases, we’re talking about a single agency delivering water to a single geographic area. Water networks, like many networks, are classic “natural monopolies.” What will prevent whoever is running the monopoly from exploiting his monopoly position, either directly or by “capturing” any regulators appointed to rule over him?

The economics of water pricing are clear as a mountain spring, its politics murky as a bayou mudhole.

WHAT’S TO STOP GOVERNMENT WATER-PRICERS FROM JACKING UP THE PRICE FOR MORE REVENUE?