31 July 2008

Arctic News

Arctic ice will not completely melt this year.

In other good (?) news, gas is less than $4/gallon.

Crazy San Diego

The San Diego's Mayor Sanders has declared a drought, but he refuses to ration water -- let alone raise prices!* Apparently, he has pined his hopes on voluntary conservation (remember? the type that saw water use go up?) and winter rains.

All I can say is that this guy is either crazy or in developers' pockets (don't stop building!). If you can't tell which, check out these past posts on San Diego.

Either way, the prognosis (more demand, less supply) is for shortages that will damage quality of life in San Diego, harm many businesses, and leave the region begging for water from wiser neighbors.

But wait! Perhaps Sanders has a clever strategy to run the wells dry and then demand water from IID farmers dumping water in the nearby desert. Although he would probably get it ("humanitarian disaster"), he would be probably end up imprisoned for criminal negligence of his citizens' safety and shot by angry farmers.

Bottom Line: There's a drought! Do something! (Raise prices!)

* Wait -- one article says that he's proposing to raise prices by six percent -- that's $3.31 on average. Are you ready for the yawns?

via DW and WaterSISWEB

Engineer Pr0n

You've got to visit Friends Of Vast Industrial Concrete Kafkaesque Structures to really see how engineers have gone to town with their "enhancement" of the LA River. Here's the FOVICKS philosophy:
As an amateur "Industrial Archaeologist," I love the LA River as a bizarre curiosity. Many groups have formed in attempt to beautify or revert the "river" to a previous state. But I like it the way it is; a weird, massive flood control channel.

This unusual structure is testimony to the local geology, seasonal rains, and the vast urbanization of the LA area. It is mainly the urbanization in the 20's and 30's which severely modified the drainage of the Los Angeles basin and San Fernando Valley, creating the immediate need for the necessarily large, ominous flood control system that we see today.
I prefer this version of engineering:



via WaterSISWEB

Paper or Paper?

Los Angeles politicians have voted to ban plastic bags as of 2010.
Reyes said the ban will minimize cleanup costs for the city and reduce trash that collects in storm drains and the Los Angeles River. The city estimates more than 2 billion plastic bags are used each year in Los Angeles. About 5 percent of plastic bags and 21 percent of paper bags are recycled in California.

Banning plastic bags will not solve the litter problem, said an attorney who opposes the regulation of plastic bags.

"We've had enough of politicians accepting the misinformation that's spread around the Internet about plastic bags," said Stephen Joseph of the Save the Plastic Bag Coalition, which represents bag manufacturers.
The Save the Bag guys obviously want to sell more bags, but I don't think they have a leg to stand on.

Can "the market" fix the problems of plastic bags floating everywhere? Clogging things? Killing animals and sealife? No, because there is no profit in reducing such activities.

Can individual stores be relied upon to charge customers more ("internalizing the externality")? No, because they will lose (some) customers to other markets.*

The LA-wide ban will leave the stores on a "level" playing field while reducing litter sources.

In many countries, people have to pay for bags. They do not consider them a human right, and they manage (quite well) to deal with the drama and effort of bringing empty bags to a store to fill up.

Bottom Line: I favor this regulation as a means of reducing pollution while moving people to a new paradigm of being careful with bags.

* Seriously -- I heard this from a clerk at the Davis Food Co-op, and they have pretty loyal customers!

Money for Nothing?

DB sent me this interesting tidbit:
I was reading through some water rights orders and over the past couple years, the SWRCB has implemented new fees assessed on all water rights. They are a significant increase over past fees (based on complaints from water users). The Kings River group especially hates them, arguing that they are illegal, etc.

They also argue that basing them on CFS on paper is wrong because many of those rights aren't exercised. This is the key -- this is the first time I have seen water users almost voluntarily say which rights or parts of rights are not used or are partially used. This may prove an easier way to see which ones are paper rather than wet...
Bottom Line: Charge user fees for their "valuable" rights; you'll soon find which rights are valuable -- and which are not. If anything, the SWRCB's actions promise to reduce the number of people claiming "their" water, which will make action on valuable rights that much easier.

30 July 2008

Polls!

I've added a new feature -- a weekly poll -- to the right side of this blog.

Yeah -- "How much was your household water bill last month?" is lame.

Can you do better?

Please leave future poll questions in the comments.

Swimming Pools in the Desert

Many people have expressed amazement that people in Southern California can use as much water as they do. The urban average is 140 gallons/capita/day (GCD) for ALL uses; for residential use ONLY, it's about 110 GCD. Of course, about half the water is used outdoors (e.g., irrigation, pools, etc.).

One writer said that he, his wife and small son use about 25 GCD indoors/outdoors.

MB wrote that
Belgium is a developed country where people live well. We are using about 120 litres of water per person per day.

How come in the US people are always using double anything from water to meat to space to oil than everybody else in the *developed* world??? it is not explained by the Human Development Index, nor practically any other indicator...

[snip]

By the way, when you suggest that every PERSON should get 75 US gallons per day for free this is not so radical, when you consider that it is almost all the water people use there in CA, USA, and more than double what we use here on average!!! Maybe this comparison should put things in perspective ;-)
Bottom Line: Maybe "There Is No Water Shortage" should have been titled "El Lay: Where Fantasy IS Reality"

...or maybe not -- can you improve on my poor verse?

Science Fiction

This article has this interesting bit:
Citing a 2004 study by the Southern Nevada Water Authority, the report said scaling back development to manage diminishing water resources could translate into a loss of $18.6 billion in tax revenue and $4.7 billion per year in lost wages. Water-based recreation bringing in more than $1 billion annually could also be damaged.
The crazy part of these so-called losses is that they are hypothetical; they are based on business as usual projections of what would have happened if Las Vegas continued to grow (at past rates) into the future -- presumably using more water in doing so.

The fallacy, as anyone familiar with Wall Street (or tax revenues) will know is that the past is a poor guide to future performance. SNWA has not experienced these losses because they were based on future projections.

In fact, the current real estate crash has probably resulted in far-larger losses in tax revenues than any "failure to develop" scenarios. (This article says that Las Vegas home prices have fallen by 28 percent in the past year.)

Bottom Line: Beware of anyone advocating policies based on extrapolated trends. They are just as likely to tell you that -- at "current rates" -- you are going to walk into a wall.

Developer Indulgences

Pressure to stop development in San Diego is growing. Citizens are unhappy to be told that there is a water shortage at the same time as new development is approved. The city is trying to address this hypocrisy:
Water Department officials say they want to offer developers the chance to pay a fee that the city would use to develop new water sources. Instead of the developer making changes on site, the city could use the money itself to increase conservation and efficiency efforts elsewhere...

The idea met with skepticism at a City Council committee meeting today. Councilwoman Toni Atkins said the city should put incentives in place to encourage developers to build efficiently -- not rely on the city to make improvements elsewhere.
I can see that developers will LOVE this program. They pay a fee for "improvements" elsewhere and then do whatever they want. This system of indulgences will not work (to save water -- or souls), since the value of wasting water (and not having to pay for it) will far exceed any fee. (Otherwise, the developers will protest, and they get what they want.)

Bottom Line: You cannot let people pay to avoid water use restrictions. First, water is too cheap. Second, they may pay but then use "too much." When there's no water left, no amount of money to make it "reappear." Better to reduce demand to equal supply -- charge more for using more.

hattip to DW

How NOT to Market Water

This article tells of farmers selling water to cities. The farmers are getting ten times the price that they did years ago ($17,500/AF), but what are they selling?

Although the article is right to say that "overselling" water can destroy communities (and I agree -- that's why my All-in Auction leaves rights with the farmers), it misses an even bigger problem, i.e., that the Office of the State Engineer (OSE) appears to be allowing farmers to sell their diversionary quantities to cities. That's a big problem, and I left this comment:
This article is missing a HUGE element, namely a discussion of the difference between diversion rights and consumption rights. If a farmer diverts 10AF of water, 2-3AF may evaporate be used, but the rest returns to the river. If that same farmer sells 10AF to a city, the groundwater is NOT recharged, reducing flow in the river and available water for all. I sure hope that OSE is taking these differences into account. If not, the river will be dry long before “all” the rights are sold.
Bottom Line: I am all in favor of selling water, but the buyer must use the water in the same way as the seller. If not, hydrological adjustments to the rights are necessary. They may be expensive, but failure to make adjustments will destroy the market, those who participate in it, and innocent bystanders.

