27-12-2021, 06:11 PM
Willem H Buiter
25 Dec 2021 06:01AM
(Updated: 25 Dec 2021 06:01AM)
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The future of water as a significant asset class depends on the willingness of governments – and ultimately of society at large – to price water at its long-run social marginal cost as a scarce renewable resource (including the cost of addressing the negative environmental externalities associated with its production and distribution).
Globally, over 70 per cent of fresh water is used in agriculture, and most of this usage is either free or heavily subsidised. Households in many countries also pay but a small fraction of the long-run social marginal cost of the water they use.
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I hope and expect that both these anomalies will soon end. There is growing recognition of deepening freshwater scarcity crises around the world, as well as a greater willingness on the part of policymakers to price negative environmental externalities appropriately.
To recognise water as a scarce renewable resource, a tradable commodity, and a marketable asset is not to diminish its unique significance as a good that is essential to life and viewed by many as a gift from God.
When socially efficient water pricing creates economic hardship, an appropriate fiscal response through targeted income support is required. If this fails – perhaps because the state cannot identify who is adversely affected by proper water pricing – a two-tier tariff may be required.
While a social subsistence level of water should be provided for free or at a heavily subsidised price, all additional water usage could be priced at its full long-run social marginal cost to preserve the right incentives.
Water is indeed becoming an asset class. Give it another decade, and exchange-traded funds for water and water rights will be part of the new normal for investors.
Read full article at: https://www.channelnewsasia.com/commenta...et-2390901
25 Dec 2021 06:01AM
(Updated: 25 Dec 2021 06:01AM)
......
The future of water as a significant asset class depends on the willingness of governments – and ultimately of society at large – to price water at its long-run social marginal cost as a scarce renewable resource (including the cost of addressing the negative environmental externalities associated with its production and distribution).
Globally, over 70 per cent of fresh water is used in agriculture, and most of this usage is either free or heavily subsidised. Households in many countries also pay but a small fraction of the long-run social marginal cost of the water they use.
......
I hope and expect that both these anomalies will soon end. There is growing recognition of deepening freshwater scarcity crises around the world, as well as a greater willingness on the part of policymakers to price negative environmental externalities appropriately.
To recognise water as a scarce renewable resource, a tradable commodity, and a marketable asset is not to diminish its unique significance as a good that is essential to life and viewed by many as a gift from God.
When socially efficient water pricing creates economic hardship, an appropriate fiscal response through targeted income support is required. If this fails – perhaps because the state cannot identify who is adversely affected by proper water pricing – a two-tier tariff may be required.
While a social subsistence level of water should be provided for free or at a heavily subsidised price, all additional water usage could be priced at its full long-run social marginal cost to preserve the right incentives.
Water is indeed becoming an asset class. Give it another decade, and exchange-traded funds for water and water rights will be part of the new normal for investors.
Read full article at: https://www.channelnewsasia.com/commenta...et-2390901