31 May 2009

Weekend Discussion: Tradeoffs

NOTE: This post will stay here until Sunday night. Posts for Saturday and Sunday morning go below this post.

Dear Aguanauts,

Discussion posts allow you to discuss a topic among yourselves -- exchanging views, learning and teaching. (I only read the comments.)

If you are interested, take a moment to check out (and add to!) last week's discussion on California's economy. After that, please give us your thoughts on...

Paying higher taxes (on carbon, etc.) to restore the environment. Do we miss the money as much as we appreciate the renewed environment? Do businesses lose from our lower consumption? Do governments spend the money wisely?

Happy Birthday to My Dad!

I flew down to see my dad for his birthday.* We have many interesting conversations (see this and this prior post), and yesterday we talked about the similarity of people with left-wing and right-wing political views, i.e., how both of them want to control government so that they can tell everyone else what to do.

This goal is not only imperialist and condescending, but it is also unfair and inefficient. It is unfair because someone is telling you to stop doing something you like but they do not (e.g., pre-marital sex or driving big cars). It is inefficient because the policies that they impose fail to consider others' set of preferences (e.g., trade with the world or stop polluting it). While it's obvious that many government policies are required to overcome problems of collective action, it's also obvious (to me) that many do not and that those that do tend to be implemented with a "you do this" instead of a "we discourage this" mentality.

That's why I am a libertarian -- I want to maximize individual freedom while minimizing collective authority.

So, that's just another example of the kinda stuff I discuss with my dad. I love him for that, and I love him for being my dad.

Bottom Line: Happy 76th -- and many more!
* The plane was 25 percent full. No marginal impact, no need to worry about buying carbon offsets. Right?

What is Economics?

Lynne Kiesling answers that question here, but here's my answer:
Economics is about incentives and behavior and how they interact.
What's yours?

Money Grabs

via JT, I learn that more states are adding deposits to plastic bottles of water:
"States are looking at this as a money grab,' said American Beverage Association spokesman Craig Stevens. "What we support is comprehensive curbside recycling." The expansion of bottle bills increases difficulty for convenience stores dealing with returns and storage, says Jeff Lenard, spokesman for the National Association of Convenience Stores."
Who loses? Manufacturers and retailers who sell less. (Curbside recycling costs them nothing.)

Who wins? The environment (a little -- depending if "indulgences" lead to more or less consumption/litter) and those who collect bottles for return. Judging by the scavengers who hit our recycling bin 3-4x before the truck arrives, I'd say that poor people benefit. The states also benefit from uncollected deposits.

What about consumers? They pay more, but they pay a 5 cents/bottle indulgence that allows them to consume and toss without guilt.

Bottom Line: Nothing is as easy as it looks.

Speed Blogging

  • Oil prices are going to go up again.

  • Larry King made me realize how success as a human is merely a question of accepting yourself.

  • A 2004 article on aquifer mining in the Middle Rio Grande. Flood irrigation good, selling water rights to cities bad.

  • "The Little Hoover Commission is reviewing governance issues around the supply and management of water resources at the state level, including the interrelated roles of different state agencies and recommend improvements, if needed, that would strengthen governance and increase efficiency, transparency and accountability."

  • "This article exposes the United States government's role in blocking the disbursal of millions of dollars in international bank loans that would have had life-saving consequences for the Haitian people... The data reveal that Haitians experience obstacles concerning every aspect of the right to water: difficulties with water availability, limited physical and economic accessibility, and poor water quality... In response to the undeniable link between the international community's political interference and the intolerably poor state of potable water in Haiti, the article concludes with a recommendation that all actors in Haiti follow a rights-based approach to the development and implementation of water projects in Haiti."

  • Uh oh... (a continuing series): "In the first global assessment of the distribution and condition of bivalve shellfish reefs, researchers looked in almost 200 places and found that oyster reefs were at less than 10% of their historical abundance as measured by records dating back between 20 and 130 years. They also found a number of reefs to be “functionally extinct”. In other words, there were so few oysters left that they were unable to form a reef. The researchers estimate that 85% of oyster reefs have been lost over the past 150 years."

  • "After years of reluctance, scientists and governments are now looking to adaptation measures as critical for confronting the consequences of climate change. And increasingly, plans are being developed to deal with rising seas, water shortages, spreading diseases, and other realities of a warming world."
hattips to CC and DW

30 May 2009

The Poor Pay More

via TS, we get another example of the poor getting less water for more money in Peru:
Local residents of the shantytown pay 3.22 dollars per cubic metre of water, compared to just 45 cents of a dollar that is paid a few blocks away, across the main avenue, in Rinconada del Lago, one of Lima’s most exclusive neighbourhoods.

[snip]

In late March, the president signed into law a bill on water resources that is aimed at putting an end to the problem caused by the fact that up to nine cabinet ministries are involved in decision-making on water.

[snip]

Like in Peru prior to passage of the new law, Bolivia and Ecuador "are governed by decrees on specific water management issues that apply throughout the entire country, and that do not take into account the diversity of the regions which each have a dynamic of their own, and that ignore rural or community irrigation systems," said Rojas.

"There is a clear lack of integral policies that would give visibility to local communities," she said.

According to the office of the national ombudsperson, many social conflicts break out when mining and oil companies use water resources without authorisation from local communities.
While I agree that politicians often conspire against communities in taking water from people and giving it to companies, I do NOT think that this result should be used to condemn private companies that engage in water provision. As I wrote in this review, the private companies can do the same as or better than public companies. The issue is not private or public, but community oversight of the water provider AND the politicians who contract with them. And -- as usual -- local control is the best way to ensure that institutions serve local needs.

Bottom Line: The poor will get richer when they have power (in court, in polls, in markets) over those who would exploit them.

Flashback: 23-30 May 2008

These posts are STILL relevant, so please comment (I'll approve them ASAP.)

BEST: What is Aguanomics?: Philosophy, book suggestions, etc. Also read about Elasticity of Demand.

USAID Harms The Poor: I'm shocked, shocked! WaterAid, OTOH, does not. Why? They do what locals want.

BEST: Was Julian Simon Right about the Wrong Thing?: A guest post at env-econ where I clarify that the real constraint is the environment, not natural resources. Also see this post on Malthus and Carbon Trading.

USDA Sees the Light?: They agree that anthropomorphic climate change is happening.

BEST: Photogenic Losers and Fat Cats: IID lobbies for special treatment. Also see Water is Valuable! on how IID is offering its farmers too little money for the water it sells to cities for 3x the price and Fat Cats or Skinny Cats? on how water managers serve themselves instead of their constituents.

29 May 2009

Somewhere in the Middle

I often tell people that I am an "equal-opportunity critic" of any view or group in the water business. For me, it's important that we debate things, and MORE important that we consider others' opinions and perhaps change our own to reflect good arguments, analysis, facts, etc. (That's why we have the weekend discussions AND why I never comment in your discussions there. BTW, email me any new topics to debate.)

Since I know both Jeff Michael and Dick Howitt, I have had quite a little ride between their perspectives on the water-jobs debate. In the last few days, I spoke to both, and here's what I just emailed to Jeff:
Howitt is frustrated that you do not appear to be taking marginal effects into account (in theory, a reduction in water > reduction in output > reduction in jobs), but we argued back and forth on the substitution between water and labor (vs. capital, which is expected). More important, to me, is that bias that he may be subject to by looking at a few farms in Westlands. The macro picture may be more diverse.

In the end, I think you make a good point about "where are the lost jobs?" and he makes a good point about "less water WILL reduce output..."

Overall, I am always skeptical about farmer complaints. They, like taxi drivers, can always use more water, money, etc.