Addendum: I found this in the NM OSE's regulations [PDF]: "For applications proposing to change the purpose of use, only the consumptive use established and available at the move-from location may be considered for transfer to the new purpose of use." Although the article did not mention consumptive vs. diversionary use, it appears that the OSE is only allowing diversions equal to consumptive use. Good.

Addendum 2: After an email exchange from the author of the article, I learn that farmers in Middle Rio Grande area (as discussed in the story) are allowed to divert 3AF/acre of land they possess. If/when they want to transfer their diversionary rights, the OSE decides how many acres are really being irrigated (i.e., excluding buildings, fallowed land, etc.) and then allows 2.1AF/acre of "consumptive use" to be sold. The obvious problem with this 2.1AF/acre figure is that it's an estimate of actual use. Which brings me back to my original point: If sales of water exceed consumed water (because less than 2.1AF/acre are actually consumed before the transfer), then the sales are removing "too much" water from the area.

Another concern that matters, no matter how much water is exported, is the reduction of water within irrigation systems, i.e., "the cumulative impact [reduction] on head pressure and the like — that they all benefit when there's more water in the ditch because it flows faster and more efficiently."

hattip to CC

29 July 2008

How NOT to Raise Prices 2

[Prior post] This op/ed blasts an ineffective and inequitable change in pricing at East Bay Municipal Utilities District (next to San Francisco) that allows water wasters to pay less than water misers. How? By grandfathering wasteful habits, i.e.,
The district has added another layer of fees — a surcharge on the water used above each customer's "water use allocation." That allocation is computed by averaging each household's average water use for the same billing period in the past three years. For single-family households, water use above 90 percent of that allocation will face a surcharge of $2 per unit.

Here's where the plan starts to fall apart: The surcharges punish households that have conserved in the past and allows past water-wasters to continue their bad consumption habits without penalty as long as they don't use more water than in the past. Many people cut their consumption after the last drought in the early 1990s. They put in drought-resistant landscaping and low-flow shower heads. They should be rewarded, not punished, for their behavior. The district should drop the surcharge and simply raise rates for heavy users.

[snip]

The question is not whether the rate structure should be fixed; it's whether the water district directors have the political courage to stand up to the water-wasters. Only 6 percent of the district's single-family households consume more than 1,230 gallons per day (50 units per month). Most of them are probably living in big homes with massive lawns. They can afford to pay more — to pay their fair share. Maybe some of them would start conserving if they faced higher bills.
I've attacked this mistaken "price reform" before, but it seems that EBMUD is determined to carry on with their mistake.

Bottom Line: Water prices should treat every PERSON equally. Someone who lives on a large lot (or uses a lot of water) should face the same prices as someone who lives in a tiny apartment (or uses very little water). Not only is it fair (people are people), but it's efficient (wasters who face higher prices will use less).

hattip to DW

Climate Change for Non-Economists

On Wednesday Thursday, I'll be discussing the economics of climate change on a panel at a summer school for mathematics PhD students. I am planning to cover the following topics wrt the social science side of climate change:
  1. Climate change can be addressed by mitigation (trying to affect CC) and adaption (dealing with it). In both cases, physical science and engineering will be effective if the "right" institutions prevail.
  2. Institutions (the rules of the game) can turn good policies into bad outcomes and vice-versa, so its important to get them right if, e.g., we want cap and trade to work.
  3. Prices matter; non-prices matter even more wrt climate change.
  4. Humans are marvelously creative -- if they can repair a plane in mid-flight, they can deal with climate change.
  5. Humans are also unpredictable; just when you think you've got them "captured" in your model, they can change directions. This makes "social dynamic" models particularly unstable.
Please comment on and/or add to this list. I am hoping to expand it into a series of posts ("economics for lawyers and engineers").

I will also try to learn something from the mathematicians, lawyers and engineers :)

Bottom Line: Everyone should know some economics, but conveying such knowledge can be deceptively hard.

Water in Them Thar Forests!

This article discusses the "water services" that forests provide. i.e.,
This new view of forests is evolving, scientists say, as both urban and agricultural demands for water continue to increase, and the role of clean water from forests becomes better understood as an "ecosystem service" of great value. Many factors - changing climate, wildfires, insect outbreaks, timber harvest, roads, and even urban sprawl - are influencing water supplies from forests.

[snip]

"Historically, forest managers have not focused much of their attention on water, and water managers have not focused on forests,"

[snip]
  • Forests cover about one-third of the nation's land area, and although they have roles in timber production, habitat, recreation and wilderness, their most important output may be water.
  • Forests provide natural filtration and storage systems that process nearly two-thirds of the water supply in the U.S.
  • Demand for water continues to rise due to population growth, while forest acreage is declining and remaining forest lands are threatened by climate change, disease epidemics, fire and global climate change.
So, there's a lot going on in forests that we perhaps took for granted and are only starting to understand now.

Bottom Line: Environments, like people, have a comfort zone. When we push them out of the comfort zone, internal coherence breaks down, and strange things start to happen. Best not to push things, but -- if you do -- don't be shocked at the surprising results.

Sexy Water

Treehugger interviews singer Tristan Prettyman and asks her:
What eco-tip would you recommend that everyone do?

Carry your own water bottle. I used to be obsessed with Fiji water until I learned that the distance it takes to travel here, times the amount of pollution one of those planes puts into the environment, plus the shipping and packaging, the plastic bottles, etc... It just disgusted me. I bought a Sigg* bottle when I was in Japan and I made a conscious change to drink tap water. To be honest, I can’t even tell the difference.

I bought a Brita pitcher for my home, and it’s great. I was most worried about traveling and how I would find clean water, but most airports have a soda machine with a water spout or there is usually a water fountain nearby. Its not fancy bottled water, but honestly, I can’t tell the difference.

I drink more water now than I did when I was picky about my bottled water. Plus, most tap water is more regulated than bottled water, and all those minerals, for the most part are really great for you immune system. I never knew how much money I spent on bottled water, but I look at it like smoking. 4 bucks a pack, 4 bucks a bottle, think of all that money you save by drinking tap water, and how much waste you save as well. In our tour bus we also have a 5 gallon water jug with a pump, and everyone has Sigg water bottles. It’s great. We save so much waste; it just makes so much more sense.
Bottom Line: There's more than one way to get the message out. If you don't want to listen to an economist or ecologist, you can always look at listen to a singer. :)

* I have a Sigg, so Tristan and I have a lot to talk about...

28 July 2008

Cap and Develop

In many parts of the world, new demand from additional development is outpacing current or future supplies of power and water, e.g., Las Vegas, Atlanta, San Diego...

Don Wood, of the Pacific Energy Policy Center, has written some nice briefings on water [PDF] and growth [DOC]. The water brief calls for regulations that require new development have a "net zero" impact and/or meet certain efficiency standards. In the growth brief, Wood observes that politicians have an incentive to adopt pro-growth, pro-sprawl policies when they stand to gain campaign contributions from developers and increase their tax base. Politicians, e.g., support rezoning land from agricultural to residential, subsidies to road extensions, low-cost access to public utilities, etc.

I agree that these unsustainable incentives exist. Reversing them will require, first, that politicians/bureaucrats change their attitudes towards growth, sprawl and resource inefficiency; second, they will have to adopt policies that promote sustainable growth and development. Ignoring the first step (!), I suggest policies that are light on specific means and heavy on measurable ends, i.e., set goals and then let the market work.

My cap and develop proposal for sustainable development has these steps:
  1. Measure and cap water and energy demand (at annual usage) for all buildings.
  2. Issue permits to those buildings. Buildings without permits cannot be occupied.
  3. Require that new buildings purchase existing permits. Buildings that sell permits must be replaced (new building) or turned into parks with a net zero demand for water and power, i.e., if the new building is located elsewhere -- on virgin (greenfield) land.
  4. Permits can be traded in a market.
  5. Total use can be reduced by requiring that new buildings use <= 90% of the energy and water represented in the purchased permits.
Bottom Line: Development and re-development is wonderful, but it should not happen without bounds. Cap and Develop to live within your means.

