The Productivity Commission’s recent report on Australia’s urban water sector sets out the economic case for reform. One reform they suggest: remove water conservation measures.

In Melbourne, most people would agree that water restrictions are a pain. However, restrictions account for only a fraction of the water savings generated by a range of water conservation programs.

It is conservation programs like these that the Commission recommends removing, and these programs that effectively stopped Melbourne from running out of water during the recent drought.

Water conservation programs have been extremely effective in reducing household demand for water in Melbourne. Demand dropped from an annual average of about 250 L per person per day in the 1990s to just below 155 L now.

More remarkable is that Melbourne’s total demand has dropped from 500 GL per year to below 370 GL (GL = gigalitre, or one billion litres) in conjunction with a population increase of more than half a million people.

Water conservation measures include low flow fittings, water saving shower heads, appliance efficiency standards, behaviour change campaigns (such as Target 155), and rebates on water saving products.

In its report, the Productivity Commission contends that “…demand side management and water conservation programs are imposing large costs on consumers per unit of water saved that far outweigh the cost of supplying them with water”.

True, the cost of supplying water is dirt cheap, so you would need to save a lot of water to pay off the cost of, say, a water saving shower head.

However, most people like their showers hot, and that uses energy and energy also costs money. So the real benefits arise from the reduced cost of the water and the reduced cost of gas and electricity.

In fact, the energy used to heat water in the average domestic hot water unit is about ten times the energy used to desalinate the same volume of water. Hot water is one of the largest energy uses at home.

A broader “systemic” look at the situation would include things like the energy saved by low flow shower heads, the ecological benefits to our rivers…even the good feelings generated by catching that first flush of shower water in a bucket.

The Productivity Commission should be commended for promoting “adaptive management” of water. Adaptive management is essentially learning by doing: implementing and monitoring plans and policies and then improving the process through learning.

Managing water based on historical averages is no longer viable. Flexibility and adaptability are crucial in a highly variable environment – economic efficiency alone is a poor measure of performance.

The Commission’s critique of one-size-fits-all approaches to water management opens the way for a greater diversity of water supply, disposal and re-use systems. For example, different customers could purchase different levels of service. The thinking espoused in the Living Melbourne, Living Victoria Roadmap provides a good model for this.

Finally, the Productivity Commission needs to think beyond its focus on water delivery. Water conservation measures, along with water sensitive urban design and local water solutions, provide benefits beyond just water supply. These include reduced energy use, protection of urban waterways and less pressure on water catchments.

In the meantime, whatever the economists say, we should continue to conserve water - Melbourne’s next drought is likely to be the rule rather than the exception.