The bigger problem is that various interest groups are using your various results to advance their agendas. Agendas that often have little respect for the other side or nuance on interpretation...
One clarification: the substitution between water and labor works as follows: if there is less water, hire more people to spread it more efficiently. Although some of you may imagine workers with watering cans replacing flood irrigation, I mean workers managing drip :)

Bottom Line: If you want to help unemployed workers, give them money. If you want to help farmers, give them water. If you want to "create jobs," then don't bother. Managed economies are dead economies.

Speed Blogging

  • Where America's cities get their water. Compare Chicago (100% from 0 miles away) to Los Angeles (88% from 130+ miles away)

  • There are LOTS of good presentations from the Water Education Foundation's "2009 Urban Drought Workshops: Managing the Crisis" posted here.

  • DWR takes its whole website down for the Memorial Day weekend. Two observations: (1) "Nobody" cares about water on the weekends and (2) DWR's tech staff has no problem taking a site down for three days. Funny, I never noticed that at Amazon.com...


  • Tight supplies in Colorado: "For years, the state water engineer worked out ad hoc deals with farmers, allowing them to pump their wells without replacing water required by the law. There was enough to go around, and senior rights holders were satisfied...In 2003, the state Supreme Court ordered the engineer to force individual farmers to adhere to the law to satisfy the needs of senior rights holders." The farmers with junior rights are now going out of business.

  • The CVPIA Independent Review says: "In 1992 Congress directed the Department of Interior to develop and implement a program that makes “all reasonable efforts” to ensure and sustain on a long-term basis a doubling of the number of naturally produced anadromous fish in Central Valley rivers and streams by 2002. Doubling did not happen by the legislative goal of 2002, or by 2008, nor is it likely to ever occur unless renewed commitments and improvements are made to the CVPIA program...A number of the most serious impediments to survival and recovery are not being effectively addressed, especially in terms of the overall design and operation of the Central Valley Project system."

  • This is your brain on carbon: "...experience of climate change is a relative thing: something happening to another part of your state, or to a different cultural group, doesn’t necessarily warrant a change in your own response. It likewise hinted at the complexity of instilling feelings of climate-related urgency in Americans. If you don’t think or feel there’s a risk, why change your behavior?" That's why I prefer to say "local warming" instead of "global warming." Bangladesh underwater is troublesome, but no skiing is a tragedy!
hattips to MC and JT

Slandering Your Competition

A few weeks ago, I criticized Tara Lohan's post on suicides by Indian farmers, GMOs, agribusiness and globalization as "hack journalism" because she elided from fact (suicides < debt < crop failure < drought) to fiction (debt < GMO seeds < evil Monsanto). That theme was popular with Alternet readers, who never miss an opportunity to criticize capitalism, globalization or corporations. (I believe they give a waiver to those making "useful" things like ipods, Priuses, solar panels, etc... :)

In this follow-up post, Lohan gets straight to "facts" -- by quoting from an interview with Vandana Shiva, PhD. Here you go:
Shiva explains that the suicide epidemic in India is a lot more complicated and far-reaching.

"Rapid increase in indebtedness is at the root of farmers' taking their lives," she wrote recently. "Debt is a reflection of a negative economy. Two factors have transformed agriculture from a positive economy into a negative economy for peasants: the rising of costs of production and the falling prices of farm commodities. Both these factors are rooted in the policies of trade liberalization and corporate globalization." [1]

At the heart of this is a circle of indebtedness that has resulted from the so-called Green Revolution, which exported industrial agricultural practices to places like India and in doing so, made seeds, a once-renewable resource for farmers, into something that had be bought from corporations [2].

[snip]

Tara Lohan: Farmer suicides in India recently made the news when stories broke last month about 1,500 farmers taking their own lives, what do you attribute these deaths to?

[snip]

Vandana Shiva: Squeezed between high costs and negative incomes, farmers commit suicide when their land is being appropriated by the money lenders who are the agents of the agrichemical and seed corporations. The suicides are thus a direct result of industrial globalized agriculture and corporate monopoly on seeds. [3]

[snip]

The first suicide that we studied took place in Warrangal in Andhra Pradesh in 1997. This region is a rain-fed dry region and used to grow dry land crops such as millets, pigeon pea etc. In 1997, the seed corporations converted the region from biodiverse agriculture to monocultures of cotton hybrid. The farmers were not told they would need irrigation. They were not told that they would need fertilizers and pesticides. They were not told they could not save the seeds. The cotton seeds were sold as "White Gold," with a false promise that farmers would become millionaires. Instead, the farmers landed in severe unpayable debt. This is how the suicides began.[4]

[snip]

TL: How has the Green Revolution changed things for farmers? Is the most significant change in the ownership of seeds by corporations?

VS: The Green Revolution was the name given to the introduction of chemical/industrial farming in India in 1965-66 under the pressure of the U.S. government and World Bank.[5]

[snip]

TL: What should the government of India be doing, and what can the world community do?

VS: The government of India should be playing a major role in public seed supply. Before Monsanto's entry, 80 percent of the seed used to come from farmers' own fields, and 20 percent came from government seed farms. Under privatization, government seed breeding has been wiped out. Seed is a public and common good, and hence seeds should stay in the hands of farming communities and public-sector institutions.[6]

[snip]

At the international level, the world community needs to defend seed as a common good and build a strong movement against seed patents and seed monopolies. People can also contribute to Navdanya's Seeds of Hope Campaign.[7]
Got that? Now, let's address these claims (by the numbers in brackets):*
  1. Trade liberalization -- through competition -- lowers BOTH the cost of inputs and price of outputs. Although agribusiness corporations do their best to exert market power both upstream and downstream of farmers (as with US corn farmers), this squeeze can be averted by switching crops (something Shiva advocates). Why don't the farmers switch? Because they can make more money with industrial methods. So are they committing suicide because of low profit margins? No, they are in trouble because they are spending more money than they are making, i.e., debt. Besides this obvious reason to commit suicide, there are other causes of their low income. For example, Government of India policies -- price controls on output and poor ground water management (no rights, subsidized pumping, etc.) -- that make it harder to make profits.
  2. This claim is ridiculous. Farmers are NOT required to buy their seeds from Monsanto. They can use their traditional seeds.
  3. This claim ("money lenders are agents...) is not only silly but slanderous of those corporations. The money lenders are in the business of making money. If anything, they do not want farmers to get into so much debt that they lose their land/lives -- they want their MONEY back. Shiva's connection of money lenders with globalization is laughable. I am "subject to the forces of globalization," but I am not committing suicide. Why not? Because I am NOT IN DEBT.
  4. This claim implies that farmers are stupid. After all, why would they keep doing something that was "proven" stupid in 1997? If the new seeds were a bad idea, they would have been abandoned in 1998 -- 10 years ago!
  5. I will let National Geographic answer this one:
    In the mid-1960s, as India was struggling to feed its people during yet another crippling drought, an American plant breeder named Norman Borlaug was working with Indian researchers to bring his high-yielding wheat varieties to Punjab. The new seeds were a godsend, says Kal­kat, who was deputy director of agriculture for Punjab at the time. By 1970, farmers had nearly tripled their production with the same amount of work. "We had a big problem with what to do with the surplus," says Kalkat. "We closed schools one month early to store the wheat crop in the buildings."

