[rocqua]

There is (approximately) no cost of production for water. There is only a cost of extraction. The difference being that there is a limit to how much you can extract. On other words, you can run out of water.

Running out of water is horrible, so it needs to be prevented. Using prices to signal scarcity is generally the least worst solution. In other words, you shouldn't just pay the cost of extraction, but also some of the opportunity cost of everyone else not being able to use your water.