How Taxing Organic Products Could Solve California’s Water Shortage
— Terry L. Anderson is the William A. Dunn Distinguished Senior Fellow at the Property and Environment Research Center and the John and Jean DeNault Senior Fellow at Stanford University’s Hoover Institution. Henry I. Miller is the Robert Wesson Fellow in Scientific Philosophy & Public Policy at the Hoover Institution.
California is in the fourth year of record-setting dearth of rain, with virtually the entire state experiencing “exceptional drought.” In response, Governor Jerry Brown has mandated a 25 percent reduction in the state’s water use — a mandate that is long on directives and short on incentives. The governor proposes to reduce acreage in lawns, prohibit new homes from irrigating with potable water, and offer rebates for replacing old toilets. Nowhere to be found are increases in water prices to induce conservation.
We have a better idea.
One of the few things economists can agree on is that increasing the price of a good will decrease the quantity demanded. For this reason, virtually every policy wonk who worries about global warming agrees that pricing carbon with a revenue-neutral carbon tax is a way to get us out of our cars and onto our bikes. Similarly, water-policy analysts agree that California’s thirst for water won’t be significantly reduced until consumers are faced with a more realistic price for the “clear gold.”
In that spirit, we propose a revenue-neutral tax on all organic products — food, linens, clothing, pillows, tobacco, etc.
How will taxing organic products help to conserve water? The answer is that organic agriculture uses more of critical inputs — labor, land, and water — than conventional agriculture. Taxation would reduce the demand for water-wasting organic products relative to non-organic alternatives, and thereby reduce some of the pressure on California’s dwindling water supplies.