    Borlaug was born in Iowa and saw his mission as spreading the high-yield farming methods that had turned the American Midwest into the world's breadbasket to impoverished places throughout the world. His new dwarf wheat varieties, with their short, stocky stems supporting full, fat seed heads, were a startling breakthrough. They could produce grain like no other wheat ever seen—as long as there was plenty of water and synthetic fertilizer and little competition from weeds or insects. To that end, the Indian government subsidized canals, fertilizer, and the drilling of tube wells for irrigation and gave farmers free electricity to pump the water. The new wheat varieties quickly spread throughout Asia, changing the traditional farming practices of millions of farmers, and were soon followed by new strains of "miracle" rice. The new crops matured faster and enabled farmers to grow two crops a year instead of one.
    Seems like there were others involved, huh? (Also note that the Green Revolution contributed to further population growth and strain on land and water resources -- perhaps merely delaying the Day of Reckoning; read more in that NG article.)
  6. Seeds are private goods. Although seed genomes are "club goods" -- non-rival but excludable -- the genomes can be maintained and distributed from seed banks. I support that idea, but I do NOT support government control of ALL seeds.
  7. This is Shiva's organization. Although it probably does good work, I can see why she would want to run down her competition: Global GMOs, Inc.
Bottom Line: Once again, I find this storytelling to be partial, biased and illogical. All I ask is that Shiva et al. consider ALL possible factors -- not just those that suit their ideological (and perhaps financial) narrative.
* DF suggests that Shiva fans consider this scenario:
Yes, there is a loss of village self sufficiency when farmers find that they can purchase certain inputs from outside the community at lower costs but should we limit the farmers' rights to obtain more productive seeds and equipment just to preserve that idealized vision of village self sufficiency?

Yes, hybrid seeds and chemical fertilizers and adoption of GM varieties used in order to increase production per hectare and per farmer will lead to major changes in traditional agriculture practices and even long established patterns of social interaction but who among us would prefer the alternative of lower production per hectare and the consequent necessity of having to increase the number of hectares under cultivation by further draining of wetlands, cutting of woodlands, encroachment of tribal areas, and short lived cultivation of arid lands by mining of groundwater?

Yes, increases in productivity per farmer will inevitably lead to fewer on-farm jobs for the growing rural population thus forcing many in the next generation to seek off-farm employment either in villages or cities. Would the average person in India really be better off if we sought to ban all equipment that increased productivity (sewing machines, power looms, etc.)?

Yes, there are well documented horror stories describing what happened when the Imperial British forced Indian farmers to abandon subsistence agriculture in order to plant indigo and sell it to the East Indian Company at monopsony prices.

And yes, it is undoubtedly true that there are unscrupulous salesmen out there that exaggerate the benefits (and underestimate the costs) of their goods and services.

Is it your recommendation that because of these past sins that we forever limit farmer's rights to adopt new technologies and learn new skills or should we provide better education for the farmers and their children so that they can make better choices for themselves?

28 May 2009

Bureaucrats vs Markets

This AWWA post discusses the failure of California's Drought Water Bank. Why did it fail? High rice prices? Environmental problems? BurRec barriers? Nope.
But even as more supply has become available, there has been less demand than expected, as buyers from the water bank must pay the state's administrative expenses and the cost of moving the water they purchase — on top of the $275 per acre-foot ($223/ML) base price.

Geimer says the Water Bank will probably move about 80,000 acre-feet (98,000 ML) this year. The original target was around 600,000 acre-feet (740,000 ML).

That leaves water suppliers farther South in the unhappy — if by now all-too-familiar — position of scrounging around for water and waiting for a resolution to Delta water issues.
The problem is this: DWR did not establish a real market (despite promising to!) where price would fluctuate above/below its arbitrary, bureaucratic level of $275/af.

Bottom Line: Don't blame the farmers for a lack of supply or demand, blame DWR for preventing the market from operating.

Please Comment on My Paper on the Delta

The Journal of Contemporary Water Research and Education (a publication of the Universities Council on Water Resources) has asked me to write a paper about water transfers, with a specific focus on the Delta.

I have posted a SECOND draft of the paper here [pdf].

If you have the time (and inclination) to make any comments, I would be grateful.

In particular, I am interested in errors, omissions, misjudgements and mischaracterizations.

Please leave comments on the paper as comments to this post. (It is possible to leave anonymous comments!) That will save others the effort of pointing out mistakes that you have already found. Please also use the line numbers included in the pdf to make it easier for us to communicate.

Also note that the paper is due next Monday (June 1), so you need to act quickly if you want me to consider your thoughts. (Thanks for the thoughts AND acting quickly!)

Tarps on Reservoirs Bleg

One of my engineering friends suggested that it's possible to create water "rights" by covering a reservoir -- as cement lining of an earthen canal can "create" water by preventing it from seeping away. That water, of course, can then be sold elsewhere. (I suppose that Ray would call this "non-tributary.")

Is this a legal way to "create" water? If so, why isn't it done everywhere -- like in LA. Please tell me!

Bottom Line: It's unlikely that you will find $10 on the road, i.e., "if it's too good to be true, it is."

Simulations vs. Reality

If you haven't been paying attention to the ag-water-jobs debate, here's an update.

In January, Howitt et al. published an academic study -- a simulation -- that estimated 60,000-80,000 job losses would result from the reduction in water exports from the Delta. (I went to Firebaugh to find out how it was looking on the ground. Their unemployment was at 40%, but that was one data point.)

Howitt, btw, is my adviser; I'm having a beer with him later today. (I hope he doesn't mind this post :)

Importantly, the simulation took a reduction in water supply, ran it through a crop optimization model, and then ran that estimate through an economic model that imputed lost jobs from the reduction in gross crop value.

Put differently, this back-to-back simulation is like hitting the cue ball (water) to the red ball (crops) to the striped ball (economic output) to the green ball (jobs). Can a simulation tell you where the green ball is going? Sure -- as long as each hit is perfectly on target, the consistent-friction surface is flat, and the spin off the pool cue is neutral.

Of course, things can go wrong. Imagine that you were playing pool with balls that changed shape when you hit them, on a table that was lumpy and vibrating, with a warped cue stick that changed length on every shot. Oh, and you are blind in one eye...

Nevertheless, simulations are a good way of thinking of how things fit together, and they give you an idea of the relative magnitudes of responses. (Note, of course, that those magnitudes are often specified in advance, when the parameters are given.)

So, taking these shortcomings for granted, how useful are simulations in the real world? Well (as the saying goes), it depends on who's paying...

Simulation results are often used in arguments over policies, laws, regulations, etc. when people are trying to understand the implications of actions. The trouble begins when they put too much weight on the results, and that trouble often begins because people want to believe the results.

So what are the results so far?

According to California's Employment Development Department [XLS], year-on-year farm employment (April 2008 to April 2009) is up by 4,900 (or 8.7%) in the eight south of Delta counties.* For the entire State, it's up by 9,400 (2.5%). Against two and three years ago, the numbers are also up.

Put differently, there is no sign of 60,000-80,000 lost jobs. (Non-farm employment is MUCH worse, down 31,000 in the eight counties and 687,000 for the entire State.)

I have no trouble concluding that the south-Central Valley is better off and that -- inside this area -- farm workers are better off relative to non-farm workers.**

But the political wheels have not been waiting around for real data. In this post, I note the grandstanding of politicians claiming that their districts are going to dry up and blow away if the water is not turned on. In this post, I discuss how the "farmworkers march for water" was more about land owners.

The mayors of San Joaquin and Mendota have resorted to ad hominem attacks against those who do not support their view that water will make their economy recover.
Claims that unemployment is not connected to drought are, in our opinion, a challenge to our honesty. That is why we have to stand up and describe the reality of the situation in defiance of those who would prefer that we just go away. We will not let someone unfairly label us because we are Latinos and are not from some privileged class.
Now the mayors are referring to this op/ed by Jeffrey Michael, who looked at the numbers:
Since the drought began three years ago, Fresno County farm payrolls have increased by 12 percent, while nonfarm employment has crashed, led by a loss of more than 7,000 construction jobs.

