30 November 2008

Global International Waters Assessment

DG sent me a link to a report on the Colorado River basin that was prepared by GIWA. I've never heard of the organization -- a Sweden-based branch of the UN Environment Programme (UNEP) -- but they appear to be making progress in documenting issues relevant in water basins around the world. (They plan to do 66 reports.)

Their Colorado River basin report is pretty good. They conclude that the river faces the following challenges (in descending order):
  1. Freshwater shortage
  2. Pollution
  3. Habitat and community modification
  4. Unsustainable exploitation of fish and other living resources
  5. Global change
Bottom Line: Trouble on the Colorado affects Americans north and south of the border. Pity our Southern neighbors that we're not dealing very well with that trouble.

Law Professors on Regulation

"Regulation and Regulatory Processes" by Coglianese and Kagan.

Abstract: Regulation of business activity is nearly as old as law itself. In the last century, though, the use of regulation by modern governments has grown markedly in both volume and significance, to the point where nearly every facet of today's economy is subject to some form of regulation. When successful, regulation can deliver important benefits to society; however, regulation can also impose undue costs on the economy and, when designed or implemented poorly, fail to meet public needs at all. Given the importance of sound regulation to society, its study by scholars of law and social science is also of paramount importance. In this chapter, we review the state of the field by focusing on four major areas of empirical research: (1) regulatory policy making, (2) regulatory enforcement, (3) business responses to regulation, and (4) innovative models of regulation. We begin by reviewing the political economy literature on the factors that influence government regulators as well as the ways that overseers may use administrative procedures to affect decisions of regulatory agencies. We next highlight the varied empirical findings on adversarial versus cooperative enforcement styles. We then review explanations for business responses to regulatory pressures, including the range of factors influencing compliance and beyond-compliance behavior. Finally, we survey the ever-growing research literature on innovative approaches to regulation, including self-regulation, performance standards, and market-based incentives. This chapter serves both as a stand-alone account of the existing state of empirical regulatory research by political scientists and researchers from other disciplines, as well as an introduction to the authors' edited volume that reprints a diverse collection of classic studies of regulation and regulatory processes.

"Transparency and Public Participation in the Rulemaking Process" by Coglianese, Kilmartin and Mendelson.

Abstract: Each year, federal regulatory agencies create thousands of new rules that affect the economy. When these agencies insulate themselves too much from the public, they are more likely to make suboptimal decisions and decrease public acceptance of their resulting rules. A nonpartisan Task Force on Transparency and Public Participation met in 2008 to identify current deficiencies in agency rule making procedures and develop recommendations for the next presidential administration to improve the quality of regulations and the legitimacy of regulatory proceedings. This report summarizes the Task Force's deliberations, indicating ways that federal agencies could do a better job of seeking citizen comment earlier in the rule making process and of reaching out to all affected groups in an evenhanded manner. The report includes not only targeted recommendations on transparency and public participation, but also strategic-management recommendations which, if adopted, should help ensure that agencies continue to improve their transparency and public participation practices over time.

Bottom Line: Understand regulation BEFORE you do it! [Read Wilson's Bureaucracy]

29 November 2008

Water Accounting

Some of you will have seen the headlines ("drip irrigation not the solution"), and I have blogged on the same conclusion, but here's more from the article itself [PDF]:
Climate change, water supply limits, and continued population growth have intensified the search for measures to conserve water in irrigated agriculture, the world’s largest water user.

Policy measures that encourage adoption of water-conserving irrigation technologies are widely believed to make more water available for cities and the environment. However, little integrated analysis has been conducted to test this hypothesis.

This article presents results of an integrated basin-scale analysis linking biophysical, hydrologic, agronomic, economic, policy, and institutional dimensions of the Upper Rio Grande Basin of North America. It analyzes a series of water conservation policies for their effect on water used in irrigation and on water conserved.

In contrast to widely-held beliefs, our results show that water conservation subsidies are unlikely to reduce water use under conditions that occur in many river basins. Adoption of more efficient irrigation technologies reduces valuable return flows and limits aquifer recharge. Policies aimed at reducing water applications can actually increase water depletions. Achieving real water savings requires designing institutional, technical, and accounting measures that accurately track and economically reward reduced water depletions. Conservation programs that target reduced water diversions or applications provide no guarantee of saving water.
Bottom Line: Water has to go somewhere, and drip irrigation just controls that flow. Be a good cost-accountant and find out where else it goes. (There are losers and gainers on an individual basis, but society as a whole should just try to maximize overall benefit from water.)

hattip to CC

Learning from Plants

Here's the good news:
Researchers at Massachusetts Institute of Technology have discovered a new way of storing energy from sunlight that could lead to ‘unlimited’ solar power.

The process, loosely based on plant photosynthesis, uses solar energy to split water into hydrogen and oxygen gases. When needed, the gases can then be re-combined in a fuel cell, creating carbon-free electricity whether the sun is shining or not.
The bad news? "Ten years to market" -- that sounds awfully familiar...

Bottom Line: Technology can help us with supply issues (and sometimes demand issues -- if demand doesn't go elsewhere), but institutions (prices, rules, habits) also play a role.

hattip to DS

28 November 2008

Change = CCC

While you are giving thanks, consider this from Luke Sexton, who says:

"I am so excited about this idea to reactivate The US Civilian Conservation Corps...

I work with the disadvantaged in my area. The problems these young people face today (unemployment, homelessness, addiction and much more) is staggering. The CCC would be an ideal program not only would it give them jobs but, it would build character, and give them a sense of belonging, while doing important work.

The impact it could have on conservation efforts nationwide would definitely be a welcome addition to our efforts to preserve and conserve our natural treasures. The USCCC was one of the most successful New Deal programs there was, I believe it can be again.

Sign the petition to reactivate the US CCC."

[My] Bottom Line: I agree that a voluntary CCC is a good way for people to connect with each other, their community, their country and their environment.

The Klamath Dams Deal

Last week, farmers, indian tribes, enviros, and a power company announced a deal to remove four dams on the Klamath River [read Aquadoc's view]. The idea is that greater water flow will improve life for fish and the tribes -- at a cost to the farmers and power company.

I am pretty ignorant of the details, but I did notice that the power company was going to receive $450 million as compensation for finding other sources of power. I also know that farmers were paying a pittance for power under contracts signed long ago.

So what are the farmers getting? Apparently, they are getting better water rights.

I think that everyone's unhappy because they are getting (to them) uncertain benefits for certain costs.

Besides the big question (dams or not), I think that the remaining questions (water for fish, tribes or farmers?) should be resolved in a looser manner, i.e., by allocating water in annual markets where -- subject to minimum environmental flows -- everyone gets a fair shot at buying water.

But I could be wrong. Tell me if the deal's a good idea or bad idea, if it's going to go through (it's now a voluntary letter of understanding), and what alternative structures might make more sense.

Bottom Line: Pending!

hattip to AM for being persistent!

Speaking of Property Rights

Two articles touch on property rights with respect to water.

In the first, we hear about an irrigation district that paid for the aqueduct required to take delivery of water from the Bureau of Reclamation. BurRec never delivered because the water was diverted elsewhere -- to fish.

The district lost a suit claiming breach of contract, and others have been told to expect the same treatment, i.e., "the courts seem to be finding the government is not in breach of contract if the government decides to use the water for another purpose."

In the second, farmers and others in the California's central Valley are up in arms on the LAO's suggestion that their groundwater withdrawals be monitored and/or their rights be subject to means "beneficial use" testing. [I blogged in favor of the monitoring and against testing here.]

The farmers' hyperbole does make for good reading: Stockton water attorney Dante Nomellini said "It should be a local matter. They want to eliminate all property rights to water."

Yeah, right.

Well, the first thing to remember is that many Central valley areas are in the dark ages with respect to water management,* and the second one to note is that "what gets measured gets managed." Since groundwater is shared by different people, and surface water flows all over the place, we need to know how much of each is being used -- especially if water markets are expanded. If surface water can be sold and replaced by groundwater, there could be trouble if groundwater levels are not watched.