Westlands Loves the People

I got an email from a PR firm* working for Westlands Water District:
Today, members of the Central Valley’s Congressional delegation received an expert analysis that for the first time projects the devastating impact that the latest round of water cutbacks is having on families, businesses and communities of the Central Valley. The findings present a graphic demonstration of the need to fix California’s broken water system.
I took a look at the press release [DOC] and accompanying economic report [PDF]. The report (by well-known water economists) uses a linear-programming model to project the impact of water disruptions on the local economy.

Although projected losses are actually quite small** (700 jobs and $175 million, claim the PR people), I was more interested in their distribution. The organization that commissioned the report is projected to suffer very small losses compared to Westlands. I attribute larger losses at Westlands to that district's larger size as well as its riskier water profile -- the land and water supply to Westlands is so marginal (e.g., no groundwater) that a disruption has devastating impacts.

Bottom Line: Any relief to Westlands should go to those who lose their jobs -- not the farmers who are trying to grow crops on horrible land. Westlands should never have come into existence; see prior posts. Now we see why.

* I had to ask who their client was. She replied:
I work for westlands water district. The san luis delta mendota water authority commissioned and paid for the report while westlands supplied data along with a couple of the other public agencies in the central valley.

Congressman Costa was in town today for a hearing and agreed that we could send his release with the economic study.

If this is not compelling the mayor of mendota provided very grave testimony today at the hearing that tells just how dire the situation truely is in the area. I encourage you to call him as well.
** California agriculture is a $32 billion industry that employs 308,000 people. (No, I do not use or cite "multiplier" statistics on "related" jobs or economic activity -- too much double-counting.) Note that agriculture is a tiny part of a $1.5 trillion state economy that employs 18 million people.

Precautionary Party

Bob Parks writes:
Suppose, I asked myself, that the deniers are right and the CO2 thing is a mistake? What will happen if the world takes the CO2 thing seriously, adopting common sense measures to counter anthropogenic warming and there never was any warming in the first place?
  1. there will more non-renewable resources to leave to our progeny;
  2. we will breath cleaner air and see the stars again, the way we saw them half a century ago;
  3. we could stop paving over the planet, and
  4. cut down on the number of billionaires.
If we’re wrong we could have a party. We could have a party either way.
Bottom Line: I support policies that might reduce AGW when they will definitely improve other things.

Don't End Our Subsidies!

A San Diego county farm representative pleas for the continuation of favorable pricing to farmers:
Ironically, while our growers are taking costly actions to reduce water demand and help shield their urban neighbors from mandatory reductions, some MWD-member water agencies are pushing to significantly modify or end the current agriculture pricing program.

[snip]

As that effort unfolds and options are formulated, it should be remembered that for over five decades agriculture has been a valuable and loyal financial and political partner to MWD and many water agencies throughout the region.

It should also be recognized that when called upon in the past and today, through its sacrifice, local agriculture has and will come through with its end of the bargain: delivering a 30 percent reduction in demand, thus providing a critical water supply resource for urban users in a time of shortage.
On the one hand, I think it's fair for farmers to pay less if they get less-reliability. OTOH, the only reason that ag is so big in San Diego is that they have received water at lower prices than urban dwellers. Their consumption, as a result, reduces water availability for higher-value uses. [In related news, urban users reduced demand by 1.3 percent, which looks bad in comparison to farmers' 30 percent cuts -- unless you think that farmers who were wasting water could reduce use pretty easily...]

What will happen if the drought gets worse? Can farmers be cut back even further, or have they done "their share"? The problem is that it's hard to set a balance between lower prices and lower reliability.

I suggest the end to preferential pricing to farmers. Let them buy water at the same price as everyone else. If there's less water to go around, let them compete for that water (subject to my typical caveats on basic needs to people first) by bidding more. It's much easier to manage fluctuating water supplies by changing prices as quantities fluctuate -- not by setting prices a year in advance and then hoping to be right.

Bottom Line: Put farmers into the same pricing and quantity system that everyone else faces. If they can grow valuable crops in San Diego, they will. If they cannot, that water belongs elsewhere.

hattip to DW

27 July 2008

Orange County Wins

...an award for its water purification and underground injection facility from the Stockholm International Water Institute (announcement):
SIWI has honored two public utilities in Orange County, Calif., with its industry award for "extraordinary" water purification technology. The two winners, the Orange County Water District and the Orange County Sanitation District, together have developed a plan that uses state-of-the-art techniques to treat and store water underground for a region of the U.S. challenged by water-supply issues.
I am happy to see OC win this award for "controversial" technology (toilet-to aquifer-to well-to tap) because it's a great way to get "new" water -- cheaper than desal, for example.*

Of course, MWDOC could just raise prices and get the same savings :)

Bottom Line: There are many ways to address water mismanagement. This award recognizes a supply response. We need to recognize effort on the demand side as well.**

hattip to DS

* Also see this funny op/ed on reclaiming water in LA.

** SIWI has recognized industry for working the demand side; I am speaking in general terms.

Killing the Mekong

This piece discusses an exciting "development":
The Mekong River, 4,500 miles long and the world's 10th largest in total discharge, is fast becoming a global magnet for water power, a cheap resource sought by industries as divergent as semiconductors and aluminum smelting, for which electricity makes up half the cost of production.

[snip]

So many hydropower projects are being developed along the Mekong River that the United Nations has formed an oversight agency devoted exclusively to preventing potential conflicts it could create.

[snip]

More than a dozen dams on Mekong tributaries in Laos should start generating electricity mostly for export by 2015, and plans to build more than 30 others are being actively considered.
These projects are good for economic development, but they will have an adverse impact on the ecology of the Mekong, the last undammed [correction:* longest undammed (as of 1996)] river in the world. I hope that people who depend on seasonal flooding of the Mekong for fish and rice have alternative sources of food.

I took this picture in northern VN, but the topography at the Delta is similar.

Bottom Line: Dams disrupt age old patterns of water flow. Unfortunately, those adversely affected rarely receive the benefits from the dam.

* Correction: The Mekong was undammed until 1996, when China built the first dam. Since then, China has built many more dams. Recent dam construction is further downriver. Thanks to RH for pointing this out.

Who Framed Fred Fish?

The irony is too good to pass up: Schools, hospitals, cities are replacing water fountains with... bottled water machines. Instead of getting municipal water for free, people are "allowed" to buy it for more than oil or gold. This op/ed sets out the case:
I watched as the driver unloaded pallets of restaurant provisions, including 1,155 half-liter bottles of water, which the Grill sells to the public for $1.75 each, and 264 one-liter bottles, which fetch $3 each.

“More valuable than oil?”

Heck, yeah. Complain all you want to about $4-a-gallon gas, but water bought a half-liter at a time costs $13.26 a gallon.

“More precious than gold?”

You bet. That weekly shipment of water was worth – let's see, multiply by 3, carry the 1 – a boatload of money, more than $2,800.
I think that Gerry missed something in his gold division, but his point stands: Many people are willing to pay a fortune for something we can used to get for free.

Bottom Line: The water industry loves paranoia because it's so good for business. Prove them wrong -- keep the pressure on utilities to provide good tap water to homes and public fountains.

hattip to DW

26 July 2008

Scandal in Fresno

Marla left this comment elsewhere. It was off-topic there, so I've moved it here:
Secret water diverting. Lives are taken as property and IDs are stolen. Unauthorized re-construction to private property as the city water system is illegally altered. City left setting on top of clamped sewer/water lines as old records and plat/parcel maps are continuously replaced with illegally altered records. After Fresno's Dept. of Public Works was caught conspiring with WGS, a former employee in one of the most heinous and barbaric operations in history, Mayor Autry had them issue a R.O. against me - committing perjury to discredit the city’s own (unaltered) records and photographs, which verify EXACTLY what is taking place. Death threats followed if I continue to report this. What’s new - that is how this is being carried out! Also keep in mind that during the 25 yrs I knew WGS (inc. employed on 2 occasions), I heard him boast of breaking laws and overriding city planning in order to secretly divert the water supply for future development beyond Friant, but until he and Public Works were caught in action, I did not believe it. BELIEVE IT! Click here for Autry's Atrocities-massive cover-up
I have no idea about these claims, truth, slander, etc., but I'd be interested to know what you think.

Please comment.

Bottom Line: Politicians and bureaucrats have the opportunity for corruption in their role as defenders of the public trust. Those who are corrupt often try to cut down whistleblowers and hide their misdeeds. That may not be the case here, but it is certainly the case elsewhere; see this post.

