05 March 2015

Anything but water

  1. Banksy goes to Palestine... and does not enjoy it

  2. What's the difference between (North) Americans and the Dutch? The Dutch celebrate "warm sweater day" as a way of saving energy (google translate is messy)

  3. Speed cameras in New York raised lots of money, but they also reduced accidents and injuries. The Swedes have taken speed cameras a step further by distributing fines from speeding drivers to drivers respecting the limits. Awesome

  4. Congress is looking into the funding sources of climate skeptics. Coyote thinks this is a witchhunt, but I disagree: we know that fossil fuel companies have a lot to lose from anti-carbon policies, we know that they spend a lot of lobbying, and we know that climate change is much more likely to cause catastrophic damage than none at all. It's important to know if "experts" are speaking from a scientific standpoint or if they are paid shills

  5. The Class of 2008 (and recent classes) is likely to have lower lifetime earnings, due to a "bad start"

  6. Ben Casnocha has a long, interesting essay working with Reid Hoffman (LinkedIn)

04 March 2015

The tyranny of false choices

How do you get a misleading headline like this: "Field Poll: More Californians want mandatory water rationing"?

Start with a flawed poll that asks:
Governor Brown and most major water providers in the state are calling for Californians to voluntarily cut back the amount of water they use by 20%. Others are calling for mandatory water rationing with fines or steep penalties for those who do not conserve. Which policy do you favor the state and other major water providers to be taking at this time – voluntary cutbacks or mandatory water rationing?
People asked this question favored voluntary conservation over rationing, but the elephant in the room is the obvious third option: raise prices.

Most people see voluntary cutbacks as the most "liberal" of policies because people can still do what they want. Others want mandatory rationing to "get the wasters."

Higher prices are better than both options because they give people the option of cutting back OR paying more to use the same amount of water. Prices are also good for (1) utility finances (they don't like voluntary cutbacks that kill revenues from water sales) and (2) allowing people maximum flexibility in choices. Mandatory rationing usually hits (front) lawns, large families, and water misers the worst. Rationing often makes little difference to water wasters, as a 20 percent cutback from "way too much" is easier.

Bottom Line: Stop with the cognitive dissonance ("save water but we have plenty") and command &  control. If you want people to use less water, then raise the price (here's how).

H/T to RM

03 March 2015

Speed blogging

  1. I'm on EconTalk this week... talking about water :)

  2. Alberto Garrido is giving a webinar on "Water Challenges in the Agricultural Sector" this Friday. Before you listen, read Gomez and Perez's paper on the paradox of individual irrigation conservation leading to greater total consumption

  3. I've got short bit on Marketplace but say more on a separate, two minute clip on underpriced water (and under-maintained infrastructure)

  4. Emily Green points out the dangers of replacing trees with rocks, i.e., not much water savings for a big loss in neighborhood values

  5. Chinese farmers are paying more for groundwater but rebating the money in the community. The policy is functioning, politically acceptable, and good for groundwater status. It's also very similar to my ideas of all-in-auctions for irrigation water and raise prices and rebate excess revenues for urban water

02 March 2015

Monday funnies

Cartoon Mick sent this over:

So why can't California fix its water problems?

PM emails:

"I am/have been involved with the operation of a water spring. Why isn't water derivative trading happening in the US? Australia has their water derivative tied to a dam and is cash based. Why not an actual deliverable contract?

I am in NY. In PA, frackers need on average 3 million gallons of water per well, which they can frack up to 15 times. Fracking has its own problems; nevertheless, the point is, demand. Moreover, the high tech companies building semiconductors need water (demand). The growth of craft breweries and breweries in general, need water (demand). I think it is Budweiser in California that has a problem meeting their water needs for brewing. Contaminated public water sources (happened at couple of times already in the past year in the capital region) increase demand. Farmers need water. You were in California, so you are aware of the water drought facing farmers in California. California has irrigation, New York does not.

So I as a supplier of water, I want to sell water to the demand. No easy market at the moment. However, I see a market as this:

  • Fracker Ltd, has 5 drills operating, wants 5 February water contracts. Oil is not so hot, so they are going to lay off 2 rigs; thus, he gets 2 March water contracts, holds off on the third to see if the price drops.
  • Hard Spirits Inc. can not keep up with demand. Needs water every month, but sees summer months hotter than normal and the price of water going up. He buys June water contracts for his need and speculation.
  • Appleseed Farmer does not expect a hot summer and decides to not hedge crop failure.
  • Oats and Wheat Ltd does not expect a hot summer but wants to hedge crop failure and buys June and July water contracts.
  • Morrill Water & Trading, sells water contracts in the spot market and the future market. I do not think it will be a warm summer and sell June and July Water contracts.
  • River Dry Water is all about a warm summer and holds off on selling contracts until the price gets higher.
These are just some examples of agents hedging, buying, selling, and creating a water spot and future market. Tax payers can stop paying taxes to insurance and assist farmers for drought, since the private sector has provide a hedging tool for drought crop failure. Politicians can sell it to the people as cost cutting and deficit reduction.

