Monday was World Water Day. Many Americans are coming to recognize that managing water sustainably is one of America's leading environmental problems, far more significant than climate change. It is also more important to developing countries.

Bjorn Lomborg, author of the notorious Skeptical Environmentalist (Cambridge University Press 2001), argues money is far better spent solving water problems than trying to counter climate change. For while the former is a major environmental and health challenge, the latter is a low priority for most countries, and may even turn out to be a non-problem. The Kyoto Protocol alone would cost at least $150 billion dollars a year and not have an appreciable impact on the atmospheric concentration of greenhouse gases. That money redirected to water policy would save countless lives.

The most extreme claims about the impact of climate change are minor compared to the problems caused by poor water management. And some claims are extreme. The latest is a report from the World Health Organization, run until recently by the pro-Green former Prime Minister of Norway, Gro Bruntland, that climate change has increased mosquito-borne disease and caused 150,000 deaths. Deaths from malaria are increasing but that is largely because of poor public health policies and resistance to drugs and nothing to do with temperature and rainfall changes, whether man-made or natural.

The human cost of focusing on the wrong policies is stark. Around one billion people lack access to clean drinking water, and two billion lack access to decent sanitation; the result is many millions of deaths, especially of children.

In addition to the human health cost of water mismanagement, the impact on the environment has been disastrous. Most governments have spent billions on dams, irrigation channels and other supply augmentation techniques, and then supply water at almost no cost. The result is massive overuse by farmers, municipalities and industries, which has caused irreversible environmental damage and long-term degradation of ecosystems on every continent.

The focus on water is welcome, but some approaches to it are not. Activists in Western countries who oppose globalization and free markets are now directing their political mantra to water policy. The approach of Canada's leading anti-globalizer, Maude Barlow, is representative: " In rural communities all over the world, corporate interests are buying up farmlands, indigenous lands, wilderness tracts and whole water systems, then moving on when sources are depleted. Fierce disputes are being waged in many places over these 'water takings,' especially in the Third World."

The problem is not that private companies are doing too much to improve the supply and quality of water, it is that they can't do more. It is normal for government agencies to control water supply. Many of them in the Third World are corrupt and incompetent. Companies are restricted to supply only bottled water or, if they are allowed to provide potable water, are constrained on what they can charge, how they operate and for how long they can supply water. No wonder they underperform, and seek unsustainable profits and underinvest in infrastructure.

Barlow's solution is to nationalise all water resources. But nationalisation is what we've had and it doesn't work. What must change are the institutions within which water markets operate. Without acceptance that water is just another commodity it will never be used efficiently. If governments wish to provide financial support for the poorest, they should do so. Give financial aid for water but don't protect the suppliers with subsidies; only then will water be properly priced. Without institutional change water will continue to be wasted and the dire forecasts predicted by the UN are more likely to occur.

There is good news. In Chile water has been treated as a commodity for 23 years. The result is that rural access has increased faster than in any other poor country, with fewer deaths due to water born diseases. Environmental problems, caused by excess water use in farming, have largely been stopped.

It is clear urgent action is required over water. Yet, globally climate is the leading issue. Dr Lomborg poses the key question: "Do we want to help more well-off inhabitants in the third world a hundred years from now a little or do we want to help poorer inhabitants in the present third world more." The answer should be clear, but as is often the case, politics is as clear as mud.

Roger Bate is a visiting fellow at AEI.