In light of these statistics, how can water exporters, politicians and others claim that rising unemployment in the Valley is a result of water shortages for farms rather than the broader recession? The foreclosure crisis is at the heart of the recession, and the Central Valley has the highest foreclosure rates in the United States. Homebuilding has shut down, and service sectors have cratered, costing many former farmworkers their higher paying, nonseasonal jobs.

Water contractors point to 40 percent unemployment in Mendota as evidence of the water crisis. These unemployment estimates for towns aren't a current survey, but are crude extrapolations from the 2000 Census, the last time any real data were compiled for these areas.

The 2000 census gives a good picture of the prosperity that increased water pumping would bring to Mendota's hard-working residents. Delta water exports were above average in 2000, and local farm employment was at a nine-year peak. Despite this, the 2000 census found unemployment in Mendota exceeded 32 percent, highest of the state's 494 towns.
I agree with this assessment -- especially as it is the conclusion that Michael draws from real data. (And, yes, I am a micro economist talking about macro issues, but I surely understand markets!)

In a development that is probably NOT coincidence, Judge Wanger ruled last week that
The human residents of the Central Valley must be taken into consideration when the federal government comes up with water allocation rulings to protect an endangered fish.
I wonder if the judge had the employment statistics at hand when he made his decision -- or was he listening to the people telling stories of how they were suffering?

(Interestingly, Senator Feinstein reintroduced a bill relaxing restrictions on seasonal farm workers. Either she agrees that there are plenty of jobs for new workers OR she wants to make it easier to bring NEW workers to different places -- leaving the current "unemployed" workers stranded, complaining about the lack of water! Either way, the bill will help farmers -- the same farmers who want the water to flow to their farms, and the same farmers who have given DiFi millions in campaign contributions.)

Bottom Line: Political and judicial water allocation is fraught with difficulty. When it's THAT easy to take water from one person and give it to another, you can be sure that mistakes in allocation will be made. That's why I favor markets. They allocate based on willingness to pay, not willingness to contribute to a re-election fund or willingness to grandstand on camera.
* Stockton country is more in the Delta than south of the Delta, but let's let that slide.

** As a rule, farm workers are not absolutely better off, but here, they are relatively better off.

27 May 2009

Metropolitan Water Pricing FAIL

There have been many stories in the press about the 40-50 percent price increases that the Metropolitan Water District of Southern California (Met) is imposing on its wholesale customers (e.g., LADWP, SDCWA, West Basin Water District, Long Beach and 22 other agencies). These price increases are coming with (related) decreases in delivery quantities.

Here's why Met is making these announcements:
  1. Most of its costs are fixed, e.g., Met must pay DWR for 100% of its contracted water rights in the SWP -- even when DWR is only delivering 40% of its "obligations."
  2. Met is buying more supply from other areas (e.g., the PVID deal @ $340/af), which raises its average cost of water.
  3. With less quantity at higher costs, Met is forced to raise prices on the reduced amount of water it is selling (rather, rationing among its member agencies).
Does Met have any alternative to this "system"? Yes. First, let me point out two things that I learned while I was writing my dissertation on Met:
  1. Met's rationing relies on formulas, and these formulas are subjective and flawed.
  2. Even worse, Met's use of average cost pricing does NOTHING to ensure that supply and demand is equal. Instead, Met threatens member agencies with massive (100% surcharge) price penalties if they exceed their quota.
These facts, taken together, lead me to conclude that Met's price increase/water rationing "solution" is neither equitable nor efficient. Of course, there is another way (as outlined in Section 7.2 of my dissertation):
  1. Met can set aside a "human right" allocation for each member agency (say, 75 gallons/cap/day) based on its population. Met can sell this water at cost.
  2. Remaining water can then be sold -- in an auction -- to member agencies. Agencies that "need" the water more can bid more for it. Since auctions prices are likely to exceed the cost of provision, auction revenue will also cover costs.
  3. The results is that Met will allocate all of its water with equity AND efficiency, cover its costs, and avoid all of the wangling, complaining and lawsuits that it now faces.
Why doesn't Met use this method (very similar to my all-in-auctions idea)? Because the "old way" is the way it has done things since the 1977 drought -- when Travolta was but a young dancing fool... Bottom Line: When times change and/or tools break, it's time to try something different. The citizens of Southern California deserve better than this.

Poll Results -- Doing the Dishes!

Hey! There's a NEW POLL (Voter Power!) to the right ---->
We wash the dishes (most often) with
Cold water 5%3
Cold water and soap 8%5
Hot water 0%0
Hot water and soap 35%21
The dishwasher 52%31
We don't have dishes (paper plates, eat out, etc.) 0%0
As most of you know, a full dishwasher is more-efficient (with water) than hand washing. Besides that observation, I have little to say about these results.

Bottom Line: The only thing better than clean dishes is good food on those dishes!

What's ACWA Doing?

On May 20, a protest was held in Sacramento [press release PDF]:
Hundreds of local water leaders and stakeholders gathered... to call for action on long-term solutions to the state’s water supply challenges.

The rally, organized by the Association of California Water Agencies (ACWA), took place as water agencies around the state confront an array of challenges, including a third consecutive dry year and restrictions on water deliveries to protect fish species in the Delta.

ACWA and its members are urging lawmakers to act on a comprehensive set of solutions that includes investments in the state’s water infrastructure, conservation, ecosystem restoration, water recycling and other strategies.
While I welcome a comprehensive set of solutions (including higher prices and markets, right?), I am not sure that this "populist" protest represents more than PR outreach by the agencies that -- in my mind -- are partially responsible for the mess. (Why? Because they are in charge of water and we have a man-made -- not regulatory -- shortage based on demand exceeding supply.)

My secret informant sent this photo and "report from the field:"
There was no media coverage and a bunch of "water professionals" yelling "what do we want?" "WATER". No Latinos = no media and no governor. Maybe 200 people. What a waste of time. Great idea from ACWA


Bottom Line: I hope that ACWA uses all its new-found desire for change to help the staffers inside the building understand how the new era of water scarcity means that demand-side solutions are necessary.

The Super Ditch

TM sent me this interesting article on the Lower Arkansas Valley Super Ditch Company (SDC), which -- despite its name -- is located in southeastern Colorado. The SDC is a project that allows agricultural irrigators to join together as a cartel in making deals to lease water to cities. The SDC has taken inspiration from PVID, an irrigation district that has been successful in negotiating high prices ($340/af for a one-year lease) to cities.

TM provides this background:
This is a water market that I think you should follow. It hasn't started yet, because of legal stuff, but is moving very fast. Basically they are consolidating almost all of the irrigation ditches in the Arkansas Valley to pool their water, do rotational fallowing, and then auction the water.
Sounds good to me:
  • Short-term transfers? Check.
  • Limited transfers? Check.
  • Rotating costs and benefits? Check.
  • Maximum price? Check.
Bottom Line: Farmers should make as much as possible when selling/leasing their water. If they do not, everyone gets upset, and transfers stop (cf. Owens Valley)

26 May 2009

Justice for Water Hogs?

Amidst all the talk of drought and shortage, there has also been talk of raising prices. Prices are going up for two reasons:
  1. There is less water being sold, so the cost/unit has to rise to cover costs; see this post.
  2. Higher prices are a good way to encourage conservation; see this post.
I've got a lot of email and read several stories [this and this] on the controversy over the attempt to raise prices in the Helix Water District (HWD, down in San Diego county).

