23 September 2009

Markets or Regulations?

Brian Holtz sent me this question:
Hi, I'm wondering what you think of AB 1881 (requiring California towns to adopt a water conservation ordinance by Jan 1 2010), and what you think is the best market-oriented response to it.

The default ordinance imposes elaborate irrigation guidelines and landscape planning requirements on any development significant enough to require a permit.

In my town I'm proposing an alternative of self-water-budgeting plus fees for higher-than-average use and penalties for exceeding your own water budget:

33 pages of irrigation rules would become just this:
  1. Project applicant estimates how much water s/he will purchase in the first 12 months.
  2. If Estimate > average usage in our town (500 units), applicant pays $3 for every unit above that average.
  3. After the 12 months, homeowner documents how many units s/he actually purchased.
  4. If Actual > Estimate, homeowner pays $6 for every unit above Estimate.
  5. If Actual < Estimate, homeowner is refunded $1 for every unit below Estimate.
Feedback and better ideas are welcome. Advocates of market-based water policy in California should cooperate in developing a best-practices response to AB 1881's onerous regulatory requirements.
I have a few reactions:
  • On point (2), users should pay for going above the actual average usage in the next year. "Average" should also be defined per capita. A formula with per capita & per acre (like IRWD's water budgets) would be more acceptable for big landowners, but also give "equal" rights to water for landscaping. I am not a fan of that.
  • Wait. When does the homeowner pay the $3/unit extra in (2)? As a deposit against future use? If so, the "average" would be for past use.
  • There's no need for number (3), since the water utility can do that accounting.
  • If you want to REALLY turn down the screws, publish everyone's budget vs. actual. Shame can be a great motivator.
Bottom Line: General principles are more flexible (read: more efficient and more "human") than specific regulations. Since we are concerned about overall water use (not HOW that water is used), it makes more sense to use general rather than specific guidelines.

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