Because water is both priceless and free, defining its value is a paradox

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Increased awareness of water scarcity at a global scale has driven efforts to establish a common definition of water’s value. Calls to price water based on its “real value” encounter the problem that there exists no generally accepted formula to determine such a value.

Conceptually, one method for valuing water combines the value of the water in use — which includes not just its supply costs, but also costs of foregone uses and external costs — with an adjustment for societal values and with an intrinsic value, which includes notions of community and spirituality.

Ordinarily, though, the value of water is associated with its price; the amount asked and/or paid to acquire it. However, a complex mix of factors combines in different ways to produce different prices for water that vary widely depending on specific circumstances. The price for water that most people in the developed world are familiar with is set by their water utility.

Water utilities cover operating costs, including construction, maintenance, administration and financing, with revenue from customers. Although some water utilities charge only a fixed fee for water service, most charge a per-unit rate as well, and many of these use increasing block rates, or rates that are higher for greater quantities of water. Water utility prices are rising across the country for several reasons, such as the need for expansion of distribution systems and repair of deteriorating infrastructure.

Through aquifer recharge, Arizona has created a water market of renewable water, including mainly CAP water and treated wastewater. By recharging, entities accrue Long-term Storage Credits that may be bought and sold. The Central Arizona Groundwater Replenishment District is a major purchaser of long-term storage credits, and in 2013 paid approximately $140 per acre-foot. The right to use a quantity of water every year in perpetuity can also be purchased from a willing seller if a number of regulatory requirements are met. In Active Management Areas (AMA), several types of rights were defined that could be transferred within the same AMA. The least restricted were Type 2 non-irrigation rights, which have traded for an average of $1,000 to $4,000 per acre-foot. Type 2 rights in the Prescott AMA sold for higher prices than the Central Arizona AMAs because of Prescott’s limited access to renewable water. In 2007, the town of Prescott Valley auctioned rights to an annual number of long-term storage credits for $24,650 per acre-foot.

Water, whether effluent or fresh, supports environmental values that can be measured through observing impacts on other economic goods or through surveys in which individuals express their willingness to pay for the benefits of water in the environment. For example, several studies have found that proximity to riparian areas adds a premium to the value of real estate. In addition, large sums have been spent by organizations like The Nature Conservancy to protect and restore river flows.

Sometimes the value of water cannot be translated into monetary terms. Many people value water in spiritual terms, including indigenous peoples in Arizona and the Southwest. Among these, the Hopi incorporate the spiritual value of water into their cultural and religious practices, linking water with their creation story, their ancestral heritage and their way of life. The Hispanic acequia communities of New Mexico and Southern Colorado — like their counterparts in Spain and the Middle East — cohere around their acequias, which are communal, gravity-fed earthen canals. Maintenance and repair of these canals is considered a sacred duty and bonds the villagers together. Thus, water is seen as essential to preserving the homeland and identity of Hispanic communities in this region.

Defining the value of water creates a paradox because water is both priceless and free, and between these values lies a whole range of values dependent on a complex interaction of multiple factors, perspectives and contexts. Yet it is vital that people understand the value of water in order to make wise decisions regarding management of this essential resource.

— Susanna Eden is assistant director of the University of Arizona Water Resources Research Center.