In a nutshell, here's the problem:
  • HWD sells a lot of water to people with large lots (1+ acres) that have animals, landscaping, and "irrigated lifestyle" features.
  • HWD proposed an increasing block rate structure per meter that would have added 40-50% to the water bills of people who used the most water -- regardless of lot size or number of residents.
  • A number of residents complained that it was "not fair" if they had to pay "wasteful" rates when they merely suffer from large lots. (Some people worried about "caregivers" -- an uncommon activity that's more emotional than "horseriders.")
HWD was going through the Prop218 process of notification and public hearing before raising rates from these prices:

Tier 1 (0-10 units) @ $1.70/unit.
Tier 2 (11-30 units) @ $2.35/unit. (up 38%)
Tier 3 (31-30 units) @ $3.12/unit. (up 33%)

to these ones:

Tier 1 (0-10 units) @ $2.04/unit.
Tier 2 (11-22 units) @ $2.72/unit. (up 33%)
Tier 3 (23-42 units) @ $3.40/unit. (up 25%)
Tier 4 (43+ units) @ $4.52/unit. (up 33%)

Note that these new prices were revised downward from this initial proposal:

Tier 4 (43-59 units) @ $5.10/unit. (up 50%)
Tier 5 (60+ units) @ $6.80/unit. (up 25%)

The rate increases were canceled in response to public outcry and what appear to be failures to comply with public notification guidelines.

The directors backed down, IMO, because they could not justify higher prices as either fair or efficient. The first mistake that they made was to set prices per meter instead per capita. Had they done that, the debate would have turned from "caregiving" to "urban ranching" -- with significantly-different moral implications. (HWD can find the number of people in a house through informal survey and audit mechanism; even though few of us are audited, most of us tell the truth to the IRS.)

The second mistake they made was to basically double rates on the highest (now eliminated) fifth tier. I would have suggested a lower increase and then a waiting period to see if demand was less than supply. If it was, the price would not change. If it was not, the directors could have called for another hearing, to raise prices on people using "more than their fair share" -- after all, humans come before landscaping, right?

In their defense, the directors did point out the inconsistency of charging increasing block rates to residents when irrigation/business/government users "enjoy" flat rates. Here's my suggestion of how to charge them increasing block rates.

The Helix directors will listen to public commments on a proposed price structure on June 3rd. I hope that they move to per capita prices, but they will probably move to water budgets -- an expensive-to-calculate, difficult-to-understand system that will lock in cheaper water for people with larger lots. AT least it seems to be what they are saying in their current proposal:
To help focus the revised rate study, the board directed staff to apply water conservation goals across all user classes equally, maintain the current three-tier system for the Domestic Class, raise the commodity charge by the same percentage across all user classes and all tiers, implement water budgets for the Irrigation Class, maintain a single unit cost of water for Commercial and Multi-Family classes (no tiering), and prohibit irrigation meter pricing on single-family lots. Within the Irrigation Class, Tier 1 pricing will be full cost recovery, and pricing exceeding the target water budgets will be used to offset conservation activities. The plan will allow single-family lots two meters if they wish to install them, but both will be billed at Domestic Class rates.
I disagree with water budgets and ongoing flat rates, but perhaps that's all that's politically feasible.

Too bad, since I'd hate to see HWD run out of water because people are irrigating in the desert (13 inches annual rainafall).

Bottom Line: Man-made water shortages will last until we get prices in line with supplies. The best way to set water prices is on a per capita basis. Urban water is for people, not lawns!

Tuesday Morning Smile

Hope you enjoyed the long weekend....

Save Water. Use Twinkies? is from GOOD Magazine:



Colbert hopes that you will bail out the Prescott Group ("we make everything you need so we are too big to fail")

The Colbert ReportMon - Thurs 11:30pm / 10:30c
The Prescott Group Bailout
colbertnation.com

"Did you know that we run water treatment plants? We are the only thing keeping your beautiful daughter from drinking poop"

Talking Auctions at DWR

I'll be talking about all-in-auctions at DWR at 2pm on Thursday this week. If you want to attend, please email Ray Hoagland (yes, no email; DWR only).

ɹǝpun uʍop ɯoɹɟ sɐǝpı uʍop ǝpısdn

via ML, I got this editorial on water trading in Australia:
Water is a vital and increasingly rare commodity. It is essential for the maintenance of life which includes cities, towns, small communities, agriculture and industry.

Ownership should be controlled by the state for equitable distribution and use by all on a sustainable basis. This process should be controlled by, and answerable to, the democratic process. It is the right of all citizens to have access to a life-sustaining supply of potable water.

[snip]

Investors and speculators hope to create a profitable market in water. For banks, the acquisition of water licences represents an investment against which they can borrow, lend and trade. Controlling water will confer power.

The head of Treasury, Ken Henry, is, in my opinion, wrong in claiming that the market will regulate and conserve water through price. It will not. It will create winners and losers, cartels and monopolies, which will only work to the benefit of the big producers and the top end of town.

Such an arrangement would be feudal and one need look no further than Pakistan to see how it would operate and the extent to which equity would be lacking.
I don't know where to begin with this upside down thinking. Let's see:
  • "Ownership should be controlled by the state for equitable distribution and use by all on a sustainable basis." Besides the obvious invocation of failed USSR-style economics, this remark is also wrong-headed because there is NO incentive to use water sustainably if you cannot re-distribute it via markets.
  • The market "will create winners and losers." Although this does happen in markets (Toyota vs. GM), the real winners from markets are consumers. They will benefit from water markets.
  • "look no further than Pakistan..." I am quite surprised that this Australian thinks that his country is as corrupt and failed as Pakistan. I'd say that the chance that Australia will turn into another Pakistan is about as likely as Pakistan overtaking Switzerland in prosperity. Come on!
Ironically, I do see one silver lining in Mr. Haigh's op/ed: If water is controlled by monopolies (which I doubt, btw), then at least it will be conserved -- and that's sustainable.

BTW, if you want to learn more about markets down under, check this out.

Bottom Line: There are many ways to misunderstand how markets work, and Mr. Haigh, fearmonger, has managed to comprehensively misunderstand them. Bravo!

25 May 2009

It Takes Money to Make Money

via DW, we find that Goliath is doing pretty well from a fund dedicated to cleaning up underground fuel tanks:
big firms have taken $490 million from the fund since it was created in 1989... the program has been extended repeatedly amid lobbying by the big, politically powerful corporations. Those companies are now positioned to collect up to $900 million more.

[snip]

And even though it is drivers who actually foot the bill, the corporations say that because they are ultimately responsible for the fees, they should not be barred from making claims on a substantial share of the fund.

"The oil industry has paid millions into this fund, it has always supported the fund, it has supported increases in the fees when appropriate," said Tupper Hull, a spokesman for the Western States Petroleum Assn., which helped craft the most recent legislation to extend the program.
This is hysterically funny to me. People pay the tax when they buy gas. The companies collect that tax and pass it to the State ("ultimately responsible"? "paid into the fund"?). Those companies then ask for that money to clean up leaks that THEY are responsible for.

Seems like the Twilight Zone has arrived in California!

So what do our leaders say?
lawmakers approved an extension then and again in 2008. It was one of the few measures Gov. Arnold Schwarzenegger signed last year, when he made a point of vetoing almost everything lawmakers sent his way.

The program, originally set to expire in 2005, will live until at least 2016.

Schwarzenegger spokeswoman Lisa Page said the extensions have been "about continuing an environmental program that removes dirty underground oil tanks that are leaking."
Right. I'd say that this program is about drivers paying to clean up messes made by gas stations.