Bottom Line: Yes, protect water users' rights, but (first) make sure that the rights exist before they are given, and (second) require that rights be specified, i.e., adjudicated groundwater.

* Stockton has decreasing (!) block rates for residential users and flat rates for commercial users.

27 November 2008

Forests and Trees

The Butte Environmental Council is suing water districts to prevent them from sinking monitoring wells to assess groundwater levels, depletion and recharge rates.

At first, I thought that BEC was a front group for farmers who want to be left alone while they overpump the aquifer, but it seems that BEC is a legitimate environmental group.

BEC worries that wells are a first step towards water sales and exports. Perhaps, but blocking drilling is not the right answer: We cannot even hope to manage groundwater sustainably without adequate data. (A judge just ruled that people in Antalope Valley share the same aquifer. NOW they can decide how to share it.)

Bottom Line: Water sales and exports are worth debating, but we cannot even start (or end) the debate without knowing how much water is there!

Sneaky Takings via Public Trust

Stuart L. Somach, a lawyer whose firm has many irrigation districts, a few cities and no environmental groups as clients, attacks [PDF] the stealth methods of taking water in AG Brown's "clarification" of Public Trust.

He begins with a useful fact:
In California, groundwater is generally not regulated through a statewide system of allocation. Common-law concepts govern the allocation of groundwater with some groundwater basins within California operating under management rules established through court adjudications or basin-specific legislation or through groundwater management plans or local ordinances. Moreover, a legal fiction exists that denies the physical connection between surface water and groundwater.
He then points out where the AG oversteps the law:
The basic concepts articulated within the Attorney General’s Reallocation Letter, including the reasonable use doctrine and the public trust doctrine, clearly are part of the law and are without dispute. What is disputable, however, are the leaps in logic that are employed in order to justify ignoring the prior rights to water in the zeal to reallocate that water to environmental purposes without paying for it.


The Reallocation Letter also, with absolutely no authority, states that “it is possible that water users contributing to the harm to trust resources could be assessed a fee, to be used to purchase water or to restore habitat or to take other measures ... where those actions would be effective to offset the harm that they are doing to trust resources, in other words they will contribute money.” (Reallocation Letter at p. 16, emphasis in original.) This gratuitous statement is apparently made in support of the Delta Vision proposal to assess fees against all the diversions of water in California. Apparently there is some thought that these diversion fees obtained from water users, including those who hold senior water rights, could be utilized to purchase the very water upon which the fees are being assessed.
He then concludes with:
Now is not the time to chart new social policy by ignoring private property rights in water in order to address problems in the Delta. Instead, one should fully utilize the existing system of water rights, recognizing property rights, and allow that system along with the water markets engendered by that system to work as intended to address the scarcity of water and the need to reallocate it to meet Delta needs.
Gee, before I read this, I thought that lawyers argued with only truth and evidence. Now I know that they are just like economists (arguing the opinions of their clients with selective use of facts) -- just without the fancy math.

Bottom Line: Protect property rights and facilitate water sales. (Money flows one way, water the other.)

hattip to the Coastal Shark

Caribbean Water

LR says [edited]:
"I live in the Caribbean, and our countries often have water shortages. So -- while we don't have the financial problems of many other countries -- we know about fresh water scarcity. On my island (Antigua), drought is almost guaranteed every year. If a hurricane hits, the problem goes to another level because our resources get heavily contaminated.

I think this puts us in a unique situation where we understand the value of the resource that most of the world sees as free.

Seeing that we are surrounded by sea water, desalination seems like the best way to solve our problem but then comes PRICE. It seems that desalination plants are overly expensive. I know by now you are wondering what the point of this email is. So I will waste no more of your time.

I would like your opinion on the best way to provide the country or even the region with water."
I'm not so sure that the Caribbean is so different from the rest of the world. On the one hand, everyone wants to live there. On the other hand, water supplies are stressed, vulnerable to natural shocks and expensive to augment.

In other words, demand exceeds supply.

So my answer is the same as always: Raise prices to reduce demand. I am guessing that most freshwater on most Caribbean islands goes to residential use (not too much irrigated agriculture), so the impact of higher prices will be limited -- unless it forces people to move elsewhere. (I would not be surprised to learn that far more people live on these islands than did 50 or 100 years ago.)

So what about the supply side? Well, desalination is one option. Another option is importing fresh water (probably from South America) with ships or water bags. A third option is to increase the quantity and quality of local water sources by, e.g., protecting springs from contamination, storing more rainwater in reservoirs and cisterns, and fixing leaking pipes.

I am, of course, available to consult at any location in the Caribbean (even Haiti!)

Bottom Line: Charge more for water to reduce demand and then use that money to increase supply.

26 November 2008

Poll Results -- Got Sick?

Hey! There's a new poll on the Right [Read about the water projects here] ----->
Have you ever got sick from drinking water?
Yes 41%40
No 46%45
Dead... sorry :( 12%12
97 votes total
So this poll got a lot of activity (even the dead participated!), and the thing I was interested to see (and pleased to find out) was the share of people who have gotten sick off of water.* If we include the dead, a majority of people have. :)

Now consider that most of us have time to read a blog. That means (to me) that we are probably relatively well-off. For people who are less well-off, the likelihood of getting sick from water is probably higher, so let's say this result is a lower bound.

Next, given that a majority of humans have gotten sick from water, you'd see the importance we put on water quality. Water quality is far more salient to me than, say bread or boat or battery quality because I have very little experience with bad quality (i.e., make me sick or put me at risk) from these items.

OTOH, those who have NOT gotten sick from water may be either lucky or so careful [don't go to Country X!] that they've avoided water problems.

I wonder which group actually cares more about clean water? Those who've had dirty water and survived or those who have not?

Please comment on any of these ideas or give your own.

Bottom Line: We know that water can make us sick, but we know that we need it to live. Those two forces characterize our unique relationship with water.

* There was some dismay that someone who got sick from something else may have blamed the water, but we're interested in perceptions here.

Options for Water Trade

Tomkins and Weber (I know them) discuss "Option Contracting in the California Water Market" It's full of math and a little bit of calibration data (SDCWA and MWD water options), so download at you're own risk!
ABSTRACT: Temporary resource transfers, as achievable under option contracts, reduce transaction cost associated with the sale of permanent resource rights. As such, they facilitate the realization of gains from trade that would go unrealized under failed permanent transfers.

In the California water sector, there has been considerable resistance to permanent water rights transfers. The advent of option trading has led to an increase in urban-agricultural water transfers and has the potential to stimulate the California water market.

This paper develops a bilateral option contracting model for water, which includes the possibility of conveyance losses and random delivery. Seller-optimal and socially optimal option contracts are characterized in terms of relevant upfront and strike prices, as well as contract volumes, from an ex-ante and an ex-post point of view.

Actual contract prices are compared to model-predicted prices, and the social welfare gains from option contracting in the California water market to date are estimated. The sensitivity of future gains to commodity prices and the cost of electricity, implying the marginal cost of water conveyance, is also discussed.
Bottom Line: The first point is the most important -- water markets, rights and trades need to be flexible to reduce the chances that either party to them will make a mistake. So can get get more of these please?

hattip to RS

Carrots and Sticks

As someone well-versed in corruption, asymmetric information, self-interest, etc.,* I am a HUGE skeptic of regulations designed to "make people do the right thing," and this experimental paper [PDF] provides some useful evidence of how things really work:
We conducted a series of framed public goods experiments in fishing communities off the Caribbean coast of Colombia to investigate the relative effectiveness of regulatory pressure and pro-social emotions in promoting cooperative behavior.

The random public revelation of an individual’s contribution and its consequences for the rest of his or her group leads to higher public good contributions and higher social welfare than regulatory pressure, even under regulations that are designed to motivate fully efficient contributions
Not surprisingly, peer reputation (and pressure) is more effective than rules -- even clever ones.

Bottom Line: The best system is one that people want to belong to. Use more carrots and fewer sticks.

* We all drive under the speed limit, drink responsibly, etc. -- right?