Minimum Water

This paper [PDF] has a long discussion of water use by sectors and countries. The author suggests a minimum water allocation of 35 liters/capita/day (lcd) for non-agricultural industry; 85 lcd for personal use and a 10% conveyance loss rate, i.e.,
Reconsidering the components of a minimum water requirement estimate for human health and for economic and social development suggests that a country requires a minimum of 135 l/c/d. With all countries except Kuwait having much greater water resources than this, water scarcity alone need not hinder development.
Although the discussion of water used for food production is stilted, he argues that agricultural water supplies can come from reclaimed water, i.e., adequate food can be produced by recovering about 70 lcd from wastewater flows.

Most of these numbers are based on water use in Israel. Although I have no problem with that, water distribution across geographic and economic sectors in Israel is less-complicated than in bigger countries. (Obviously, I am ignoring Palestine -- a HUGE complication that probably gets the short end of Israeli policy.)

Bottom Line: The full expression of economic and social development in urban areas can be achieved with as little as 135 lcd (or 36 gallons/capita/day) -- far less than my suggested 75 gcd "lifeline" water supply (for residential use only). Since we use much more than that, there's a good chance that urban conservation will not reduce our quality of life.

Can't We All Get Along?

In the comments to this post, I said this:
I have little to add -- besides acknowledging that generalizations about enviros (as well as GW skeptics, Republicans, Christians, Americans, et al.) are too simple. I am sure that most of us have people on "our side" who make us cringe.

The good news (seriously) is that a dialogue among multiple perspectives is far more productive than a convention of "ditto-heads". Researchers have found that groups of like-minded people tend to quickly talk their way into a more radical, partisan position.)
Bottom Line: If you want fair and balanced, make sure that you hang out with people who disagree with you.

Commercial Water

DW asks me to discuss industrial and commercial water users.

Here are a few thoughts:
  • These users are more interested in reliability than cheap water. Shutting down a business for lack of water is very expensive! (According to this 1991 study [PDF], the marginal acre-foot can be worth $500,000 [p. 5-24])
  • They are prepared to invest significant money in water recycling if it will lower their water or sewer bill and/or increase reliability.
  • Regulators may set rates as a form of social engineering, but politicians may set them in accordance to campaign contributions.
  • C&I users often get price discounts based on "bulk" purchases (flat or decreasing block rates). This structure (currently true in, e.g., San Diego County and the City of San Diego) was the standard in the old days, when politicians wanted to encourage industrial expansion/relocation, cost accountants could justify cheaper rates due to high volumes ("we lose water on every unit but we make it up on volume."), and water utilities needed to move high volumes.
  • OTOH, some water companies charge higher rates to businesses "because they can afford it," but I think that practice rarer in water than it is in, e.g., telephones. LADWP has increasing tiered rates, and regulators have told private water firms to charge increasing rates.
  • Some C&I will relocate for cheaper water -- in the same way that farmers will grow water-intensive crops where they have access to a lot of water.
Bottom Line: Businesses are very sensitive to water prices. Their water should be priced to reflect scarcity and delivered with reliability.

25 July 2008

What is a Market?

Various commentors claim that "water markets cannot work" until issues of monopoly power, the poor, inappropriate rights, etc. are solved.

Maybe and maybe not.

In a market, price signals matter. (In non-market settings -- e.g., bureaucracies -- prices may exist but people do not use them to make decisions or allocate resources.)

So, when I say that water should be allocated "by a market," I do not necessarily mean that companies will be able to enter and compete (overcoming a monopoly on supply) or that the poor will be shafted (because they cannot afford to buy water at market-clearing prices), or that farmers' rights should be taken away.

What I do mean is that price is meaningful to participants, i.e., that they will look at the price and then decide how much water to use. This event can happen with a monopoly selling the water, the poor also consuming water (because everyone gets a basic entitlement of water), and farmers using water in any which way they want. (Other issues -- infrastructure, quality, environment, wasteflows, etc. -- can be integrated into the price-rationing mechanism.)

Also note that politicians and bureaucrats like to intervene in markets, to redistribute rights to their friends, lobbyists and bribers -- and sometimes even to the People. Since their interventions change the rules of the game and prevent markets from functioning, "markets" do not deserve the blame for the outcomes that result.

Bottom Line: In a market for water, prices rise when there is less water and fall when there is more. Because prices are meaningfully high, people use less water when its more expensive (and more when it is not). The overall result is that the quantity demanded will equal supply -- and neither shortage nor surplus results.

Does this make sense? Please comment.

Rationing vs Prices

Some sensible talk from Down Under:
Some cities have faced a ban on outdoor water use as restrictions have been tightened in recent years.

But the National Water Commission thinks such restrictions are unfair and there are better ways of cutting water use as the country grapples with drought.

"The commission regards long-term temporary water restrictions as an inequitable and inefficient way of balancing supply and demand," the commission said in its water proposal, released on Wednesday.

The proposal says changing water pricing is the best way to encourage conservation.

It recommends "scarcity pricing", which means households pay more for water in dry times, and less when it's wet.
Bottom Line: Prices are flexible. Restrictions are not. Be flexible!

via WaterSISWEB

Bread and Circuses

From gotwater
More than 1,000 farm workers and their families traveled to Sacramento today to march in support of the water proposal unveiled by California Governor Arnold Schwarzenegger and U.S. Senator Dianne Feinstein earlier this month...

Farm workers marched around the California State Capitol and vocally called for more water resources for the San Joaquin Valley and the whole state...

"As food prices skyrocket, farm workers will not be able to find work and there will be more hardship because there is not enough water," said Mayor Victor P. Lopez, City of Orange Cove and Co-Chair of the California Latino Water Coalition. "We need more water in the San Joaquin Valley and across California."
Hey Terminator -- can we get some water? People are losing their jobs because there is not enough. Can you make rain?

Bottom Line: Water shortages will have impacts. Some of these impacts are good -- because they push people to change their actions; some are bad -- because they cause pain. Politicians who promise no impacts are giving false hope to those who need to accept a new paradigm.

hattip to DW

International Water

The Economist reviews the "coming global shortage" of water and offers familiar advice:
There could be plenty of money to be made in supplying water. However, more efficient use of the stuff depends on pricing it properly. Mark Zeitoun, a researcher at the London School of Economics, suggests that agriculture is responsible for the greatest waste of water, largely because of government subsidies. Farmers often plant water-intensive crops which slurp up supplies precisely where they are most limited. Growing potatoes, a thirsty crop, in Israel looks to be particularly wasteful, especially given desperate shortages of water in nearby Palestinian territories. Similarly Egyptian oranges, Australian cotton and Californian rice require huge amounts of water to produce crops that could in theory be cultivated more easily and cheaply in wetter climates. But when such crops produce valuable exports and create local jobs, governments have been keen to provide subsidised water.

[snip]

Better functioning water markets would be one way to share out water more efficiently. Once governments have defined water rights clearly, farmers, and others who use water, could be encouraged to trade, first with each other and with industrial and urban users. Allotting options that can be taken up as and when required rather than handing out permanent water rights would encourage water trading and avoid accusations of water “theft”. It may be difficult to rein in the world’s extravagance with water, but Byron had it right when he wrote: “Til taught by pain, men really know not what good water is worth.”
A story in Scientific American (via WaterWired) says much the same: fix shortages with higher prices, technology and institutional reforms.

Bottom Line: We all know what we should be doing. Let's get to it.

hattip to TS

Crafty Vegas

DW says:
I'm curious. In your interview you mention Las Vegas' efforts to take water from rural areas of Nevada by building a billion dollar pipeline and buying up water rights, ala Chinatown. You indicate that that would be a bad thing. How does your opposition to that project square with your "the market will fix everything" philosophy? Vegas has billions in gamblers money, and can buy up anything it wants to. So why shouldn't that be allowed to happen per your perfect market model? Markets don't put much weight on keeping rural Nevada safe for ranchers and farmers
I replied that I am opposed to the Southern Nevada Water Authority's move for three reasons:
  1. They are using political pressure to get the water (hardly perfect markets).
  2. They are building a big pipeline while promising to only take "sustainable" water. That's unlikely.
  3. Selling rights/land is a permanent transfer. I'd prefer leases, which can be reversed if something goes wrong.
I'd prefer that SNWA buy <20% of the sustainable yield (e.g., the PVID-MWD deal) -- just to keep the rural areas from turning into a dustbowl (a la Owens Valley); see also this related post.

