31 July 2009

On the Other Side of the Pond

Another guest post (alternative title: you are not alone, David) by Christian von Hirschhausen*

Let me alert you to a very fine piece of water research that has just come out in the UK, on the other side of the big pond. The so-called “Cave Review: competition and innovation in water markets” was commissioned by the governments of England and Wales, to professor Martin Cave, a well-known network economist. It comes at a time when – due to concerns about climate change and water scarcity – governments look for more efficient ways of allocating this scarce resource. The Cave Review has made significant headway in London and Cardiff. It will certainly have a lasting impact once it has crossed the Channel over to Continental Europe; perhaps it will soon even cross the Atlantic Ocean. See here for the full review, the interim report, and more material.

Martin Cave provides a detailed benefit-cost analysis of market-oriented instruments to foster social welfare and the ability of the sector to innovate. His recommendation can be summarized as follows:
  • Tradable abstraction charges should be introduced to favor the efficient allocation of water resources across river basins;

  • Likewise, the amount of discharges back into the water cycle can be dealt with tradable discharge quotas. These need to be differentiated by the polluting substance;

  • Market structures should be allowed to evolve towards the most efficient structures, and thus the interdiction of merging water utilities should be abandoned;

  • Competition for the resource and collateral services should be intensified by allowing “wheeling” (wholesale competition) for industrial users (< 70 mn. l/year);

  • The capacity of the sector to innovate should be fostered by an incentive-compatible system of tendering research projects amongst the (privately-owned) industry, public research bodies, and state subsidies.
Bottom Line: Martin Cave has thrown a big stone into the pond; the discussion of these issues will be exciting on both sides of it.
* Chair of Energy Economics and Public Sector Management, Faculty of Business and Economics, Dresden University of Technology

Unfair Price Increases?

Farmers in the Imperial Irrigation District are upset that their water price will rise by $1/af per year over the next 3 years to $20/af.

Yes, that's over 16,000 gallons for a buck. Quite a deal? Not according to the farmers. They say that "viable agriculture" cannot handle the extra $3 charge. (Farmers use 97 percent of IID's water.)

Urban and industrial customers are not facing price increases, but they already pay more -- $68 and $85/af, respectively. Although those prices are about 10 percent of the price these customer classes pay on the coast, one IID director thought they should be lowered to the ag price.

Amidst all this is the most interesting part: IID's budget -- after the price increases -- will still be in deficit.

The article notes that protests against the price hike were stymied by IID's over-restrictive protest process. 40 percent of "landowners" were able to lodge a protest, but 50 percent was necessary to stop the price increase. I imagine that a number of farmers are sharpening their pitchforks for the next stage in this battle with "their" irrigation district.

As I have written before, IID is dysfunctional, and this story just adds another chapter in that book.

Bottom Line: Mismanaged water helps nobody, and bad governance contributes to that mismanagement. IID needs to be broken in two (water and power) to end its waste of water and over-expansion/over-reliance into dirty power (only 15% of IID power [PDF] is from hydro; the rest comes from coal and natural gas).

30 July 2009

A To Do List for the Planet

Billy Pizer, formerly of RFF and now in charge (kinda) of negotiating climate change treaties at the US Treasury, gave this list of "things to do" at his EAERE keynote ("Facing the Climate Change Challenge").

It is merely a list of topics, but they are topics where we need more research -- not just to increase our academic understanding but also to learn how to design, implement, measure and enforce policies:
  • Market design with policy revision
  • Dealing with trade in the long run
  • Technology modeling
  • Technology transfer policies
  • Social cost of carbon
  • Catastrophes
  • Linking, policy revision, and delinking
  • Offset reforms
  • Development and climate change / climate change and development
  • Carbon markets in the long run
Those of you looking for interesting areas for research, work, reporting -- and perhaps concern -- could do worse than address one or more of these issues.

Bottom Line: Earth is too complicated for any one of us to either understand or affect. We CAN work together to improve our collective future but that takes more work than "I've got my ass covered."

Spiritual Water

Red sent this picture as an illustration of our spiritual connection with water...

Unfair Markets?

via JD, farmers in Australia are furious that the winning bid in a water auction came from a spa that caters to paying customers.