Sustainable Agriculture

The GIO folks said this:
if all the regional climates of the world are going to be changing significantly in the next 50 years, do we need to start shifting the world’s agricultural centers today? Will the vast farm plots of the Midwestern United States need to be moved north into Canada? Can we grow sufficient quantities of food in indoor or even urban environments, without straining energy resources too much? In other words, will the next green revolution be truly green?
And I said this:
If trade barriers were lower, it would make it easier to grow food in cheaper places (labor, land, water) for sale in more-expensive places (Dubai, Singapore). I guess that the Doha Development Round should have had "and Environment" added to the title!
OTOH, there's a danger to trusting people who are growing your food. What if they decide to keep it? This Guardian article describes how rich countries are buying land in poor countries to increase their food security. Although the idea sounds sinister, it means that each country-pair will become MORE, not less, interdependent, which is GOOD for peace. (The same logic can be used to demolish the claims that "energy independence" will make us safer. Trade not war!)

Bottom Line: There are many ways to adjust to climate change, but the fewer we have, the more expensive (in money and lives lost) it will be.

25 November 2008

Which Projects Would You Fund?

Yesterday, I posted Paul Faeth's thoughts of how to address problems of providing water to the poor.

His organization (Global Water Challenge, GWC), collaborating with Ashoka’s Changemakers, put out an RFP for projects that would "catalyze local entrepreneurs to create a worldwide movement to end the water and sanitation crisis" in January 2008. They received 265 entries from 54 countries, and these are the ones they have funded or are considering funding.

What they need from you is comments/opinions on which are better than others. So here they are, in reverse alpha (guess why?), for your consideration.

Please comment on these projects by number.

Please vote [poll on the right sidebar!] for as many as you think worthy of GWC's funding.
  1. Swayam Shikshan Prayog (India)

    Small Steps, Big Leaps: Community Led Approach to Water and Sanitation
    SSP mobilizes and empowers communities to demand, implement and maintain water and sanitation related projects by utilizing existing government resources to maximize their impact. SSP builds local capacities, especially those of women, in planning, designing, managing and maintaining water and sanitation services. The strategy spearheaded by womens’ groups in partnership with their local governments is directly operating in 200 villages in Maharashtra, and 67 villages in Gujarat. SSP will first expand this model to all of the 1,064 villages in three states (Maharashtra, Gujarat and Tamil Nadu) in which it currently operates other programs.

  2. Safe Water and AIDS Project (Kenya)

    Safe Water and AIDS project provides people living with HIV and HIV support groups training on safe water systems interventions. Field officers and trainers identify HIV support groups, promote and demonstrate safe water treatment, and discuss illness prevention through the use of health products. The groups buy these products at wholesale prices and sell them at retail to earn a profit. Groups are also offered microfinance services for savings and loans, so that they can expand their businesses. The project has served 100,000 people through 450 groups that sell safe water treatment products from door to door, in community gatherings and in community kiosks and pharmacies.

  3. Naandi Foundation (India)

    Community-based Safe Drinking Water Systems
    Naandi Foundation provides safe drinking water to underserved populations in the Andhra Pradesh and Punjab states of India. Naandi recognizes that demand for quality water and sanitation services exists and that by capitalizing on communities’ willingness to pay, accountability can be enforced through a contractual relationship between service providers and the community. The community’s contribution increases ownership and improves accountability of services. Naandi operates 150 kiosks, with 200 more under construction. When all 350 kiosks are completed, the program will reach 1.75 million people.

  4. Manna Energy Foundation (Rwanda)

    Developing Another World in Rural Rwanda
    Manna Energy Foundation is installing close to 500 water treatment systems and biogas generators for secondary schools in Rwanda by funding the venture with carbon credits. The project will reach a population of 236,000 students or 3% of the Rwandan population. The water treatment plants will use gravity and photovoltaic filtration systems. They will provide safe water for drinking, food preparation and personal hygiene. The biogas generators will take human and kitchen waste and capture the waste methane which can be used in high efficiency cook stoves.

  5. Iringa Development of Youth, Disabled and Children Care (Tanzania)

    Water, Sanitation and Hygiene for All
    IDYDC uses sports to disseminate hygiene and sanitation information, and provides water and sanitation solutions and microcredit to the community. IDYDC has about 700 football/netball teams in the region. Children and young people involved with IDYDC act as behavior change agents in their families. 400,000 to 500,000 community people have been reached with messages about HIV/AIDS, drug, substance and alcohol abuse. At least the same number of people will be reached with hygiene and sanitation messages.

  6. Himanshu Parikh Consulting Engineers (India)

    Slum Networking – Transcending Poverty with Innovative Water and Sanitation Paradigm
    HPCE is an engineering firm that uses city planning methods to design new sewage and drainage systems for slum revitalization programs. HPCE creates a new network of drains, decreasing the cost of underground sewers by making use of the natural drainage slope of the area. Working with its NGO partner Byrraju Foundation, the goal is to scale up their work to over 200 villages.

  7. Ecotact - Innovating Sanitation (Kenya)

    Iko-Toilet Thinking Beyond a Toilet
    Ecotact is implementing an innovative model for installing and operating pay-for-use toilets in urban areas of Kenya. The facilities leverage recent innovations in environmental sanitation. Waterless urinals reduce water consumption, urine is segregated and sold as fertilizer, and some facilities will use human waste to generate methane gas, reducing sewage disposal and diminishing the threat to water bodies. Each toilet offers additional services, tailored to meet the needs of the local community: a small business, showers, an ATM. The toilets diverse array of funding sources, includes user fees, advertising revenues, and the leasing of a small space to micro-entrepreneurs.

  8. EcoLogic Development Fund (Honduras)

    Tapping Multi-Sector Finance to Increase Water Flows to Rural Poor
    EcoLogic works with rural and municipal leaders in Honduras to undertake micro-watershed management and construct potable water systems using credit. Communities invest in their own sustainable land use and income generating activities, enabling them to pay for water services. Water Boards in Honduras and Guatemala, organized and supported by EcoLogic, manage up to $50,000 annually and serve over 117 communities, providing potable water to 26,000 people. EcoLogic plans to reach at least 100 new communities per year throughout the region.

  9. Clean Shop (South Africa)

    Schools Sanitation Improvement and Enhancement Project
    Clean Shop employs 350 people and conducts daily cleaning and hygiene services for schools, universities, mines, supermarkets, and gas stations. In partnership with the University of Venda, Clean Shop educates parents with children in public schools to clean and operate local school latrines. It is poised to operate in many more schools in partnership with the South African government.

  10. Centre for Community Organization and Development (Malawi)

    Women Entrepreneurs in Sanitation
    CCODE empowers women in poor urban communities by providing them the support to introduce eco-sanitation facilities in central markets. Women collect fees for toilet use and also separate and recycle waste for income. Markets are central places for most communities and thus provide visibility to ecosan. This creates demand at the household level for household ecosan toilets. CCODE plans to provide support for local entrepreneurs offering these services. This particular project is expected to serve at least 5,000 households directly and over 25,000 households indirectly.

  11. Bushproof (Madagascar)

    Leasing Hand Pumps: Opening New Markets for Affordable Drinking Water
    Bushproof offers hand pump leasing and maintenance services to make community drinking water financially sustainable and affordable. This agreement allows bushproof to take full responsibility for the provision of sufficient quantities of safe water supplied by wells and pumps. Through their pilot program in Madagascar, Bushproof has served 13,500 people and plans on serving thousands more by scaling the number of leased wells in subsequent years.

  12. Biodiversity Conservation India Limited (India)

    Mainstreaming Sustainability
    BCIL seeks to build a housing community of 100 homes with zero dependence on local Municipal Water Supply and Sewage Boards. In addition, the housing community will have energy efficient lighting systems and appliances, including carbon free air-conditioning for every house. Through this housing community, BCIL will demonstrate sustainable urban development without compromising urban comfort. As of this year, BCIL has overseen 180 acres of chemical free land and has built about 500 houses that are fully autonomous in waste disposal and supply of drinking water. In the next two years, BCIL will build 800 more affordable and sustainable housing units.