Bottom Line: Markets are great, but they take time to evolve. Paying someone for something they sell voluntarily is not always just -- ask a drug-addicted prostitute.

24 July 2008

National Water Policy

A columnist at Grist advocates a national water policy. I can't think of a worse idea and left this comment:
I'd say that the solution would be LESS, not more, federal involvement in water policy. As you point out, the natural management unit is a watershed -- not a State border -- and locals can "manage" their watershed with more sensitivity than any federal agency or politician.

In fact, I'd go further and say that federal interference (through regulation AND funding) has done more to paralyze and thwart watershed management than any other influence.

It's my experience that the biggest blunders in water management (in the West, at least) have been orchestrated by federal bodies (USACE, Reclamation, Interior). Without their malevolent influence, we'd not only have fewer disasters in our past but be able to do more RIGHT NOW.
So, yes, I am saying that I'd prefer zero regulation and zero funding of water at the federal level. I'd prefer a common law defense of water quality and local funding of water projects. (The feds should only get involved on interstate issues.)

Bottom Line: Washington DC has no more clue about how to manage water in California (or anywhere else) than what I should have for lunch.

Carbon Offsets

Sustainablog writes about The Nature Conservancy's Voluntary Carbon Offset Program:
The Conservancy’s Program is actually going to involve a collection of individual projects focused on restoring and preserving specific areas using the funds contributed through voluntary carbon offsets.

[snip]

The Conservancy’s trustworthiness shines out even more brightly because it actually offers a guide for what to look for in any good carbon-offsetting program: Permanence, Additionality, Leakage, and Standards (PALS). With all of this, you can feel confident in donating to The Conservancy’s Program, knowing that its work is credible and will be scientifically sound in each area addressed.
TNC is the right organization for carbon offsets -- they have, for years, used money to buy and preserve pristine land. If they sell carbon credits and use the money to set-aside even more land, then the additional money is really resulting in additional carbon-emission reductions (by preventing deforestation [past posts]).

The key features are TNC's credibility as an organization that knows what its doing and its business model of preventing degradation of natural spaces.

Those interested in this topic should look at this recent post on TerraPass; in the comments, a co-founder of TerraPass says that their carbon offsets (100% made-in-the-USA) are also credible.

Bottom Line: Markets are starting to deliver reductions in carbon emissions. I am cautiously optimistic.

Why Isn't Ethanol Dead?

Over at VoxEU,
New research shows that India, China, and speculators are not the culprits in the food price explosion. Biofuels were a significant element in the 2005-2007 food price surge as they accounted for 60% of the growth in global consumption of cereals and vegetable oils. There cannot be any doubt that biofuels were a significant element in the rise of food prices. Since new research also shows that biofuel support policies are disappointingly ineffective on environmental grounds, governments should reconsider them.
Is Washington going to reverse the ethanol policy? All I hear is thunderous silence. It would be amazing typical if the government could continue such a stupid, wasteful, destructive policy. These things make me cry.

Bottom Line: Politicians are more anxious to drill for oil and rescue Wall Street than keep the price of food down.

Enviros Should Pay

In response to this post (and related posts), I got this email:
Your overarching thesis in this blog has been that free markets are the solution in dealing with allocation of scarce water resources. As a matter of fact, in today's post your faith is practically bottomless, stating that "nothing it priceless -- everything can be traded for something."

So why the punt in the context of environmental water, below? You state that it is "politically useful" to protect environmental values in the water context, even though no one would pay for them if they had to be marketized. That's an economist chickening out in favor of value choices. Lots of things are "politically useful", and it changes over time. Once upon a time it was farm water that was "politically useful" - see, for example, the Desert Lands Act of 1877, the Reclamation Act of 1902, the prior appropriation doctrine - and consigning environmental water to the realm of politics is giving it a fickle future. And, isn't the elegance of the economic solution the fact that it removes us from the realm of political conflict and places us squarely into an honest and voluntary allocation process? Isn't that the beauty of markets?

The dirty little secret of modern environmentalism is that it seeks to protect value choices that are only attainable through unfunded political mandates - exhibit one being the Endangered Species Act. If the Endangered Species Act were priced and cost-spread across the public at large that chooses its protections, it would be a heck of a lot smaller in scope. Same thing for environmental water. If, for example, everybody in California had to pay a surcharge to their water bill which was designed to "price in" the retirement of vested water rights that are being crimped by the ESA, the Clean Water Act, the Porter-Cologne Water Quality Control Act, Fish & Game Code section 5937, the "public" trust, etc., I think you'd find that your minimum environmental flows would be truly "minimal" in the proper sense of that word.

Yes, the dirty little secret of modern environmentalism is that it's not up to market challenges. Rather, it re-allocates private property through the political process, which is the only place it can survive in the form that we now see it. And the crucial mechanism is that it can use majority political power to enforce outcomes that impact minority rights - water rights and land rights. The problem with that is that the U.S. Constitution does interpose a final bulwark against that going too far - the takings clause. At some point, in theory anyway, the public has to pay for public choices.

I don't mean to carry this too far, other than to urge you not to give up on markets to protect environmental values in water. There are great environmental organizations out there that do in fact put their money where their mouths are - see, for example, the Nature Conservancy [DZ: see post above]. And markets are honest, at least if you buy into the notion that original access to money is egalitarian. Moreover, what you describe as "externalities" are within the realm of pricing. Does in-stream water create beautiful vistas? Then create a public financing mechanism for the Wild & Scenic Rivers Act. And so on. "Public" goods are eminently financeable - fire, police, military, etc. Why not the environment? Why open environmental protections up to the accusation that they're a ripoff of the minority by the majority?
[My reply was] Let me respond to the last bit (externalities) by saying this:
  1. There are public good benefits from environmental amenities.

  2. I don't think that these benefits should be "bought" for free, i.e., seized from private owners.

  3. Many would say that they were given for free, e.g., to farmers.

  4. Let's assume that those rights should be recognized and that $$ should be paid for benefits. What price should be paid?

    Now we get to the crux of the problem -- market power of those who do not want to sell and seizure of power by those who do not want to pay. If they struggle (and you know they do), the environment itself suffers -- so there's a need for one side to "win" over the other. The current trend is to give more power to enviros.

    [This is why I think that ag groups should be EAGERLY running to markets; if they do not, they will lose the water AND get paid nothing...]

  5. The real problem in paying more than zero comes from free-riding, i.e., even if you convinced enviros that it was worth paying for enviro goods, they hesitate to put up their own money (see my rant on EDF here); they prefer to use OPM (Other People's Money).
Even if I wanted to propose a market solution for enviro stuff, I'd have to go through a political process. The best version I can think of would involve a two-step decision by voters: How much $$ for the environment? How to divide that $$. Too bad that politicians and bureaucrats (and lobbyists) are making that decision FOR citizens.

Bottom Line: I'd be happy to have a "market" for enviro services, but the public good/free rider problem is too large -- that's why I just "set aside" some water and then let the market allocate the rest. TNC
is doing a great job at private transactions, but they can only make a small dent relative to gov't involvement.

23 July 2008

Aguanomics at Business Pundit

The post-Forbes rock and roll continues. In this interview, I put the "water crisis" in context and tie together wholesale auctions and retail conservation pricing as an integrated means of using prices and markets to manage scarce water.

The Bottom Line:
If we had a reasonable price on water, we could have a sustainable water supply everywhere, forever.

People will have 100% reliability IF they are willing to pay. If businesses want reliable water, they pay. If poor people want to use water for more than drinking and sanitation, they pay. If a guy wants to irrigate his golf course, he pays A LOT.

The food supply would shift to higher value crops (less alfalfa and more broccoli). Food prices would go up, but they would reflect the true cost of growing food, not the subsidized cost from unsustainable practices.

[snip]

The general population has mixed reactions to his proposals. Although some think that water should be subjected to even stronger market forces, the majority find it hard to put a price on water.

"Water is a very emotional subject for people," he says. "They don’t want to use markets for allocating water, but if they don’t there won’t be any."
Please comment at Business Pundit.