I'd also say that this funding mechanism creates ZERO incentive for oil companies to prevent spills. Yuck.

Bottom Line: This Baptists and Bootleggers scenario (the oil companies are "saving" the environment that they despoil with OUR money -- and taking a bit on the side) is a typical example of politicians and businesses conspiring to rip off citizens. I'd hate to see what else they will stuff into the next budget. (And I am not surprised that voters decided to cap legislators' salaries when the State is in deficit; that's the right response to incompetence!)

Pork Fest

I am not pleased that the Congress has fulfilled my deepest fears with its 900+ page, 85% free-permit, pork-laden and exemption-ridden draft cap and trade bill.

If you want to know how they took care of all those who were going to "suffer," then check out this questionnaire [doc] that BP forwarded to me in early-April.

Bottom Line: Cap & Trade has turned into Crap & Fade. Oh, for a carbon tax! Simple, transparent -- and hated by politicians and lobbyists.

Ground Water in Texas

I used to tell audiences that Texas and California has two things in common:
  1. Opposition to gay marriage, and
  2. Unregulated ground water.
Imagine my shock and upset (at losing my joke) when I heard that Texas was "doing something" about its ground water. Here's the short version:
  • The Texas Water Development Board (TWDB = California's DWR and SWRCB) monitors groundwater with its own wells.
  • Texas has Groundwater Management Areas (GMAs) for the whole state.
  • These GMAs are required to file a report "defining future conditions" for their groundwater, i.e., their aspirations -- NOT projections -- for future levels.
So, problem solved, right?

Nope.

Texas still suffers from several familiar problems:
Addressing the water crisis in western Hays County falls to a tiny governmental entity with one full-time employee, five volunteer elected directors, a volunteer geologist, and an $150,000 annual budget. The Hays-Trinity Groundwater Conservation District is one of 96 districts in Texas covering roughly half the state's landmass. The districts are supposed to be all that stands in the way of the rule of capture, the unique Texas law that essentially says you can pump as much water as you like, your neighbor's well or stream be damned. If you can pump it, it's yours.

To combat the inevitable depredations of the rule of capture, most of Texas' groundwater districts can collect taxes, meter wells, set minimum distances between wells, issue permits, and impose pumping limits. The Hays district has few of these powers...

Green's 1999 legislation exempted agricultural and single-family residential wells in the district from regulation -- 98 percent of an estimated 6,500 wells. The district has some authority over water utilities, which provide about half the water in the district. But developers are taking advantage of the district's generous exceptions by building small, dense developments that require homeowners to provision their own individual, exempt wells [The same problem that Arizona has]. Another perverse provision of the legislation provides that funding for the district primarily comes from a $300 fee on new wells [i.e., it -- like Vegas -- makes money from licensing new wells/development].
Did Green's 2002 defeat at the hands of Patrick Rose change things? Nope -- Rose is a real estate developer.

Oh, and the government -- like the government of California -- continues to suffer the delusion that ground and surface waters are NOT connected. For more on that batshit crazy policy (and underfunding of GMAs), read this EDF briefing [pdf].

Bottom Line: Texans -- like many in the western US -- are destroying their present and future by mining their groundwater. Their land will be worth less, their environment will be damaged, and their children sad -- unless they restrict ground water withdrawals to sustainable yields.

24 May 2009

Weekend Discussion: Radicals vs Conservatives

NOTE: This post will stay here until Sunday night. Posts for Saturday and Sunday morning go below this post.

Dear Aguanauts,

Discussion posts allow you to discuss a topic among yourselves -- exchanging views, learning and teaching. (I only read the comments.)

If you are interested, take a moment to check out (and add to!) last week's discussion on real estate development and water. After that, please give us your thoughts on...

California has a fiscal crisis on top of a gay marriage crisis, water crisis, etc. Some are calling for the State to be spill in two or four. Others are calling for a constitutional convention. Which way should we go? (Non-Californian views welcomed!)

More on Rawls and Justice

In response to this post, JW writes:
Your post on equality and John Rawls disturbed me.

Your usual well researched cause and effect arguments were taken over by populist rhetoric. I’ve forgotten much of what I once knew about Rawls’ philosophy (so I assume I found parts of his philosophy which were not useful or did not survive empirical scrutiny).

My observations are that countries that strive to distribute wealth and material well being most evenly are the countries that have the lowest standards of living and generally the lowest life expectancies. Consider East Germany compared to West Germany, or North Korea compared to South Korea as well designed macro economics experiments.

How did Russia, China and India fall so far behind the United States and Western Europe during the second half of the 20th century since those countries so favored equality? How has Latin America with its enduring populist themes lost so much of its comparative standard of living since World War I?

You mention health outcomes and life expectancy relative to income, but in citing the increasing gap you do not mention whether the gap widened because life expectancy dropped for the poorest 10%, or simply rose less. As a trained economist, you must also know that correlation does not prove causation.

On the other hand, I do understand that people are naturally envious, that relative position is more important to happiness than absolute position, and that societies with very large differences in standards of living between their best off and worst off are less stable than those with smaller differences. (But I do not know any society with a very equal distribution that was stable or that advanced.
This topic is complicated, but it comes up all the time -- and especially in water.

Let me make a few observations:
  • Equal opportunity creates better incentives than equal outcomes. Remember Vonnegut's brilliant "Harrison Bergeron"?
  • With water (a good "owned" by the public), I advocate "some for free" -- recognizing the human right -- and "pay for more" -- recognizing the importance of price rationing to highest and best use.
  • It's well-established that "socialist" countries in Europe are better at reducing inequality [PDF] and that equality is associated with higher life expectancy -- a basic measure of successful social programs.
  • The biggest problem with the command and control systems (e.g., USSR, Cuba, Iran, etc.) is the way that they stifle innovation and economic growth by stepping on entrepreneurs. The prescription, therefore, is to leave business and economics to the competitive sphere and then tax some of the resulting profits/wealth -- for use in universal safety net programs. The Europeans are current champions in this category.
  • The causal measurement of "gaps" requires structural econometric models, which are basically impossible to construct for such complex phenomena. With the alternative (reduced form models), we can measure correlations (but NOT causation). All we are left with, then, is theory, and I find if very plausible that gaps in outcomes can be explained by either the poor falling behind or rising less quickly. I am not sure about whether either outcome is just (in the sense that a politician would say "heck of a job, Brownie!"), but I do know that uninsured people are scared people, and that their fear does not serve our country.
  • Where do people do better than their parents? The US or Canada? Canada! [PDF]
What do you think? Bottom Line: A government of/by/for the people should provide the means to a minimum level of services (health, water, food, shelter) without killing the productive juices that generate the income (taxes) that pay for those services. (Note that I did NOT say the government should provide the service!) Our government is not doing very well on that.

Risk/Reward

via DR:
The ECPI Global Blue Gold Equity Index is designed to give investors equity exposure to publicly traded firms active in water-related businesses (water treatment, infrastructure, distribution). It is these companies who will be best positioned to capture the opportunities arising from the challenges of declining water availability.
These companies had better have good lobbyists, since 90-plus percent of the world's water is controlled by governments.

GWI has a water index that's more transparent, i.e., you can see which companies are in it!

Bottom Line: These indices miss major components of activity in the "water space," but they give an idea of action in the more competitive aspects of water. (Turns out that most of this competition is OUTSIDE the US.)