Grad School Bleg

I got this email:
I was wondering if you had any opinions about applied natural resource economics programs, I'm in the middle of applying to PhD programs... and thought you might be in the know about some programs.

I'm currently planning on applying to Minnesota, Colorado State, Oregon State, Berkeley, Davis... and a few others but would appreciate any suggestions.
Opinion? You want opinions?!?

Well, my first opinion is that you check who does ERE at any of these schools. Make sure there are enough people in your field. (Also remember that plans change; I went as a development economist and came out a resource economist.) Talk to them. If they do not return emails or phone calls, be prepared for the same treatment when you are trying to get your dissertation done. Also look at how many students are in each field. It helps A LOT to have peers.

Second, look where graduates go. If they all go into academic positions, it's probably not too applied.

Third, remember that you can move, but that's a pain. Most programs teach similar things and your experience is likely to be unique. My opinion is that it's hard to know the best place ex-ante and that most places turn out ok ex-post. (Also remember that optimizing life events is often a frustrating waste of time!)

Fourth -- read the comments that others leave here.

00Agua to the Rescue

I just saw Quantum of Solace, and I liked it very much -- more for the energy than the plot :). (It finishes the Casino Royale story; I can't wait for the next story.)

Water people have noticed [here and here] that the plot involves a villain who wants to cut off people's water before selling it at a massive plot. Since it's set in Bolivia, it's pretty obviously a recounting of the Cochabamba plot.

The best (water) scene [SPOILER!] is when Bond abandons the villain 50km in the desert with just a can of oil to drink...

Bottom Line: Taking water away from people is a classic evil plot. That's why markets need to allocate water LEFT after everyone gets their "human rights" allocation of water.

24 November 2008

Water for the Poor

Paul Faeth of Global Water Challenge (GWC) has written an excellent overview [doc] of how to bring water to the world's poor:
There are essentially four principal factors that determine access of people to safe drinking water and sanitation: 1) population growth, 2) funding, 3) cost per person, and 4) life of infrastructure, or stated another way, sustainability of investments.

For this discussion, population growth is not with the realm of influence of the water and sanitation community. The remaining three factors suggest strategies to enhance global access...
Faeth advocates the typical solutions to these problems (cheaper financing, deduce corruption, etc.), but -- more importantly -- his organization is putting money towards projects that promise change.

Tomorrow, I will post GWC's list of candidate and funded projects. I am hoping that you readers can tell him (and everyone else) what you like and dislike about those projects (in the comments). Your advice will help GWC decide how to allocate its scarcest resource -- money.

I will also post a poll that will let you vote on the projects you like.

[Those of you with memories that last longer than a fish will recall that I asked your opinions on 24 questions derived from IBM's Global Innovation Outlook on water. Here's the original post, which links to the 24 posts on each question. Take a look at the comments and add more!]

Winter Forecast Update

Meterologists at California's Department of Water Resources say:
this should be a near-normal (close to average precip) water year in Northern California and perhaps the upper Colorado River basin, and a drier than normal winter for Southern California.

Even a normal water year may not be enough to replenish the state's reservoirs. (Major ones are at one-quarter capacity, and half of their normal level this time of year [PDF])

What's more, if only warm events come in throughout the winter, they won't do much for State's snowpack. Spring snowpack alone accounts for 35% of urban and ag water supply across the state (with Sierra precip in total responsible for 60% of the supply).
Here's a more-sensational version of the story. [Also flashfloods in Queenland. Remember that global warming is about higher weather volatility.]

Bottom Line: Don't count on rain to bail us out. Raise prices to reduce water consumption and make it easier to trade water.

hattips to DW and WaterSISWEB

Water Models

In the comments to this post, MEBates mentions CALVIN (for CALifornia Value Integrated Network), a economic-engineering water model* created and overseen by Jay Lund (Civil and Environmental Engineering), Richard E. Howitt** (Agricultural and Resource Economics) and Marion W. Jenkins (Civil and Environmental Engineering) at UC Davis.

So what does CALVIN do? It "reproduces" the engineering structure of California's water system (sources and sinks and the conveyance in-between), combines that system with the economic demands for water, and then -- using 70+ years of hydro data -- allows one to simulate the effects of changing economic or engineering parameters.

In one famous example [PDF], CALVIN was used to simulate the removal of O'Shaughnessy Dam at Hetch-Hetchy reservoir, which would be the first step towards "restoring" the "lost Yosemite" -- an idea I dislike.***

So, the good side of CALVIN is that it allows us to contemplate how changes in one part of the system might result in changes elsewhere. Since California's water system is so complicated, it's nearly impossible to understand implications, side-effects, etc. without something like CALVIN (there are other models out there).

The bad side of CALVIN is that it may give users a false sense of security (e.g., "we know that this would happen"), especially if the model is missing something important or fails to achieve meaningful resolution. Critics of CALVIN (and its ilk) point out that it misses the institutional friction that can drive or impede water use. I personally know that CALVIN's resolution in urban Southern California is too crude to capture sources and sinks. CALVIN doesn't do a good job at simulating water markets because it misses small resolution, critical features.

This critique is general: Bob Murphy points out the dispute among climate modelers can be traced to the "faith" that some have in macro models (that make big assumptions and derive conclusions) and micro models that take complex interactions (soil composition?) into account.

Bottom Line: Howitt likes to say "all models are wrong, but some are more useful than others," and CALVIN needs to be used with that fact firmly in place, i.e., for BIG changes like adding dams. (Lund has said many times that California needs more conveyance, not more dams.)
* CALVIN won the 2008 Hugo B. Fischer Award for (1) the development, refinement or innovative application of a computer model or (2) furtherance of the effective use of models in planning or regulatory functions.

** Howitt covered water economics (among other things) for my dissertation.

*** That idea has gone nowhere, because it would cost about $5 billion and enviros can't convince politicians to spend other people's money on it.

Speaking of CALVIN

23 November 2008

Small Water Systems

My list of things to do (it's long, like a roll of toilet paper) has one item labeled "community water."

I want to examine the effect of size on performance, i.e., it is harder for customers to monitor bigger water providers (private or public) so they may be run less-efficiently than smaller providers. Of course, there's an argument that smaller providers may not have the economies of scale (thus lower costs or better management) of bigger firms.

If you believe both of these arguments, there should be a "sweet spot" (optimal size) for water providers that's neither large nor small.

Luckily for me, Lee and Braden have just published an article [PDF] that directly addresses this topic through the study of merger activity among small water providers. (The US has 50,000 community water services, of which 90% serve fewer than 10,000 people.)

Their results indicate that mergers are more likely when firms are smaller, violate monitoring or water quality guidelines, and are private. The first two results make sense if the firm wants access to better management; the last result (private firms merge more often than public firms) makes sense if mergers are politically sensitive.

Unfortunately, Lee and Braden do not check to see if newly merged firms improve on monitoring or quality. I'm guessing that question will be answered in a follow-up paper.

Bottom Line: When fixed costs are high (as is often the case with water), it makes sense to grow larger. Just don't grow so large that you lose touch with your customers. (Hear that, LADWP?)

Resources versus Environment

Water is a resource, but it's also an environmental good, and sometimes water quality is abandoned in the name of harvesting another resource. For example, when miners use water to blast away hills (the reason California has the "right of prior appropriation"), when mining destroys surface or groundwater supplies, and when processors use massive amounts of water to refine tar-sands into oil.

So I knew the answer when I saw this headline: "Does Natural-Gas Drilling Endanger Water Supplies? A debate is heating up over whether the fracturing technique used in natural-gas drilling could result in chemicals contaminating drinking water"

Here's a good excerpt (but read the whole story):
A close look at the EPA's 2004 study reveals that the agency may have played down evidence of health dangers. And now some regional EPA officials say it's time for the industry to disclose precisely what it's pumping into the ground.

Energy companies are taking a tough stance. Last summer, Houston-based Halliburton threatened to cease natural-gas operations in Colorado if regulators there persisted in demanding the chemical recipe used in a common drilling process known as hydraulic fracturing.
Since Halliburton loves kitties, I know that they are not doing anything wrong, so I guess that my initial idea is incorrect. :)

Speaking of nice people, this article points out how agricultural runoff is causing about $4 billion/year in damages to freshwater supplies. (Thank god for ethanol!)

