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Why We Care About the Price of Water in China

Author: Peter R. Orszag, Adjunct Senior Fellow
July 6, 2011
Bloomberg.com

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An American trucker barreling down Interstate 95 bemoaning the high price of diesel fuel might never imagine that one of the things driving up his bill is the way water in China is being mispriced. But the truth is, water shortages are indirectly causing increased use of diesel generators for electricity in China, and that, in turn, is helping raise diesel prices in the U.S.

Smarter pricing could help China -- and the rest of the world -- avoid further problems allocating water resources, and mitigate some of the side effects.

Coal plants generate most of China's electricity. Hydropower is the second-biggest source. Water is clearly essential for hydropower, but a lot of it is needed for coal power, too -- to mine the raw material, to process it and then to cool the power plants that burn it. In 2010, coal-fired electricity in China used more than 30 trillion gallons (114 trillion liters) of water, or about 20 percent of the country's total consumption. And over the coming decade, roughly 40 percent of the nation's increase in water demand will be associated with coal power, China's Ministry of Water Resources says.

This development is exacerbating an already severe shortage in China. The country accounts for about 15 percent of the world's consumption of fresh water. Yet its supplies are limited, and pollution is a significant hazard.

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