Peripheral Mea Culpa

A few days ago, I blogged on a report in favor of a Peripheral Canal to move water around the Sacramento/San Joaquin Delta.

I mentioned that PPIC did the report but failed to mention that 6 of the 7 authors were from UC Davis.

This omission is incredible not only because I graduated from UC Davis 2 months ago (!), but because one of the authors (Howitt) is my dissertation adviser (!!).

Can you believe that?

In my own defense, the source story off does not mention UC Davis. (Davis was mentioned everywhere in stories the next day, but I was behind on my reading) OTOH, I didn't read the report [PDF]. My bad.

As a consolation prize, check out Figure 8.2 on page 107 to understand why the PC delivers the best combination of low cost and higher fish survival.

Bottom Line: The PPIC report depended on a lot of excellent work by engineers, scientists and economists at UC Davis. Yay Davis!

Worse News

California's drought is set to get worse:
State officials are already preparing for another year of drought in 2009, prompted by low storage levels, court-ordered cutbacks, increasing demand for water and forecasts of another dry winter, Snow told the House Subcommittee on Water and Power.

Next year "could be the worst drought in California history," Snow said.
Bottom Line: Scarce resources? Time for markets to reallocate and higher prices to curb demand.

Nobel Economists on Cost-Benefit

Riverkeeper asked the EPA to require (under the Clean Water Act) that companies use the "best available technology" for water cooling intakes without regard to the costs and benefits of any given technology. Some power-generators sued (power plants suck in water through intakes for cooling), claiming that such a ruling placed a burden out of proportion to the benefits. One court ruled that cost-benefit should be used, but the Second Circuit ruled that it need not be. The case is now before the US Supreme Court.

Economists are upset. In this amici curiae brief, MANY famous economists argue for the use of cost-benefit, i.e.,
As economists, we believe that the Second Circuit's ruling, by not allowing the consideration of important information about the relationships between the benefits and costs of alternatives, is economically unsound. In particular, we believe that, as a general principle, regulators cannot make rational decisions unless they are allowed to compare costs and benefits and to use the results, along with other factors as appropriate, to choose among alternatives.

To the extent permissible under the statute and case law, EPA should be allowed to consider benefits and costs in establishing rules for implementing §316(b). The Court's allowing EPA to consider benefits and costs would improve both the decision making process - by making it more transparent - and the regulatory decisions by allowing important relevant information to be considered explicitly.
Cost-benefit analysis is an excellent tool for decision making. It is controversial because it puts values on things that many people think are priceless (e.g., a life, a species, etc.), but it is useful because it allows regulators (and others) to compare regulations (or regulation against no action).

Bottom Line: Nothing it priceless -- everything can be traded for something.*

hattip to HF



* An old (scandalous) joke on costs and benefits:
Old Millionaire to Young Beauty: I'd like to sleep with you, and I can pay.
YB: Sure, you're rich.

["time" passes]

OM: That was wonderful -- here's $20.
YB: What do you think I am, a prostitute?

OM: I know you're a prostitute -- now we're bargaining.

22 July 2008

Environmental Flows

In this post on All-in Auctions, I proposed that "some" water should be reserved for environmental flows and that remaining water should be sold, at auction, to the highest bidder. At least one commenter objected to this "exclusion for fish" -- an objection that another stated very well in an email to me:
Does the establishment of minimum environmental flows effectively give environmental values a "free pass" under your system? Seems to me that is the crux. Failure to publicly finance environmental requirements is a good part of the conflict we face today.

What you should do instead is put it all up to the market. If the people want to protect fish and other environmental values, they can form coalitions to spread the cost of that and then go into the market and buy up that minimum environmental baseline. Otherwise the minimum environmental baseline is very much an unfunded value choice being imposed upon the minority (holders of the water rights) by the majority (through the ESA or whatever other mechanism is used to enforce the minimum environmental flows).
While I agree that "fish" first is a form of entitlement, it's a political outcome that most voters are willing to support -- as they do with the water rights of American Indians, taxing pollution, etc. It's politically useful, I think, to reserve this water before marketing the rest. (In the same way as my proposal to give some water away before selling the rest for a bundle.)

My economic rationale is that rivers, etc. are not only scenic but also provide environmental services that are a public good. Allowing those who have water rights to divert an entire stream will destroy those ecosystem services. (Unfortunately, we've got an excellent example of this in the over-appropriated Colorado River.) I propose these minimal flows so that nobody can "buy a river dry."

There are some valid objections to privleged environmental flows:
  • Who decides how much flow to reserve?
  • Who loses their rights if the enviro flows encroach (junior rights holders)
  • Should someone pay/be paid for these enviro rights?
I am most worried about the first bullet, since predicting what fish want is tough. The third bullet is a budget decision, but I am willing to defend the notion of "taking water back" from junior holders because a river was over-allocated. (After all, most water rights were given for free and without considering ecological impacts.) But I'd think it fair to pay partial compensation for such a taking.

Bottom Line: We need environmental flows. How much and who's going to pay are big questions. I'd put the property rights back in State hands (Public Trust) and give some compensation to those few who lose water so that we many can have rivers.

Real Time Parking Pricing

via Coyote Blog, the NY Times reports that San Francisco will charge more for parking when traffic congestion is highest and places are scarce.

Since theory (and empirical evidence!) points to heavy pollution when people are circling to find a spot, it makes sense to raise the cost of parking to increase the turnover in spots.

Those who believe parking spaces are a human right should move to the countryside. Those in a hurry will still use garages or valets. Those in the middle will be forced to consider just how long their business will take.

Others (and Coyote) worry that planners will use real-time pricing to force people to live in high-density areas. I'm not sure about the effects of parking pricing on the marginal decision of where to live, but there could be some effect.

The price of parking in low-congestion times should be zero, of course, but don't count on it. I cannot count the number of times that I have had to pay for a spot in a vast wasteland of parking. Big surprise -- those places are often managed by the government.*

Bottom Line: San Francisco leads the way on environmental pricing (again). If it's scarce, the price should rise!

* Don't give me the "monopoly can force you to pay" line. An efficient monopolist would want to lower prices to get more people to park in the location; government sets prices somewhere, sometime, for eternity. If you want to see creative parking pricing, check out downtown garages in NYC or SF.

What Do Farmers Know?

A lot, it turns out. The Atalaya Institute commissioned a qualitative study [PDF] of New Mexican farmers' thoughts on water. It's very anthropological and gives you a good feel for the balanced views of people who have farmed the same place for centuries. Here are some excerpts:
The environmentalist, born in the back of a limousine, they don’t know what you are going through. 50 years ago everybody had a farm in their family. They had a grandfather or an uncle or somebody somewhere. And now when I go to the city and people say what do you do? And they look at you like you are the first one they ever met. They are completely out of touch. An a lot of people, I get a little offended, a lot of people watch TV and have got the idea that farming is bad. And I say “what are you talking about – all the birds that come and eat, and the coyotes eat the birds”... I think most farmers love their land. That’s why they are doing it. How you could take somebody like that and decide that they are bad for the environment. I love the environment, but you have to be realistic. It needs to be managed.
from a farmer and these are from the report:
The separation of water from the land seems like a crime against the land--an unnatural act. But it is interesting that it is a crime against the land and not a crime against water, almost as if the land holds our ethical responsibility but water does not. In this context an argument for the conservation of land makes sense. But if there is an ethical responsibly that these farmers have towards water it is simply to use it--not waste it. This “ethic” may be reinforced by the OSE’s “use it or loose it” policy. Within this construct it is hard to imagine what water conservation is or could be to farmers. Other than some talk about recharging the aquifer, there was little mention of water conservation at all.
[snip]
Most farmers are absolutely certain that their water and livelihoods can and most likely will be snatched away some day by some distant power no matter how senior their rights are proven to be. The needs of many will always trump the rights of a few. In most cases the water rights being sold are used to support the development that may ultimately represent the threat of eminent domain from the municipalities they are so concerned about. Yet this conflict of interest regarding water transfers to development was rarely mentioned.
[snip]
Strategic Observation: Farmers seem to have a different relationship with nature than non-farmers. They view it through a very specific lens and many have a sense of almost righteous entitlement about it – especially relative to non-farmers. This is understandable when considering how much time these people spend outside working on the land. Farmers have a very pragmatic and experientially based understanding of nature—what works and what doesn’t work. The purview of nature seen through the broader lenses of sciences like ecology and biology are too abstract and lack relevance if the ideas aren’t easily applicable to farming. The impact of environmentalism and environmental causes seems to have taken everything to a very tense and highly reactive place. The impact of this is that to dialogue around nature, the environment or even the river as an ecological entity is extremely difficult. Great care and creativity needs to go into framing the whole issue of nature and the river right now.
I also learned that farmers may grow low-value crops because they cannot afford the labor for high value crops. Interestingly, tighter border security may be shifting production of food back to Mexico. Because labor has to stay there, they grow the food -- and US farmers are out of business. Like that unintended consequence?