Speaking of ethanol, it looks like the Indy 500 will be run on Brazilian ethanol (!), because (?) "...the economics of [American] corn-based ethanol right now are terrible. Brazilian sugarcane ethanol is cheaper to make (and most studies say it is also more environmentally-friendly), but imports into the U.S. face a stiff tariff."

Bottom Line: Water quality regulations mean nothing unless they are enforced.

hattips to DB and DS

Addendum: Another story on how bad the tar-sands are.

Greenwashing at a Discount

The 2008 Water Footprint Summit (London, December) lists a who's who of speakers from the corporate social responsibility (CSR) sector.

Now I am one of those people who thinks that companies need to profit maximize first and worry about the environment, education system, etc. later not-at-all.

Others (usually not owners) think that companies should pursue a triple-bottom line ("People, Profit, Planet"), which -- besides being impossible -- is important to include in your marketing literature.

Anyway, if you've got to maintain image, you've got to have a CSR officer who will speak at meetings and attend meetings, hire consultants and act as consultants.*

These things take money: Although the two-day Summit may seem reasonable (not to me) at £1,000,** what made me LOL was the "skip the Summit, send me the CD" option, which is only... £300! (I guess cheapo-CSR officers then cut-and-paste their new "knowledge" onto the corporate website.)

Bottom Line: Rather than wasting ££ or $$ on this crap, spend it getting a carbon tax into place and running the best business you can.

hattip to DG, and image from here.
* I think the technical word is "circle jerk" :) For a good example of this, consider the "finding" that "Companies that write longer sustainability reports are more likely to win environmental awards... For every one page increase in a sustainability report, the odds of a FTSE 100 company winning an award increase by 3%." I guess that CSR people will switch to 14pt font -- not very sustainable in terms of paper, but very efficient in terms of lengthening reports!

** The one happening in SF is $1,800 -- that's even more expensive!

22 November 2008

The Costs of Slowing Climate Change

This is from the Food Climate Research Network (via DG):

The International Energy Agency has published its latest Outlook report setting out world energy trends and their implications to 2030.

Under its Reference Scenario, which assumes no new government policies, world primary energy demand is projected to grow by 1.6% per year on average between 2006 and 2030 – an increase of 45%. This is slower than projected last year, mainly due to the impact of the economic slowdown, prospects for higher energy prices and some new policy initiatives. Demand for oil rises from 85 million barrels per day now to 106 mb/d in 2030 – 10 mb/d less than projected last year. Demand for coal rises more than any other fuel in absolute terms, accounting for over a third of the increase in energy use. Modern renewables grow most rapidly, overtaking gas to become the second-largest source of electricity soon after 2010. China and India account for over half of incremental energy demand to 2030 while the Middle East emerges as a major new demand centre. The share of the world's energy consumed in cities grows from two-thirds to almost three-quarters in 2030. Almost all of the increase in fossil-energy production occurs in non-OECD countries. These trends call for energy-supply investment of $26.3 trillion to 2030, or over $1 trillion/year. Yet the credit squeeze could delay spending, potentially setting up a supply-crunch that could choke economic recovery. Under the reference scenario, greenhouse-gas emissions would put the world on track for an eventual global temperature increase of up to 6°C.

WEO-2008 also analyses policy options for tackling climate change after 2012, when a new global agreement – to be negotiated at the UN Conference of the Parties in Copenhagen next year – is due to take effect. This analysis assumes a hybrid policy approach, comprising a combination of cap-and-trade systems, sectoral agreements and national measures. On current trends, energy-related CO2 emissions are set to increase by 45% between 2006 and 2030, reaching 41 Gt. Three-quarters of the increase arises in China, India and the Middle East, and 97% in non-OECD countries as a whole.

Stabilising greenhouse gas concentration at 550 ppm of CO2-equivalent, which would limit the temperature increase to about 3°C, would require emissions to rise to no more than 33 Gt in 2030 and to fall in the longer term. The share of low-carbon energy – hydropower, nuclear, biomass, other renewables and fossil-fuel power plants equipped with carbon capture and storage (CCS) – in the world primary energy mix would need to expand from 19% in 2006 to 26% in 2030. This would call for $4.1 trillion more investment in energy-related infrastructure and equipment than in the Reference Scenario – equal to 0.2% of annual world GDP. Most of the increase is on the demand side, with $17 per person per year spent worldwide on more efficient cars, appliances and buildings. On the other hand, improved energy efficiency would deliver fuel-cost savings of over $7 trillion.

The scale of the challenge in limiting greenhouse gas concentration to 450 ppm of CO2-eq, which would involve a temperature rise of about 2°C, is much greater. World energy-related CO2 emissions would need to drop sharply from 2020 onwards, reaching less than 26 Gt in 2030. "We would need concerted action from all major emitters. Our analysis shows that OECD countries alone cannot put the world onto a 450-ppm trajectory, even if they were to reduce their emissions to zero", Mr. Tanaka (Director of the IEA) warned. Achieving such an outcome would require even faster growth in the use of low-carbon energy – to account for 36% of global primary energy mix by 2030. In this case, global energy investment needs are $9.3 trillion (0.6% of annual world GDP) higher; fuel savings total $5.8 trillion.

[My] Bottom Line: Business as usual costs nothing extra but leads to a 6°C increase in temperatures (kinda apocalyptic; watch this). Spend $4.1 trillion (but save $7 trillion) to limit the increase to 3°C. Spend $9.3 trillion (but save $5.8 trillion) to limit it to 2°C. Although it looks like we can keep temperatures in the range of survivable at a net savings, it's the distribution of costs and benefits that's mucking things up. Unless we get a world dictator, we need some serious cooperation.

China Will Suffer from Climate Change

"Climate Change and Food Security in China" warns that China will lose its self-sufficiency in food production as early as 2030 because of climate change. The solution? Take immediate action to cut greenhouse gas emissions and adopt policies encouraging more climate-friendly ecological agriculture. Greenpeace commissioned the report, which was authored by Chinese climate experts and agronomists.

China, btw, has allocated 0.5% of its $570 billion stimulus spending to water projects. That's not much compared to the troubles they have.

Academics on Climate Change

The Oxford Review of Economic Policy published the following articles:

Dieter Helm: Climate-change policy: why has so little been achieved? [PDF]
Abstract: While the scientific evidence for climate change grows, the policy responses have so far had little or no impact on the build-up of emissions. Current trends in emissions are adverse. The paper considers why the disconnect between science and policy exists and, in particular, why the Kyoto Protocol has achieved so little. Some contributing factors considered are: the focus on carbon production rather than consumption in the architecture of Kyoto; the flaws in the analysis presented in the Stern Report (notably on the impacts of climate change on economic growth, on the costs of mitigation, and on discounting); and the political economy of the choice of policy instruments, the politics of the rents that arise, and the technology bias. The challenges facing the Copenhagen conference are noted, and it is concluded that, with a recasting of the economics of climate change, the prospects for closing the gap between the science and policy are grim.

Scott Barrett: Climate treaties and the imperative of enforcement [PDF]
Abstract: The emission limits in the Kyoto Protocol are too generous. Simply tightening these limits, however, will not make a new climate treaty any more effective at addressing climate change unless the other problems with Kyoto are also addressed. A new climate treaty arrangement must enforce both participation and compliance. This might be done by applying an enforcement mechanism, such as a trade restriction, to a new treaty styled after Kyoto. Potent trade restrictions, however, may lack credibility and legitimacy. An alternative approach recommended here is to break the problem up, with separate (but linked) agreements addressing individual gases and sectors, using the most appropriate means to enforce each component of the system. In bundling together all sectors and greenhouse gases in a single agreement, Kyoto has aimed to achieve cost-effectiveness at the expense of enforcement, which depends on the treaty's weakest enforcement link. The imperative must be to ensure that any future treaty arrangement can be enforced.