Now this is not an all inclusive paper, but just a quick "back-of-the-envelop" speculating. I have seen your comments about the difficulty of moving bulk water -- not to mention its annoying habit of expanding in cold weather (negative 7 degrees F the other day) -- nevertheless, I can see the pipeline running from the spring down into Troy where there is already existing infrastructure for commodity shipment and handling.

Why do I only here about Citi's chief economist talking about water derivatives and infrastructure, Dr. Sander's Environmental Financial Products consulting and talking about water derivatives. Why isn't anyone doing it? Making it happen? Making the idea a reality?"

These are great questions, even if most are rhetorical, and PM answered himself a few days later:

So... I see that Waterfind in Australia is trading water rights and has a forward market. They have gone beyond the water dam level cash payout future that I last heard of. I could see water right trading in USA as a potential problem. However, I did not know that California's agricultural economy is $42.6 billion, while Australia's agricultural economy is $38.2 billion. Nevertheless, they both have very similar water conundrums. Maybe California has something to learn?

Indeed, California has something to learn -- as I've pointed out in many blog posts -- but some people in California do not seem to understand the lesson. Case in point was Friday's op/ed by Peter Gleick, in which he said [my emphasis added]:

"Based on years of research by my organization, the Pacific Institute, here are key water-policy strategies that should be implemented immediately:
  1. The state should create and implement a water bank. It did so previously to great success. Here’s how it would work: Senior water rights holders able to cut use through efficiencies or by changing crops would sell saved water; the bank would resell that water at a higher price to willing buyers; profits would go to buy water for critical fisheries and ecosystems.
  2. Federal and state agencies should provide finance assistance to farmers to help them replace inefficient irrigation systems. This can save both water and the economic health of the farm sector.
  3. California should accelerate implementation of the state’s new groundwater law to eliminate permanent overdraft.
  4. Urban water agencies should greatly expand efforts to inform urban water users how to cut water use and costs. Particular efforts should focus on programs to convert water-guzzling lawns to low-water use landscaping, and efforts to replace inefficient indoor fixtures, identify and fix leaks and modify water-using behaviors.
  5. New management practices are needed to price water so that it encourages efficiency and conservation, protects affordability, cuts overall water bills and protects the financial health of water agencies."
In response, I wrote (and now expand those comments):
  1. Although I agree with some of your suggestions, I'll add that water markets will work much better if farmers are able to profit (as they do in Australia). The government can buy or "grab" water necessary for environmental flows, under public trust powers. It should not expect farmers to cut use or change crops without a profit motive.
  2. Farmers do not need more subsidies (or subsidies at all) when it comes to water efficiency. They will "get efficient" when it pays, as they have in Australia, where they can sell excess water on markets.
  3. Yes!
  4. There's no need to inform users. Raise prices. People will figure out how to save water, whether it's through shorter showers, smaller lawns or low-consumption appliances.
  5. Your recommendation ("New management practices are needed to price water so that it encourages efficiency and conservation, protects affordability, cuts overall water bills and protects the financial health of water agencies") is an oxymoron. Higher prices are unlikely to cut overall water bills, but they will induce conservation. They can be implemented in a way that "protects affordability" using the system of rebates that I describe here.
Bottom Line: Californians (and people other places experiencing "water stress") need to (a) realize that they are living in a "new normal" where water is no longer abundant and (b) implement policy changes that recognize that fact and reward efficiency (punish inefficiency). Market and price signals are the best means of doing that for "economic" water uses (irrigation; water for homes and businesses); social water uses (for the environment) are another matter, but I describe all of these systems and interactions in my free book.

H/T to DS

28 February 2015

Flashback: 23 Feb -- 1 Mar 2014

A year later and still worth reading...

27 February 2015

Friday party!

It's time for another "people are awesome" compilation:

You may notice that 99 percent of the "people" are guys. The "girls are awesome" versions of these videos tend to emphasize skin over muscles.

How do you get awesome? How about practicing ping pong for a year?

H/T to HZ

What's your value of water?

The 2015 Water Smarts Calendar [free download] has an exercise every month to help you understand your relations -- and others' relations -- with water.

