Unit 1
Unit 2
Environmental Markets
Business Water Use
Businesses consume the vast majority of water that is used in Australia. This has encouraged some people to argue that it is businesses, not households, that should be responsible for generating the water savings that we need to see. To understand the nature of this argument, you need to take a moment to consider the way in which businesses actually use water in this country.
Throughout Australia, agriculture accounts for 65% of all water usage. This tends to be higher in those states that focus their productive resources towards the production of agricultural products. For example, in Victoria the agricultural sector uses 66% of the water, and in NSW it is 70%. On the other hand in Tasmania the agricultural sector uses 59% of the water, and 94% of this water comes from self-extracted sources.
Many people are surprised to discover the breakdown of water use within this sector of the economy. For example, in Victoria more than half of the water that is consumed by the agricultural sector is used by the dairy farming industry. Pastures account for close to 20% of the water consumption, and the production of grapes consumes a further 10%. In contrast, the manufacturing sector uses only 2% of the water that is consumed in Victoria each year.
The industry for which the use of water is most apparent is, obviously, the bottled water industry. According to the most recent statistics, over 200 billion bottles of water are sold around the world each year. A variety of tests have shown that the filtering processes that are used to create bottled water do remove many chemicals from the final product that we drink. On the other hand, standard tap water in Australia also contains fluorine, a chemical that is also used in toothpaste. While you might not taste this chemical when you drink the water, since this change was made there has been a significant decline in the incidence of tooth decay in this country. In choosing to drink bottled water over tap water, you will certainly be paying more (a bottle of water can cost more than $2.00, while the equivalent quantity of water from a tap will cost less than $0.02). It is also true that you might be at greater risk of getting a cavity in your teeth. (Many studies have been done to test whether or not people prefer the taste of bottled water. In a double blind test, the probability that someone will choose bottled water over tap water is exactly what you would expect to see by chance. This suggests that the average consumer can’t tell the difference anyway!)
Beyond this, it is also important to understand that there are businesses that have been established by the government to manage the way in which water is traded between other businesses in Australia. As early as 1994 the Council of Australian Governments (COAG) began making changes that would allow for the open trade of water. By 2009 it was concluded that significant progress had been made, and that Australian water supplies were being managed in a more appropriate manner as a result.
Creating businesses to manage water in this way is important. For example, imagine that there are only two businesses that need water – one business grows oranges, and the other is a mining company that extracts iron ore. Who should get greater access to the water? In an ideal world, each business would have access to all of the water that it needs, but as water is scarce this is unlikely to be possible. Economic decisions need to be made. If the price of oranges was very high, then it would make sense to allocate more water to this industry. This would allow for the production of oranges, which can then be used to increase the overall wealth of the country. We could then import the iron ore that we need, and still be better off overall.
Of course, the real situation is far more complicated than this! Water trading entities under the National Water Initiative are required to consider relative prices, but they must also look at environmental conditions, the relative size of different population centres, and also the overall level of rainfall that has been recorded in each area in the recent past. Beyond this, it is also true that there are many hundreds of industries that operate in each state, and all of them would like to have access to an unlimited supply of water.
Economics is the study of making choices. In this instance, it is easy to see that choices must be made.
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