Cameron Hepburn and Nicholas Stern: A new global deal on climate change [PDF]
Abstract: A global target of stabilizing greenhouse-gas concentrations at between 450 and 550 parts per million carbon-dioxide equivalent (ppm CO2e) has proven robust to recent developments in the science and economics of climate change. Retrospective analysis of the Stern Review (2007) suggests that the risks were underestimated, indicating a stabilization target closer to 450 ppm CO2e. Climate policy at the international level is now moving rapidly towards agreeing an emissions pathway, and distributing responsibilities between countries. A feasible framework can be constructed in which each country takes on its own responsibilities and targets, based on a shared understanding of the risks and the need for action and collaboration on climate change. The global deal should contain six key features: (i) a pathway to achieve the world target of 50 per cent reductions by 2050, where rich countries contribute at least 75 per cent of the reductions; (ii) global emissions trading to reduce costs; (iii) reform of the clean development mechanism to scale up emission reductions on a sectoral or benchmark level; (iv) scaling up of R&D funding for low-carbon energy; (v) an agreement on deforestation; and (vi) adaptation finance.

Kjell Arne Brekke and Olof Johansson-Stenman: The behavioural economics of climate change [PDF]
Abstract: This paper attempts to bring some central insights from behavioural economics into the economics of climate change. In particular, it discusses (i) implications of prospect theory, the equity premium puzzle, and time-inconsistent preferences in the choice of discount rate used in climate-change cost assessments, and (ii) the implications of various kinds of social preferences for the outcome of climate negotiations. Several reasons are presented for why it appears advisable to choose a substantially lower social discount rate than the average return on investments. It also seems likely that taking social preferences into account increases the possibilities of obtaining international agreements, compared to the standard model. However, there are also effects going in the opposite direction, and the importance of sanctions is emphasized.

Robert Stavins: Addressing climate change with a comprehensive US cap-and-trade system [PDF]
Abstract: There is growing impetus for a domestic US climate policy that can provide meaningful reductions in emissions of carbon dioxide (CO2) and other greenhouse gases. I describe and analyse an up-stream, economy-wide CO2 cap-and-trade system which implements a gradual trajectory of emissions reductions (with inclusion over time of non-CO2 greenhouse gases), and includes mechanisms to reduce cost uncertainty. Initially, half of the allowances are allocated through auction and half through free distribution, with the share being auctioned gradually increasing to 100 per cent over 25 years. The system provides for linkage with emission-reduction credit projects in other countries, harmonization over time with effective cap-and-trade systems in other countries and regions, and appropriate linkage with actions taken in other countries, in order to establish a level playing field among domestically produced and imported products.

David Victor: On the regulation of geoengineering [PDF]
Abstract: New evidence that the climate system may be especially sensitive to the build-up of greenhouse gases and that humans are doing a poor job of controlling their effluent has animated discussions around the possibility of offsetting the human impact on climate through ‘geoengineering’. Nearly all assessments of geoengineering have concluded that the option, while ridden with flaws and unknown side effects, is intriguing because of its low cost and the ability for one or a few nations to geoengineer the planet without cooperation from others. I argue that norms to govern deployment of geoengineering systems will be needed soon. The standard instruments for establishing such norms, such as treaties, are unlikely to be effective in constraining geoengineers because the interests of key players diverge and it is relatively easy for countries to avoid inconvenient international commitments and act unilaterally. Instead, efforts to craft new norms ‘bottom up’ will be more effective. Such an approach, which would change the underlying interests of key countries and thus make them more willing to adopt binding norms in the future, will require active, open research programmes and assessments of geoengineering. Meaningful research may also require actual trial deployment of geoengineering systems so that norms are informed by relevant experience and command respect through use. Standard methods for international assessment organized by the Intergovernmental Panel on Climate Change (IPCC) are unlikely to yield useful evaluations of geoengineering options because the most important areas for assessment lie in the improbable, harmful, and unexpected side effects of geoengineering, not the ‘consensus science’ that IPCC does well. I also suggest that real-world geoengineering will be a lot more complex and expensive than currently thought because simple interventions—such as putting reflective particles in the stratosphere—will be combined with many other costlier interventions to offset nasty side effects.

Paul Collier, Gordon Conway, and Tony Venables: Climate change and Africa [PDF]
Abstract: The impact of climate change on Africa is likely to be severe because of adverse direct effects, high agricultural dependence, and limited capacity to adapt. Direct effects vary widely across the continent, with some areas (e.g. eastern Africa) predicted to get wetter, but much of southern Africa getting drier and hotter. Crop yields will be adversely affected and the frequency of extreme weather events will increase. Adaptation to climate change is primarily a private-sector response and should involve relocation of people, changes in the sectoral structure of production, and changes in crop patterns. The role of government is primarily to provide the information, incentives, and economic environment to facilitate such changes. Adaptation will be impeded by Africa's fragmentation into small countries and ethnic groups, and by poor business environments. On the mitigation side, there is a need to design emissions-trading frameworks that support greater African participation than at present, and that include land-use change. Mitigation undertaken elsewhere will have a major impact on Africa, both positive (e.g. new technologies) and negative (e.g. commodity price changes arising from biofuel policies).

Jiahua Pan, Jonathan Phillips, and Ying Chen: China's balance of emissions embodied in trade: approaches to measurement and allocating international responsibility [PDF]
Abstract: International trade is characterized not only by the flow of capital and goods, but also by the energy and emissions embodied in goods during their production. This paper investigates the evolving role that Chinese trade is playing in the response to climate change by estimating the scale of emissions embodied in China's current trade pattern and demonstrating the magnitude of the difference between the emissions it produces (some of which are incurred to meet the consumption demands of the rest of the world) and the emissions embodied in the goods it consumes. Estimating China's emissions on a consumption rather than a production basis both lowers its responsibility for carbon-dioxide (CO2) emissions in 2006 from 5,500 to 3,840mtCO2 and reduces the growth rate of emissions from an average of 12.5 per cent p.a. to 8.7 per cent p.a. between 2001 and 2006. The analysis indicates that a reliable consumption-based accounting methodology is feasible and could improve our understanding of which actors and states are responsible for emissions. For example, recent emissions reductions by developed countries may lack credibility if production has merely been displaced to countries such as China. Moreover, in the current institutional context, production methodologies encourage leakages through trade that may do more to displace than to reduce emissions. Both equity and efficiency concerns therefore suggest that emissions embodied in trade should receive special attention in the distribution of post-Kyoto abatement burdens.

Ross Garnaut, Stephen Howes, Frank Jotzo, and Peter Sheehan: Emissions in the Platinum Age: the implications of rapid development for climate-change mitigation [PDF]
Abstract: Rapid global economic growth, centred in Asia but now spread across the world, is driving rapid greenhouse-gas emissions growth, making earlier projections unrealistic. This paper develops new, illustrative business-as-usual projections for carbon dioxide (CO2) from fossil fuels and other sources and for non-CO2 greenhouse gases. Making adjustments to 2007 World Energy Outlook projections to reflect more fully recent trends, we project annual emissions by 2030 to be almost double current volumes, 11 per cent higher than in the most pessimistic scenario developed by the Intergovernmental Panel on Climate Change (IPCC), and at a level reached only in 2050 in the business-as-usual scenario used by the Stern Review. This has major implications for the global approach to climate-change mitigation. The required effort is much larger than implicit in the IPCC data informing the current international climate negotiations. Large cuts in developed country emissions will be required, and significant deviations from baselines will be required in developing countries by 2020. It is hard to see how the required cuts could be achieved without all major developing as well as developed countries adopting economy-wide policies.

Bottom Line: You have to subscribe to read the articles (so much for encouraging discourse!). If three+ people ask me (comments/email) to get an article, I'll put it in a public place. Download, read, share, think, write, learn.

21 November 2008

Famous Last Words

I'm extensively quoted in this story:
Zetland went on to say that water managers are “creating” the next shortage.

"What are water managers doing? They’re telling people that they’d better use less -- or face rationing," he said. "So, business as usual. Too bad, because that won’t work… It is the engineers and the DWR that screwed up."

