FREE EXCHANGE has frequently argued that a good way to solve problems associated with overconsumption of natural resources is to price those resources appropriately. I've made this point specifically with regards to the ongoing drought in the American southeast. Lake levels there remain at historical lows, and weather patterns have not gotten any more helpful of late. Despite a few large storms in the past month, many areas of North Carolina, South Carolina, and Georgia just bid farewell to one of the driest Novembers on record.

After months of pleading for conservation, at least one southern leader appears ready to heed our advice. According to the News & Observer, daily newspaper for Raleigh, North Carolina, the mayor of the capital city is prepared to introduce tiered rates for water usage under which the biggest consumers will pay the most for their water. What led to consideration of such a novel idea? Not our speechifying, unfortunately, but instead success under such plans in neighboring jurisdictions:

According to UNC-Chapel Hill's School of Government, rate structures are used to encourage conservation in about one in five water systems in the state -- including two in the Triangle.



Water-rich Cary has relied on tiered water rates since 1999. Its leaders credit the rates with reducing the fast-growing town's water consumption per person.



Greensboro and other cities have also seen consumption drop since they switched to tiered rates.



And the Orange Water and Sewer Authority enacted varying rates Oct. 1, also to encourage water conservation.



"The board wanted to send a stronger pricing signal to customers to conserve water," said Ed Kerwin, executive director of the Orange County utility. "Even before this drought, we wanted to be sure we're using wisely a limited resource. We have found that pricing is an effective tool."

Indeed. There are two other interesting points contained in the story linked above. First, it's explained that some areas face constraints on their ability to increase water rates, because utility revenues from water customers are statutorily committed to the payment of local utility bonds. At a certain level, water rates will cause overall utility revenue to decline leaving those bonds illegally underfunded.

I suspect that level is higher than any utility is considering, but the point does demonstrate the conflict between a tax designed to reduce a negative externality and a tax meant to collect revenue. As we consider the role of a carbon tax in reducing greenhouse gas emissions, we should remember that committal of carbon tax revenues to dedicated funding priorities could limit our ability to raise the carbon tax to necessary levels.

Finally, I've also argued that widespread pricing of resources at appropriate levels should give a locational advantage to places that can accommodate lots of development. Water-rich places should have cheap water rates, deserts should have expensive water, and population patterns should adjust accordingly. As it turns out, there's evidence this could work:

Construction contractor Chuck Clark, 40, who recently moved to Cary from Buffalo, N.Y., said the tiered rates have pushed his monthly water bills far above what they were up North.



"I can tell you, it's too much money. I'm very upset about it," he said. "I was going to call to ask about it."

People often assume that economic weakness is solely responsible for relative population decline in the midwest. To the contrary, that weakness is due in no small part to out-migration of workers, motivated by too-cheap water, roads, electricity, and emissions in the nation's southern half.