23 May 2009

20x2020

KL asks:
Governor Schwarzenegger's "20x2020 Plan" calls for a 20 percent reduction in per capita water use by 2020. I'd love to hear any of your thoughts on it, i.e. does it make economic sense to you? Do you think the plan will work?
Here are a few thoughts:
  • There is some controversy over which sectors will have to use 20 percent less. If we are going for statewide reductions, ag will have to be there. Note that nobody is calling for 20 percent less environmental water
  • Ag:
    1. Clarify rights (retire paper rights and cut overallocation) and monitor/regulate ground water.
    2. Then cut rights by 20 percent.
    3. Allow trade or all-in-auctions so that those who do the best conserving make money.
  • Residential: Water use can easily fall by 20 percent, given that 50-70 percent of water is used for outdoor irrigation. I would:
    1. Get per capita consumption for state.
    2. Drop that by 20 percent.
    3. Allocate that "right" to districts in proportion to their residential population.
    4. Allow those with lower CURRENT consumption to sell their excess to "wasters"
    5. Penalize those who do not hit 20x2020 with something big and ornery.
  • Non-residential M&I: There seem to be three choices:
    1. Cut everyone by 20 percent.
    2. Apportion lower targets in proportion to residential over/under because non-residential use/efficiency will be in rough proportion to residential use/efficiency.
    3. Insert your good idea here.
  • Are there non-market problems to worry about? Not if markets keep water local (avoid third party/environmental impacts) and not if residential prices are complemented by water conservation options that allow people to find ways to use less without dying of thirst.
Put me in charge, and you can have 20x2012. Even better, my system (markets and prices) will minimize the costs and maximize the efficiency of remaining water allocation. :)

Note that there is a state hearing on 20x2020 in Sac on May 29. I will not be there, so feel free to propose any/all of these ideas.

Bottom Line: 20x2020 is too timid because it relies on changing "attitudes"/engineering solutions/command and control instead of allowing people to make/save money from using less water.

Speed Blogging

  • A review of Bottlemania

  • A review [PDF] of Nanotechnology: Health and Environmental Risks

  • The Thirst for Water slideshow [pps] is useful for water activists.

  • Paul Romer gives the world premiere talk [37 min 5MB MP3] extending his new growth theory (endogenous technology) to include the feedback loop between institutions and human ingenuity/inventions. Very interesting!

  • Sacramento sends out the water cops. Why? "The new rules... are considered important to prevent water waste because the vast majority of residential water customers – about 104,000 – are unmetered. Until customers see their actual water use in monthly bills, and feel it in their pocketbooks, encouraging conservation is difficult. The city has a plan to meter those connections gradually by 2025 to comply with state law." Don't rush into this or anything...

  • "In April, a rebate program that rewards water-conservation efforts ran out of money in the first eight days of the month. May's funding didn't last two hours. Now the demand on the SoCal Water$mart program is so great that the money is gone for the rest of the fiscal year, which ends June 30, and officials are considering revamping the system." I don't know how they are revamping the system, but I suggest that they can use HIGHER PRICES to pay for it. $4 million/year for 20 million residents isn't very much money!

  • A forest that makes a profit: "Iwokrama is making money now, before it has even sold its ecosystem services. It is already part of the global economy. But with sustainable forestry and ecosystem services, the lesson of Iwokrama is that rainforests present an opportunity." They haven't even started to sell carbon credits!
hattip to DG

22 May 2009

Vegas Accounting

GOOD has a piece (via DW) on Lake Mead:
Las Vegas residents tried to pass a bill that would allow homeowners to install graywater systems but the Southern Nevada Water Authority blocked it, offering up a piece of fuzzy math as a defense. Las Vegas Valley is allotted 300,000 acre-feet of water per year from the reservoir. The water that goes down drainpipes in Las Vegas gets pumped 12 miles back to a reclamation plant near Lake Mead. This returned water counts as a credit toward getting more fresh water from the lake.

The Water Authority says if people start using graywater to water their lawns and gardens rather than using drinking-quality water, their lowered water bills will dissuade them from conserving water. In other words, the Water Authority believes that legalizing graywater will cause people to use more fresh water and return less dirty water to the reclamation plant.
First, the non-sequitur [in bold]: People install greywater systems to reduce their use (hence their bill). That's different from people who do not care, who may use more water if their bill goes down (because of some outside force). This another example of the "20/80 rule" -- 20 percent of the people care about how much water they use; 80 percent only care about their bill.

Second, the greywater issue is similar to SNWA's dependence on hook-up fees (more development) for revenue.

Basically, SNWA does NOT want greywater because it cannot charge for it. If greywater is NOT discharged into Lake Mead, LV cannot get a credit to take out more. If it cannot take out more, it cannot sell it to you, a person so impolite as to "cut out the middleman."

Bottom Line: Good ideas can die if they contradict the winners under the status quo.

California Lags

My recent trip to a workshop in Phoenix [prior post] opened my eyes on a different dimension of water as a valuable and necessary commodity for urban land development. For example:
  • Vidler spent $100 million developing 8 tafy at Fish Ranch that was sold for urban development north of Reno. The PPP deal transferred infrastructure (but NOT rights) to Washoe county. Vidler spent $12,500/af to acquire and develop the rights but sold them for $45k/af (now $30k) to real estate developers.

  • Flagstaff, AZ spent $2 million drilling a well that supplies 100 gpm (160 afy). Although $12,500/af may seem steep, it's better than "running out" of water. Flagstaff has deep wells and ornery rock layers, but they cannot slow development. Next stop -- a pipe to the Colorado River. (Good luck!)

  • Prescott, AZ sold 2,700 af of effluent for $25k/af to a NYC investment company. (That price is high. 60% of the effluent of the effluent can be reused, so it's more like $17,000/af.) The buyer is now selling pieces of that water to developers. (Note that the buyer is not paying money until it sells the rights; not quite a slam dunk for the city...)
I bet that California water owners would LOVE to see numbers like these, but they will not UNTIL we get:
  • groundwater under control
  • water rights clarified
  • water transfers streamlined
There's a to do list for DWR/SWRCB!

Bottom Line: Water markets CAN work, but they need an institutional foundation that integrates legal, political, engineering and environmental factors.

Do I Need to Be an Economist to Be Useful?

SK asks:
I am a mediator with a non-profit management/ arts/real estate background and a heavy interest in water. I have no legal/policy training yet and only a few water classes at Cal. Mostly I am a water fan attempting to work my way toward water conflict resolution and trans-boundary issues.

So now I am curious if I need an economic degree as well or if you might recommend areas of study/people to talk to. It seems at whatever conference or colloquium I attend, the topics are naturally bias toward the backgrounds of law/policy/science and never the tween shall meet. So it seems I must learn enough of all three to facilitate that dialogue without becoming too bias myself in any one direction. (ie I’d prefer to learn water law outside law school if poss)

I am especially interested in power plant cooling and desal-wondering if just becoming an expert in one area of water might be possible with only minor hydrology?
Please give SK your thoughts on these questions.

21 May 2009

Flashback: 16-22 May 2008

These posts are STILL relevant, so please comment (I'll approve them ASAP.)

BEST: Speaking of Carbon: the geo-political tension over carbon negotiations.

Local Markets for food CAN work!

BEST: Agricultural Policy was already written to benefit industrial ag in 1958.

Central Planning for Lawns. Why can't water managers just let prices do the hard work? That reminds me of Paternalistic Water Management, You WILL Do This, Soviet LA and Sachs the Planner (I see a trend!)

Do Farmers Care? Yes, but Uncle Sam the Predator (who seizes irrigation rights) does not...

The California Water Crisis

I wrote this [PDF] recently for UK-based Global Water Intelligence, a weekly with an annual subscription price of over $1,000. (Wow! You get it for free!)