“I wish we were that clever,” Martin said.
My (not obvious at first reading) point is that people will not conserve when they are told to. Instead of trying something different (raising prices, e.g., 40% higher increasing block rates, which is not what I said but not too bad), DWR and "the engineers" will just impose rationing, which is costly to businesses and farms that prefer to pay more over getting cut off.

The quotation from Martin (DWR's drought person) is pretty ironic revealing. Is Martin admitting that DWR is not clever enough to come up with an alternative to rationing? Let me help them out...

Bottom Line: Raise urban prices; allow Statewide trading.

Wildfires and Water Use

Over 1,000 houses have burned in Southern California, and contributing factors include an environment under stress and an uncooperative climate.

If there's less water around, vegetation will be drier and more vulnerable to fires. If weather is hotter, the fires are more likely and more likely to spread.

Despite this rather simple logic, scientists quoted here say there's not enough statistical evidence to connect fires to climate change.

That's actually bad news. If the fires are being driven by local habits, then things are really going to get worse when climate change makes things worse (more heat, less snowpack, rain shifting north, etc.)

This piece does a good job slamming Californians for making things worse in two ways -- by abusing groundwater resources and contributing to climate change. (True.)

Bottom Line: As ye sow, so shall ye reap.

In Defense of Ethanol

Two days ago, I criticized the corn ethanol program for increasing food prices (I also dislike it because it subsidizes one crop with a heavy environmental footprint to produce fuel that's probably doesn't even reduce overall carbon emissions.)

In response to the points in that post and a conversation we had last weekend, Ben Ho, an assistant professor at Cornell and former economist (2006-2007) at the Council of Economic Advisers, wrote this post.
Ethanol is an immensely complicated issue that requires a detailed institutional background to fully appreciate, and those with a little bit of knowledge often jump to wrong conclusions.

On the Benefits of Ethanol.
The environmental benefit of ethanol has been hotly disputed over the years. Various studies have found various things over the years as is typical in science (a recent study finds that 1/3 of the most cited publications in a top medical journal are refuted in just a few years). A meta-analysis of all of these papers shows a clear time trend. Newer studies show greater benefits. The reason for this is simple. While the environmental benefits from corn-based ethanol are arguably small today, they will only grow in the future. Corn yields have been increasing steadily for decades, and there is every reason to expect that to continue. Thus we should get more ethanol per environmental cost each year. Furthermore, new enzymes are being developed again to get more ethanol from the same amount of corn, thereby further increasing the amount of ethanol per given input.

All of this also does not account for the possibility of more dramatic technological shifts that subsides make possible. Current car engines are tuned for gasoline from oil. However, engine tuned for gasoline from ethanol could lead to 25-30% increases in engine efficiency. Furthermore, the infrastructure being developed is helping to pave the way for new biofuels, like biodiesel and cellulosic ethanol that have substantial and already demonstrated environmental benefits.

Finally, environmental analyses ignore the other benefit of ethanol, which is a diversification away from oil consumption. Much of the problem in the oil markets comes from the monopoly power of the oil industry given the lack of substitutes for oil. By helping develop a viable substitute, there are immense gains beyond just the environment, for example, dampening the geopolitical power of OPEC, and alleviating the resource curse in the Middle East.

On the Ethanol Subsidy.
Many people wrongly assume that the government specifically subsidizes only corn based ethanol. In fact, regular ethanol gets a 51 cent per gallon subsidy, biodiesel gets around 80 cents, cellulosic ethanol gets over $1. Other fuels get subsidized in their own way. And in fact a system of mandates and other tax credits makes total subsides substantially higher and substantially more complicated.

This is not an ideal system. A carbon tax would be much simpler that would replace this myriad of complicated and overlapping policies. But we do not live in an ideal world. So on the simple question of whether we should repeal the ethanol subsidy, we go back to the tools of cost benefit analysis (something I used to teach back at Stanford).

What are the costs of a subsidy? The subsidy is effectively just a transfer from one American to another, so the cost is only the cost associated form the distortions to the economy from raising that 51 cents. A large literature estimates the cost of raising 51 cents to be around one quarter of that, or around 12.5 cents. Is that worth it?

It is first worth noting that mathematically, a subsidy on a good works exactly the same way as a tax on a bad. So if you believe we should increase gasoline taxes by 51 cents, then you should support a 51 subsidy for ethanol.

The benefits of an extra gallon of ethanol are hard to quantify, but if you add it up (the small environmental benefit, the impact of geopolitics, the fostering of technological innovation, the support of an agricultural lifestyle) it is actually fairly easy to find benefits far outweighing 12.5 cents.

Again, subsides for ethanol is messy ugly kludgy policy. But absent a comprehensive gasoline/carbon tax, repealing the subsidy could be even worse.

On the Ethanol Tariff
Many people (including free-market economists) decry the 54 cent tariff on imported ethanol, without really understanding the institutional background for the tariff. First of all, most imported ethanol falls under various free trade agreements that makes them exempt from the tariff. Second of all, while it is true that we place a tariff on Brazilian ethanol, Brazilian ethanol also enjoys the 51 cent subsidy, hence leaving Brazilian ethanol producers no better or worse off than in a free market environment. The main purpose of the tariff is just to make sure only American ethanol producers get the subsidy.

Whether this is fair from a global justice perspective is debatable but from a standard economic cost-benefit analysis, it is eminently reasonable. Recall that a transfer between two Americans is not considered an economic cost from the point of view of America since it has no net effect on American social welfare (only the dead weight loss of raising the taxes is considered a cost). However, a transfer from American tax payers to a Brazilian producer is considered a cost.

On Ethanol and Food Prices.
It is incredibly difficult to estimate the impact of biofuels on food prices. This is why most respectable economists decline to give exact numbers. I was asked to do such an analysis for the White House in 2007, and found that drought and crop failure combined with rising energy costs (a major input in production) and increased meat consumption in places like China, account for a far larger share of the price increase. This may have changed in 2008 (though I doubt it), though either way, the argument seems strange to me.

I find it incredibly odd that the same economists (like those at even Oxfam) who have for years been decrying farm subsides for depressing food prices and therefore hurting developing world farmers are today decrying biofuel subsides for increasing food prices. It is hard to say whether the developing world would prefer lower or higher food prices, though one would think that since developing countries tend to have a comparative advantage (note I said comparative, not absolute advantage) in agriculture (seen by the fact that they devote most of their labor force to agriculture), then increasing food prices leads to a favorable shift in their terms of trade, which means it should be good for developing countries overall (yes it hurts the non-farmers in these countries, but it helps all of the farmers who tend to out-number the non-farmers, leading to a net gain).

20 November 2008

The Water Ecosystem

This GIO post comes from Singapore, a place where recycling water (yep, toilet to tap) is old hat:
The intricacies and interdependencies of the world’s water systems have come into shocking relief in just the last few decades. Rivers that are damned and drawn down never reach the sea, creating massive repercussions to oceanic ecosystems and impacting fisheries and food supplies. Runoff from agricultural and domestic land uses of freshwater remake entire coastal zones in a matter of years. Groundwater aquifers are invaded and spoiled by seawater in coastal municipalities, necessitating drastic and urgent action to protect the drinking supply.

The list goes on. Up to now, we had been calling these points of intersection between fresh and salt water systems “convergence.” But in truth, this is not the right word at all, for these systems were never divergent in the first place. They are, of course, all part of the same closed system, and any action taken against one will invariably have a major impact on the other.
In a more recent post from Rio de Janeiro, the GIO team points out the FACT that all water (and water issues) are local. (Readers may recall a poll where the most popular "management scale" was at the watershed level. Same idea.)

Bottom Line: Water is an ecological -- not engineered -- good, and its ebb and flow must be considered on a scale that captures the feedback relevant to keeping that system healthy.

Tell Obama Your Environmental Ideas

I got this from Team Obama:
To give you a behind the scenes look at the Transition and provide a window to how the team is approaching climate issues, we filmed this meeting of our Energy & Environment Policy Transition Team and interview with team member Heather Zichal.

