The Economics of Water Use and Management: From Human Rights to the Financing of Costs of Services

Water services provision (aqueducts, sewage/sanitation, and depuration) is part of the industrial sector characterized by high intensity of capital and technology. Decisions have to be taken on the basis of both efficiency and equity given the fact that water is a fundamental good for life, with no substitutes. At the European level, the Water Framework Directive has established the principle of full cost recovery, which includes externalities and future scarcity, as the basis for efficiency, independently of the legal form of the firms, whether private, public, or mixed. How to distribute these «costs» among citizens is left to the single country state to decide (equity reasons are country specific), at one extreme are efficient tariffs charged to the users and to the other is full tax financing. Several indicators have been elaborated to measure the quantity and quality conditions of water availability in a country, in a geographical/political area, etc. Some of them include economic − income and wealth - considerations of the country (water poverty, water affordability, etc.). These facts, measured through well-defined indicators utilizing data sets, constructed on a commonly basis at least in Europe, must be considered when making water allocation decisions, notably those concerning the long run, i.e. infrastructure investments including those necessary to adapt to climate change. In fact, decisions on water allocation in a sustainable way and risk reduction of water conflicts should be taken at the global level. Unfortunately, most of the times, international trade flows show that high water intensity goods flow from countries with less water endowment to those with more, a sign of unsustainability. It also shows that we are far from reaching efficiency in global water management, let alone equity. All in all the water debate, which appears to be increasing in recent years, instead of being good news in terms of better water managing is producing just the opposite, at least in Italy. The rather misleading debate derails from the economics (costs and costs distribution) towards the ideological; it paralyzes the sector to the detriment of such fundamental natural resource and to the growing necessity of future investments. Instead of improving efficiency and/or equity, it causes both water waste and water pollution to increase.