The January activity focussed on the values of water, and people gave useful answers to the following questions:

Pretend you have NO WATER SERVICE in your house. You need to walk 5 minutes from your house to get "free" clean water from a water tap.
  1. What is the MAXIMUM you would pay someone to bring 10 liters (2.5 gallons) of clean water, per day, for your personal use?
    The average answer here was US$5 for ten liters. The lowest was $0 ("I won't ever mind walking 5 minutes from my house everyday if that ensures free clean potable water availability" or "We walk the dog, so likely would walk it up there and get water daily."), and many wrote $10 -- an amount that's closer to the cost of bottled water ($1/liter) than tap water ($2-3 per 1,000 liters). These answers perhaps reflect the amazing gap between our water values and the price we pay.

  2. How much would you pay for 10 MORE liters of clean water, per day?
    The average answer here was US$3.80 for ten liters, but a minority of people gave answers that were the same as before or higher. Higher answers do not make sense from an economic perspective ("demand slopes down" means that we are willing to pay more for the first units of water than later units, given that we already have the first units), but perhaps those answers reflect some notion that water should be cheaper because it is a human right.
Respondents also gave some interesting comments:
  • "I use my daily living as my daily workout, for example, I use the stairs at work almost exclusively instead of elevators to get to my cube on the 13th floor. My attitude would be to take on the water fetching as a new exercise, so I wouldn't pay much for someone else to do this for me. However, I have a wife and two kids, so I'm not sure I could accommodate their water needs as well."
  • "I am assuming a young kid would pay the equivalent of a bag of Flamin Hot Cheetos, which are a very popular treat and good example of value."
  • "This is the amount I would be willing to pay RIGHT NOW because I live in Sao Paulo, and I'm sure the situation will be really bad in the next months (we are in a severe drought)...with prices increasingly crazily."
And finally: "We live in a rural area, on a well, in a drought, we've cut back by 50%. The neighbor irrigates 5 acres for his horse on same aquifer. Question: Should I shoot him?"
The short answer is no. The longer answer is watch your well-head (water level), to see if it's falling. If so, you may need to have a chat with your neighbor(s) about paying you for "your" water.

Note that these comments -- and the results of willingness to pay -- were more about the value of water service (water brought to the house) than the value of water (how much to get 10 liters if you could only buy it). Those values are going to be higher.

Bottom Line: Our values for water (service) vary a lot. That means we need to find ways to make sure that those with low values get access to some water while others with high values are allowed to buy more. The thousand-to-one difference between price (cost of service) and values (here) means that it should be easy to charge enough to run the system without depriving anyone while dampening "excess" demand.

Please complete the February exercise ("what's your customer class") so we can continue these interesting discussions...

26 February 2015

Water prices, sprawl and conservation

After my AMA on Reddit a few months ago, ND sent the following questions:

Q: You mentioned at one point that reducing sprawl can help with local water issues. I know that dense cities have far lower per-capita water usage, but do you have any data on the cost of infill versus exurban development? I'm generally supportive of smart growth, but I have heard some detractors say that the cost of upgrading pipelines to accommodate higher density is greater than the cost of new supplies to the suburbs.

A: Yes, it's true that repairs and retrofits are more expensive (due to finding pipes, ripping streets, matching old layout, etc.), but (1) those networks need to be maintained anyway for existing customers and (2) sprawl "uses more water" due to landscaping on larger lots.

Q: My professor (who specializes in water policy) said that water conservation programs subsidized by ratepayers are often used by cities to supply new developments (presumably the property taxes from these will eventually pay off current residents). That seems like corporate welfare, and dumb, unsustainable growth.

A: Well, that's certainly possible, even if it is fraudulent. The only use of those funds that makes sense, in terms of new developments, would be upgrading new infrastructure to improve conservation, e.g., installing a "purple pipe" network for distributing recycled water for landscaping. The tax-existing-residents-to-subsidize-new-residents-whose-taxes-will-repay-existing-residents idea sounds like robbing Peter to pay Paul...

Q: I've seen your advocacy of (excessively) high water rates with a per-capita rebate to pay back revenue. While I agree with that in theory, I don't see how it could be politically feasible in most places. Maybe it would be easier at a local level, but Republican politicians seem unwilling to support a fee and dividend consumption tax (whether it is a carbon tax or higher water rates) that would both help the environment and poor people.

A: I agree that Republicans often promote anti-poor, anti-environmental policies,* but I'm hopeful that local politicians -- the ones affecting water prices -- might see the advantages of lowering water use and rebating excess revenues. They might see this because of the importance of protecting citizens from water shortages without putting undue financial stress on the people who use the least water (they are not the problem). I outline this system in my book and in this post.

* I highly recommend (1) this great talk about the crisis of capitalism and (2) this excellent paper [pdf] on the rise of the "winner takes all" society.