Bottom Line: Read this if you care about agricultural water allocation.

21 July 2008

DC Follies 3

[Prior Follies] Today I return to California.

It's been a great two months -- in many ways -- and I've learned a lot about our nation's capitol:
  • Nobody would live here in summer without air conditioning. That may explain why politicians don't want to raise energy prices -- they don't want to pay even more to live in this swamp.
  • The quality of life is pretty good for white collar workers -- many government and lobbyist-subsidized activities. There is a distinct separation between them and the (non)working classes.
  • It's probable that bad service in the area is because so many people work in government. Bureaucrats with job security don't have to work hard; when they go to lunch or shopping, they don't expect much service from others. This is a big contrast to the go-go West Coast.
  • OTOH, networking and socializing are BIG activities, because it's who you know that matters.
  • Many people here have a vested interest in more government -- either because they work for the government, sell stuff to the government (you should see the defense contractor ads at the Pentagon metro station), or criticize the government. (This must be what people mean when they discuss "Inside the Beltway" dynamics.) It's no wonder that those who advocate smaller government tend to be concentrated where government is not.
  • That doesn't mean that DC isn't crawling with people who want to make a difference, get into the power structure, change things, etc. It's full of motivated, ideological people. The trouble is that they often see themselves as the ones with the solution. They also, often, end up as part of the problem. (Who's Your Daddy?)
Bottom Line: DC is unique. I just wish there were less of it. (Go Tenth Amendment!)

Western Water Agenda

A bunch of lawyers put together a "new agenda" for Western water use in the face of increasing demand, threats from global warming, etc.
Throughout the West it is increasingly difficult to find water sources that are not already committed to another use. Most rivers have been dammed to capture high flows and to recapture water for subsequent use. Ground water has been tapped at rates well beyond the ability of aquifers to recharge, so water levels have dropped and associated surface water has declined. Alteration of aquatic systems for water development has caused extinction of species of fish, and others are in jeopardy. The West is approaching a zero-sum game in which the benefits of developing additional water are offset by the losses.
Unfortunately, none of their eight recommendations includes the use of markets for allocating water. They mention processes, strategies, management, programs, planning and efforts but say nothing about disaggregated means of increasing efficiency.

If all you have is a hammer, then every problem looks like a nail.

Bottom Line: There is no one way to solve water problems, but there is certainly a place for markets. Can we get some economists in on this?

hattip to DW

TerraPropAgit

I got this in an email:
TerraPass members have now balanced out a total of over 1 billion pounds of carbon emissions, all by purchasing carbon offsets from Terrapass.com or from TerraPass business partners like Expedia.com, Enterprise Rent-A-Car, and Climate Change Chocolate. We’re a mission-driven business, and our mission is to help individuals and small businesses finance verified reductions in carbon reductions
I can't tell if I am happy or sad to get this email. On the one hand, I think these guys are slightly dodgy; on the other, carbon offsets are the amazing market solution to minimizing the cost of carbon emissions.

But something doesn't seem right.
  1. Payments go for emissions reductions "below baseline", and baseline is sometimes a projection of where emissions would go.
  2. Does planting a tree today count for a carbon credit if the same tree would have been planted in a week? How long does that tree have to stay in place? Forever, presumably, if you are trying to offset carbon emissions -- but trees don't live forever!
  3. These offsets are bought on one side of the planet and sold on another so it's hard to know if what you bought is what was sold.
  4. Offsets don't do anything to reduce carbon emissions; in fact, they may encourage them by giving people a "guilt-free" reason to consume.
Bottom Line: I'm far more comfortable with carbon reductions than offsets. If you don't do it, it didn't happen.

More Crap from the Senator

I got this email from California's junior senator:
Dear Friend:

For most Californians, the term “long, hot summer” seems all too real right now. Records have been set for high temperatures, and now we are learning of possible power outages because of high electricity demands. These power outages can be avoided if we all act to reduce the use of electricity.

I’m happy to offer some solutions that all Californians can take to help us avoid power outages due to high demand, and that may also help to reduce your power bills. You can find some suggestions by clicking here or you can visit my Senate website for more tips about energy conservation and links to several sites including California’s "Flex Your Power" website and information about possible power outages. While we are all hoping for a cooler summer, it is time to prepare for hot days to come.

Sincerely,

Barbara Boxer
United States Senator
So -- her tips are to turn off lights, run the dishwasher at night, etc. How effective are those tips compared to charging more for power? Not. Very. Seems that the Senator needs to have a chat with Lynne and friends about Smart Grids.

Bottom Line: Electricity rates, like water rates, should fluctuate with demand. When supplies are short, prices should rise. When they do, people will use less. ($4/gallon gas, anyone?)

20 July 2008

More Supply versus Higher Prices

Many people think that "shortages" can be solved by "making" water with desalination. I don't like that idea, and neither do these Australian economists:
They argue the most efficient way to regulate water usage would be to price water according to supply and demand so that householders pay more in times of drought and less during times of heavy rainfall. "Just like we do for bananas, we should pay more when less is available," they write.

Professor Crawford said higher prices during drought would provide a better incentive for people to curb their use, and those who used large quantities of water would have to pay for it.

"If we had flexible water pricing people could choose how much water they wanted to use and where they use it," he said.
More supply (via desalination) will not fix a shortage because demand will expand to absorb new supply.

Bottom Line: We should price water like bananas.

hattip to TS

Tiered Rates

A Southern California water district is moving to increasing tier rates, i.e., pay more per unit the more units you use.
The idea behind a so-called tiered-rating system is to prompt residents to conserve water at a time when drought and court-ordered restrictions have reduced the water supply for the Inland region.

"It's a very effective conservation measure," said Tony Pack, general manager of Eastern Municipal Water District. The Perris-based agency serves 660,000 people from Moreno Valley to San Jacinto to Temecula. A handful of Inland cities and agencies have adopted a similar rate system, and Pack said some agencies have seen a 30 percent drop in water use.
LA Department of Water and Power has had increasing block rates for years, and they should be in place at many other water utilities. (Believe it or not, many utilities have flat per unit rates, but the worst ones are those that do not even meter water use: you just pay a flat fee for "all you can eat".)

It's great that EMWD is moving towards best practices. If water use drops to a sustainable level, they can keep customers supplied without worrying about shortages. If that doesn't work, they can adopt my more-aggressive pricing scheme.

Bottom Line: Charge people more for using more water and they will use less. Wow! Prices work!

hattip to DW

Peripheral Canal

PPIC has recommended [PDF] building a Peripheral Canal to convey water around the Sacramento Delta to aqueducts that take water to Southern California [story; prior posts].

I remember the 1982 defeat of a ballot initiative to build the canal. Although the engineering of the canal was sound, Northern Californians just couldn't stand the idea of building an "express" lane for water exports to Southern California.

The PC is back because the current method of sending water south (big pumps pulling water from the Delta) is killing too many fish, especially endangered ones. A judge has already ordered that the pumps be shut off now and then to stop that killing. A PC would reduce the kill attributed to exports.

So, is the PC going to be built? Yes, if people are really trying to increase the efficiency exports to SoCal; no, if they are using the fish kills as a way of preventing exports of "our" water to "them."

Bottom Line: I am in favor of the PC because it makes the system work better. There are better ways to resolve issues with water exports (e.g., negotiations) than using lawsuits to protect fish.

hattip to DW

19 July 2008

The Ethics of Efficiency

Mainstream economics often assumes that the "optimal outcome" is one that maximizes total utility (welfare or happiness). It is common to make a connection between consumption (or resource use) and utility, e.g., as if a larger GDP means that society is better off because the sum total of utility is higher.