It's my take on the situation in California, with some additions from their staffers. (Btw, it's also already out of date. CVP allocations to ag/urban are now 10/60 instead of 10/50. The DWB is projected to shift 82TAF, not 100TAF. Oh well.)

It's quite good -- really! Read it.

Oh, and here's a piece [pdf] where I and others answer the question "Can we rely on technology to guarantee future water resources?" My technology? Higher prices! Read it to learn the variety of answers from others...

Bottom Line: The drought has worsened the man-made "crisis," but we can improve things by using conservation pricing for retail water and markets/auctions for wholesale water. Oh, and better water management/allocation will probably also save the fish!

Unquenchable -- The Review

Robert Glennon, a University of Arizona law professor, has written a second book about water. (I have not read his first, Water Follies: Groundwater Pumping and the Fate of America’s Fresh Waters, but I should!)

On first glance, Unquenchable: America's Water Crisis and What To Do About It (333 pages) seems like it comes straight out of this blog ("Glennon's answer is a provocative market-based system that values water as a commodity and a fundamental human right."). It turns out that the book does NOT contain a "provocative market-based system." That's good (for me), since I want my book to cover that area. (NB: This review is therefore biased by my own view of what belongs in a book on water economics.)

Fortunately, Glennon's background as a lawyer, years of experience, and heavy research ensures that he approaches the topic from a different angle than I do, and he offers a useful perspective to people who want to learn something about water policy, politics, economics and institutions.

The book is divided into four parts:
  1. The Crisis: Glennon ranges far and wide, telling stories of how water is mismanaged. This part is full of stories and details, but it has little analysis (why did things go wrong?) and few solutions (what do we do?).*
  2. Real and Surreal Solutions: This section covers the conventional wisdom (e.g., dams, groundwater pumping, etc.) and crank ideas (massive pipelines, cloud seeding, etc.). After saying no to business as usual, Glennon has good chapters on desalination and reclamation, water conservation, harvesting and recycling. But very little discussion of "market-based solutions." :(
  3. A New Approach: Glennon examines the state of American infrastructure and condemns conventional solutions. Instead of replacing aging pipes, we should install dual-pipe systems, composting toilets, etc. Page 222 has my favorite quotation:
    What we have not attempted in the United States is to encourage water conservation through price signals that create financial incentives to conserve. Quite simply we must raise the price of water.
    This chapter and the ones that follow are quite good. Chapter 15 gives a case study of how to manage water rights with an eye towards sustainable development. Chapters 16 (private vs. public) and 17 (ag-urban transfers) are also good, but I was disconcerted by this conclusion (p. 271):
    Control over water must remain with the state or with a broadly representative elected body; otherwise, parochial interests may encourage the crude commodification of water without regard to how transfers may harm workers, other businesses, or the environment.
    I completely disagree -- and the example Glennon gives (IID is dysfunctional) makes it seem like he contradicts himself within the same chapter. In fact, he says in the next chapter ("The Future of Farming") that farmers will be more efficient with water when they can sell the water they save. The chapter after that gives an example of how farmers in Oregon made a "win-win" deal to sell their water for environmental uses. The chapter that follows gives a good motivation and defense of property rights as a means of ensuring sustainable water use. I am guessing that Glennon's split personality on this topic would come down in favor of trading water within a system of strong property rights.**
  4. Conclusion: I was disappointed -- after so much discussion and dropping of hints -- to find that this part of the book did not have a thorough, concise and integrated presentation of market solutions to the problems outlined in Part 1, not-solved in Part 2, and discussed in broad terms in Part 3.*** Instead, page 317 has a bullet list of 16 often-overlapping recommendations (e.g., "meter water use, secure water for the environment, use price signals, create market incentives, encourage creative conservation," etc.) At a minimum, I would have preferred to have these suggestions included WITH the problems Glennon discusses in earlier chapters AND explained in greater detail.

    I was also surprised that Glennon suggests a central role for Federal policy in water (and a national water tax). This idea makes little sense to me -- except after state and local water laws are reformed to approximate something close to normal.
Bottom Line: Glennon describes many of the problems that we face with water management. He also provides some good examples of what to do (and NOT do!) and solutions that vary from sensible to radical. Overall, these virtues were obscured by non-comparable statistics (how do you compare 2.5 gallons of water to make a gallon of gasoline to 0.7 gallons of water to generate a kilowatt of electricity?), failure (IMO) to offer a "provocative market-based system" with more structure,**** and too many stories stuffed with Proper Nouns.

For people who know lots about water (many readers here), I give this book THREE stars (out of five) -- just skip the first 100-200 pages. For beginners who want to know the many dimensions of the water problem, ways to solve it, and new things to consider, I give this book FOUR stars. Read it.

In an email chat with Glennon, he said:

* that he wrote many examples to give newbies an idea of the size, scope and importance of the water problem. He did this because many people do not understand our complete dependence on water in every part of our lives. Good point!

** that he is between radicals in favor of markets (e.g., PERC) and radicals opposing them (e.g., Food and Water Watch). He, like me, sees a role of government in the regulation of water allocation and trade, but not a need for the government to monopolize control/provision of water...

*** Glennon said that the editors forced him to cut the length down below 400 pages, which is why this section was not larger. Darn.

**** I am prepared to blame the lack of a "provocative market-based system" on PR people looking for catchy ways to promote the book.

TED Talks Three

Aguanomic talks...Amazing Us talks...
  • "How might the world end? Stephen Petranek lays out the challenges that face us in the drive to preserve the human race." Asteroids are only ONE of them!

  • "Author Dave Eggers asks the TED community to personally, creatively engage with local public schools" -- by tutoring kids for free in pirate supply stores.

  • "Jill Bolte Taylor got a research opportunity few brain scientists would wish for: She had a massive stroke, and watched as her brain functioned." Amazing explanation of right and left brain.

  • "Martin Seligman talks about positive psychology:" Make sure that you are having fun, but also make sure that your life's work has flow (for you) and meaning (for humanity).
Cool talks....
  • "Wingsuit jumping is the leading edge of extreme sports -- an exhilarating feat of almost unbelievable daring, where skydivers soar through canyons." Wow!

20 May 2009

Aguanomic Metering

A reader asks:
  1. What is your opinion on the billing structure for the other “classes” business/government, irrigation users (same treated water used in a separate meter for home owner associations, outdoor irrigation for strip malls, freeway irrigation), residential, and multi-use?

  2. Do you believe that water should be charged differently amongst classes and different base rate cost per unit of water (commodity rate)? Or should the water cost the same based on what it costs to purchase/treat/deliver etc.?

  3. Should the classes be looked at separately and independently, thus, if each class is asked to reduce a different amount of water (estimated reduction) than the cost per unit is determined and would vary. Do you concur with this type of evaluation?
These questions give me the chance to clarify how things I repeat here and there fit together.

First, I think that residential water should be priced with increasing block rates that are "wide" based on the number of people in the household.

Second, I think that multi-family residences should have sub-meters.

Third, I think that non-residential customers should ALL be treated the same. Their meter rates should have HIGH fixed costs (to encourage them to adopt the smallest meter size) and increasing block rates within each meter class. The larger the meter, the larger the initial cheap block of water, but the next block is ALWAYS much more expensive.

My inspiration for prices is that they should be cheap where "human rights" are concerned (residential rates). All other rates should recover costs AND be high enough to choke demand (so there's no shortage).

Finally, rate increases should occur at the highest blocks first. After that, I'd narrow blocks before I'd raise rates in the earlier blocks.

Bottom Line: Prices should be FAIR for the basic unit(s) of human right water. After that, commodity water should have similar prices to all comers.