Watch the video, then tell us your story, which energy and environment issues are important to you, or what actions you'd like to see an Obama-Biden administration take.
The video says how much they care, but it doesn't have much content. (I also think that they are emphasizing transparency when debating energy to create a strong contrast with Cheney's secret taskforce of industry insiders.)

No matter -- go there and submit ideas to the "change team." (I told them to consider carbon taxes...)

Via other emails (and the news), I am learning that there may be a little too much business as usual in the Obama team. It's hard to say change when you appoint a bunch of past insiders, but it's hard to do change when you appoint a bunch of neophytes. Keep up the pressure for clean government FOR the People.

Bottom Line: It's hard to get good government, but it's harder to get good government if people are not involved.

Recession is Good

I had this email exchange with JB.

JB: I hope that green jobs can help pull us out of this slump...
DZ: The green job thing is BS.
JB: Why do you think the "green jobs" is BS?
DZ: Because they are looking for govt subsidies.

JB: Do you think Pickens is wasting his millions on it too?
DZ: No -- he's lobbying for subsides.

JB: ...and that Congress will help our auto makers.
DZ: Huge waste of $$
JB: If any or all of the automakers fail, even more people will lose their jobs and will likely result in further tanking of the economy?
DZ: Some people will not be able to get new jobs, others will. Jobs in companies that lose money are not productive. When they use tax $$ to stay afloat, they just waste it...

JB: It's good to see oil prices down.
DZ: Nope - bad for our energy policy and move to alternative fuels. They need to raise gas taxes...

JB: What's your prediction for the economy in 2009?
DZ: Spending contraction 6-9 months; investment contraction for longer...

JB: DJIA closed below 8000 today.
DZ: People are adjusting to a different era, with different profits. It's all about sentiment and prospects. We need a good recession to shake out the bad companies. Remember that life isn't about constant increases in the DJIA.

Bottom Line: There's a reason that (honest) economists do not get elected as politicians -- they do not do well with the "people are suffering, do SOMETHING" version of life. Instead, they concentrate on what works for the whole economy, society, etc. That's not popular with voters (who want to feel that they will be taken care of) or lobbyists (who are taken care of).

More on CAFOs

BB asks:
I am doing research on the support of CAFO's by the federal government. I understand that there are direct subsidies given to concentrated farms (EQIP, etc.), but those subsidies seems minimal relative to the indirect grain subsidies that CAFO's receive. If Obama were to substantially decrease indirect subsidies to CAFOs, do you think that would send CAFO's packing, and create a transition to a mid-size or sustainable farming community in America?
I said:
I think that land use/water quality drives the CAFO phenomenon, i.e., if there was a limit on waste/wastewater generation then there would be fewer CAFOs. Obviously, this is a regulatory/property rights issue -- and I think that CAFOs exist mainly because there is a gap in the law that does not prevent their concentration.

More expensive food would not change the scale economies of CAFOs...
What do you all think?

Addendum: USEPA finalized a revised rule for protecting surface water quality by controlling discharges from CAFOs. [no mention of groundwater]

Cutting Fat or Muscle?

A guest post from JWT...

Let's start with Pacific Institute's report. It says we could save 3.4 million AF by installing drip irrigation. At $1,000 AF, that would cost something like $9 billion.

The governor has demanded a 20% reduction in urban water use. Currently, all urban water use is about 9 million AF, so a goal of 1.8 million AF is being set.

So far, most everybody agrees with these numbers. But how much is it going to cost to realize those 1.8 MAF of water savings? No reasonable person can argue that those savings are going to come from taking a shower with a friend. The savings are going to have to come from changing the use of water in the house, and that means mechanical changes.

Here are what I judge as typical costs, not counting installation, for making those changes. These are rough estimates after reviewing prices at Lowe's, Home Depot, Sears and Best Buy.

Low flush toilets2 @ $385 each $770
Low flow shower heads 2 @ $ 15 each $30
Water saving dishwasher
Water saving washer
The state says that there are 12,100,000 households in California today. If every household made the changes suggested above in order to reach the 20% saving the governor is requiring, the cost would be something like $60 billion!

You can slice, dice and quarrel with these numbers just about any way you wish and the answer will still make drip irrigation look like the bargain of a life time!

By the way, on an acre-foot basis, drip irrigation has an initial cost of about $2,600/AF while urban conservation costs about $33,000/AF. (The good news is that both numbers are one time costs as opposed to desal which costs $2,000 to $3,000/AF every year.)

[JWT's] Bottom Line: No matter how you slice it, urban conservation achieved by expenditure of money is a really bad deal.

Addendum: The LA Times reports that drip may not reduce overall water use (plants absorb more, less "waste" means less groundwater recharge), something I pointed out 4 months ago -- after it was pointed out to me, of course :)

19 November 2008

Poll Results -- Consumption Choices

Hey! There's a NEW poll to the right ----->

My consumption of water is MOST affected by
Current supplies of water 23%15
The price of water 11%7
Habit and/or convenience 35%23
Nothing (I use what I use) 30%20
People around me 2%1
66 votes total
So, I made a mistake on this question -- it seems that "Habit and/or convenience" and "Nothing (I use what I use)" are pretty much the same thing. That means that 2/3rds of people pay no attention to how much water they use. (I'm one of them!)

Bottom Line: If water cost more, people might pay attention to how much they used!

Ethanol Smack Down

I got this from a PR person: "On Tuesday, a wide array of organizations came together to call on the next Administration and Congress to repeal subsidies for ethanol in light of its harmful effects on the environment, consumers and numerous industries."

Most of these organizations are food processors worried about higher food prices resulting from the ethanol program. Other organizations are small-government, pro-environment and anti-stupid policies -- a crowd I've joined in prior posts.

The food processors have a point (the ethanol program is leading to higher food prices), and economists have backed them up:

Mitchell of the World Bank concludes that 65 percent of the rise in food prices is due to biofuels policies.

Alex McCalla (Professor Emertus at my old department at UC Davis) says [doc] that there are many factors responsible for higher food prices, but "there should no longer be any question that bio-fuel policy, and the resulting increase in feed stock production, will have a major impact on future food prices."

The FAO takes a diplomatic line, discussing [PDF] the new and significant impact of ethanol/biofuel policies (the US ethanol program absorbs 12 percent of WORLDWIDE corn production), while declining to assign a share of blame for higher prices to the ethanol program. The FAO does note that demand for corn is scheduled to increase as the program is expanded.

In congressional testimony, Joachim von Braun of IFPRI, said "The rapid expansion of ethanol and biodiesel has increased dependency on natural vegetation and crops grown specifically for energy. Biofuel production has also introduced new food-security risks and new challenges for the poor, particularly when resource constraints have lead to trade-offs between food and biofuel production and rising food prices." He provided the chart to the right, which shows the decrease in per capita caloric availability under current and stronger biofuel programs.

Most economists (and me!) think that the biofuel program is harmful to the poor, damaging to the environment and useless for energy security or rural development. (I am hoping to get a guest post from one who disagrees.)

Bottom Line: There's going to be a big fight among lobbyists in Washington. Those favoring ethanol love their subsidies; those against it are right. Stop starving the poor and destroying the environment, end the subsidies, tax carbon and let the market decide!

massive hattip to AA

Teaching Bleg

I got this yesterday:
I teach an undergraduate course on natural resource economics, and I've got somewhere between 1 and 2 weeks currently devoted to water issues. I've been using Tietenberg's chapter on the subject, augmented by a couple of chapters from Haddad's book on California water markets, and the Wikipedia article on Riparian water rights. Any suggestions for a couple of readings that would improve the interest level and the quality of the content? I'd love to have a good non-technical article on aquifer depletion, for example.
I suggest looking through the archives of this blog using keywords (aquifer, McCloud, groundwater, depletion).

While scanning the archive, I realized that we understand things by looking at them from different angles and in different layers. If I were this teacher, I'd tell the students to search this blog (or WaterWired) and then write a one-page summary (with links!) on aquifers, depletion, etc.

If you have suggestions, please leave them in the comments (with links, if possible).