In this paper [PDF], Staveren takes these assumptions apart:
The choice of individual utility as the unit of measurement of Pareto efficiency, however, implies that it is not resource-use that is measured for the evaluation of efficiency. Rather, the assumption is that when total utility is maximized, this can only mean that resources must have been used to their maximum efficiency. This assumption, however, is incorrect.

Modern economics has recognized that preferences may include psychological desires, relying on feelings of jealousy, status, affection, etc. So, it is not resource-use that is the space in which Pareto efficiency is measured, but desire fulfillment, including desires that are unrelated to resources as well as desires that are highly resource-intensive or that are harmful for oneself but indulged in because of myopia, limited information or weakness of will. In addition, the satisfaction of some preferences generates externalities, affecting other agents' desire fulfillment.

Hence, from a resource perspective, utility maximization does not necessarily result in the most efficient use of a society's resources: various preferences actually rely on or lead to a waste of resources. So, what is actually measured by Pareto efficiency is sub-optimal total utility, not minimum resource use.
Put plainly, we are not necessarily using our resources to create the greatest good for the greatest number. We may fail to do so because property rights are not clear and/or prices do not reflect the value of the resources.

[Staveren goes on to argue that redistribution of resources (equity) can do wonders for both efficiency and/or utility maximization. Although I acknowledge the problems of resource distribution today, I do not fully agree with this heterodox perspective. Anyone interested in these issues should read the paper.]

Bottom Line: Institutions for managing resources need to reflect their full value. If not, we will not maximize their value.

EU Fails

The EU bureaucracy has decided to issue lots of rules to cut emissions:
"There will be proposals on green public procurement, as well as widening the scope of the existing directive on eco-design to help improve the energy efficiency of buildings, and the scope of rules on eco-labelling will be widened," the Commission source said.

Various policies in Europe already promote eco-friendly design, but these are limited to devices that use energy such as dishwashers and air-conditioning units, and do not yet fully cover such things as windows and home insulation.
What next? A directive regulating the thermal inertia of beer glasses?

Bottom Line: It seems that they are trying to augment a messed up cap and trade system with more mess. Simple solution: impose a carbon tax and then let the market do its magic.

Water Markets

RM asks:
  1. How regulated the water markets are right now?
  2. What the chances of good reform are in the near future?
Well, the answers to these questions are all over the board.
  1. First note that hardly any water markets exist. Most water provision is by a local monopoly (state or private), and details of that provision vary. In the US, all residential water quality is regulated for public safety. (Bottled water is often regulated by the USDA, but the regulations tend to be lighter.) Private water providers have their prices regulated by Public [sic] Utilities Commissions; public water providers have their prices set by politicians. In developing countries, there is little regulation, or regulators are another division of corrupt, incompetent government, i.e., bad quality and high prices.
  2. Good reform? Depends on what you mean. At a minimum, reforms take years to implement. (Southern California water prices change annually.) As far as allowing new markets, etc.? That either happens fast (drought and shortage force trading) or not at all. The California Drought Water Bank varies from frantic to comatose.
These are big questions that cannot be answered in any global way. Water tends to be a very local affair -- mostly because water is too expensive (heavy, cheap) to move from one place to another. Unfortunately, the engineering model of water distribution (build pipes, sell at cost) is the "industry standard". If we're lucky, markets for water will work in one place and then spread to others. Diffusion will be slow (water managers are cautious), but at least there will be many opportunities to experiment with markets that meet local needs.

Bottom Line: Water distribution involves local institutions. Learn about yours.

18 July 2008

All-in Auctions

How should we (re)allocate water among agricultural, urban and environmental users?

Last month I described a version of this mechanism, which I call the All-in Auction. The AiA works like this:
  1. Assign property rights to all those who claim them. Some claims are spurious, but many are valid. Rights are awarded in order of seniority.
  2. Establish minimum environmental flows.
  3. Allocate "wet rights" to water above the minimum (sustainable yield) according to property rights, e.g., if yield equals 80 percent of rights, holders of the weakest (most recent) 20 percent of rights get no allocation.
  4. Set aside some per capita allocation of water -- the "human rights" entitlement.
  5. Put remaining wet rights up for sale to all comers -- urban, agricultural or environmental -- in a unit-price auction.
  6. Those who hold rights can buy them back for nothing, i.e., pay auction price but receive auction price equals zero. Put differently, farmers (who own most water rights) can opt out by buying from themselves. The human rights component is likely to be less than cities current rights, i.e., cities will "buy back" that water.
  7. The auctions would be run every so often to allow water users to change their decisions -- reducing the cost from "bad decisions", risk and uncertainty.
I'll be working a lot with this mechanism, so stay tuned -- and comment!

Bottom Line: My AiA design puts all rights into play (maximum liquidity) without taking rights from the owners (they can buy them back). The result (should be -- watch this place) a maximization of efficiency and protection of equity.

Fast Melt

According to this story,
Researchers... discovered that a critical surface temperature feedback is twice as strong as what had been projected by earlier studies.

The high-resolution climate model used by the team was better able to reproduce the complex topography of the western United States and capture details of the effect of snow cover on the climate system, as well as the historical record of runoff.

[snip]

"The heat trapping from elevated greenhouse gases triggers the warming, but the additional warming caused by the loss of snow is what really creates the big changes in surface runoff... Scientists have known about this general effect for years. The big surprise here is how much the complex topography plays a role, essentially doubling the threat to water resources in the West."
Bottom Line: Global warming plus LOCAL topography means less snowpack and bigger runoff. The amount of water stored in snow is absolutely massive. If California (and other places in the West) are going to maintain water supplies, many big (expensive!) dams may be necessary. (I am not very pleased with this idea.) Of course, they may not do the job -- we're talking massive!

Forbes.com feedback

I thought I'd share the reactions I've been getting to my piece on Forbes.com.
  • A number of heavy hitters in water have said they liked the piece. Even better, a number of amateurs have said the same. Great!
  • I've had several requests for interviews (granted!), which is great for getting the word out on aguanomics. (See the video clip below for the fastest turn-around.)
  • I've spent a lot of time explaining that my proposal is not about agricultural water -- this post is.
  • I also spent a lot of time saying "yes, there is a shortage because water outflows exceed inflows [engineering definition], but the reason that's happening is that price is too low [Econ 1].
  • I've got several invitations to participate in discussions on water, economics, the environment, etc. Awesome!
What some people didn't understand (or want to understand) was that my piece -- like most economic papers -- was about one point, i.e., that urban "shortages" could be fixed right now with a suitable change in water prices. There's no need to build dams, take water from farmers, etc.

Bottom Line: The water "shortage" needs to be solved at many levels (wholesale, retail, watershed, state level, etc.) and the institutions for allocating water must reflect the relevant factors at each level.

Me on Fox Business News

Don't believe it? Watch this!



Ok, they misspelled the name of this blog in the byline (aQuanomics), but everything else went ok.* I got to make my point, and I am not running for political office :)

BTW -- I'd say that the Forbes piece tripled normal visits to this blog; the Fox piece quadrupled that number. (I'm starting to understand the power of TV.) That increase was driven by a link from Matt Yglesias.

Addendum: Freakonomics also mentioned the Forbes piece and my name. Can't separate out the influences because Freakonomics didn't link directly to this blog :(

* I look a little stressed at the start because** I was talking to a camera, not a person. I could hear the host but couldn't see him.

** Or maybe it was because I had just seen Bill O'Reilly in makeup. (He did not tell me to "do it live!")

17 July 2008

Bureaucrats or Politicians?

Dan Walters suggests that bureaucrats may be better than politicians at allocating money for water infrastructure. Since the California Transportation Commission has done a pretty good job on roads, he asks, why not allow a similar Commission to decide where to put water projects?

On its face, this sounds like a good idea, but I think Dan misses a major point -- people drive cars on roads, but bureaucrats tell water where to go. If bureaucrats are bad at deciding where water should go (e.g., to one farmer rather than another), then the harm will be magnified as infrastructure is built to support those decisions.

I suggest that water be allowed to flow via market decisions (like cars and drivers). Only after water starts to move to optimal locations should money be allocated to infrastructure -- in exactly the places where bottlenecks (for conveyance or storage) appear.

Bottom Line: Bureaucrats don't know where water should go. Water users know. Let them decide -- and use markets to do so.