The spa bought 250ML of 1,200ML for sale. That water was part of 47,000ML (2.5%) of water saved in a government program to cap and pipe bores [PDF], a program half funded by landowners. ("Cap and pipe" means capping artesian wells and diverting their flow into piped systems.)

I have no sympathy for "outraged" farmers, since the water went to a buyer who paid more to put it to a valuable use (the spa's TOTAL economic impact is AUD40 million-plus), but I am curious to know who got the auction revenue. It seems that the government kept it to expand the conservation program.

I've no idea who bought the rest of the water...

Bottom Line: In a competitive market, farmers can rarely outbid urban/industrial buyers with higher values. They should not fear losing "all" the water, since cities cannot absorb the vast amounts on hand.

29 July 2009

Useful Economics

The Economist's cover article ("What went wrong with economics") discusses the failure of macro and financial economics in the recent financial crisis, but they caution against throwing the baby out with the bathwater:
In its crudest form—the idea that economics as a whole is discredited—the current backlash has gone far too far. If ignorance allowed investors and politicians to exaggerate the virtues of economics, it now blinds them to its benefits. Economics is less a slavish creed than a prism through which to understand the world. It is a broad canon, stretching from theories to explain how prices are determined to how economies grow. Much of that body of knowledge has no link to the financial crisis and remains as useful as ever.

[snip]

These important caveats, however, should not obscure the fact that two central parts of the discipline—macroeconomics and financial economics—are now, rightly, being severely re-examined (see article, article). There are three main critiques: that macro and financial economists helped cause the crisis, that they failed to spot it, and that they have no idea how to fix it.
Since I am a environmental/resource economist who uses behavioral and institutional tools to do my analysis, I am not only unthreatened by the failure of macro/financial, but I am also (relatively) better off. "We" didn't make the mistakes that the macro/financial guys did.

(I am NOT happy that they did, since I am poorer as a result!)

Bottom Line: Economics has many useful tools, but none should be used blindly.

Poll Results: Caffeine

Hey! There's a NEW POLL (taxes!) to the right ----->
I Get My Caffeine from
Coffee (drip) 52%34
Coffee (espresso) 20%13
Tea 14%9
powerdrinks (Brawndo!) 2%1
chocolate! 12%8


I'm glad to see coffee as number one -- because I drink espresso :)

And the brawndo ad is here. It's funny :)

Bottom Line: Everyone has similar needs -- and different ways to meet them!

Better than Water Budgets

SJ asks:
The Irvine Ranch Water District's water budgeting scheme [which is gaining popularity in other water districts; see this post] sounds pretty cool and complicated (like the tax code)... is this approach too complicated or is it fair?
IRWD gives each household a "water budget" based on the number of people in the house, the size of the lot, the amount of landscaping, the time of year, etc. Households that stay within their budgets have a lower water bill than households that are wasteful -- "spending" more than their allocation.

Although IRWD's scheme is an improvement on increasing block rates, which are WAY better than uniform rates or flat rates (all you can eat), they are not as good as my "some for free; pay for more" scheme for water pricing.

Why? Because water budgets are:
  • Too complicated. Nobody can understand how they are calculated, except to trust that the engineers at IRWD have got their formula right. For the engineers, of course, water budgets are a form of porn -- a exciting toy for those who want to calculate evapotranspiration from satellites, etc.

  • Non-comparable. It's hard to compare your use/budget to your neighbors.

  • Unfair. The formula allocates water to lawns, but not other "wasteful" use (e.g., washing the car). I prefer that ALL allocations (the width of each block) be based on the number of people at the meter. That way, each residence gets a cheap allocation for human uses, and a proportional amount for extra and wasteful use -- whatever that use may be.

  • Un-sustainable. Why allocate cheap water for lawns in a region that needs to import water? In the long run, we are going to a per capita allocation. Why not move there now?

  • Wasteful for commercial customers. Allocations based on historic use do not encourage conservation among customers that were wasteful in the past. I prefer my ahistoric system
Bottom Line: IRWD's water budgets are a temporary step on the way to an equitable and efficient system of water pricing. Budgets were politically-acceptable when water shortages were mild, but changing times -- a growing gap between supply and demand -- make it both possible and necessary to move to a system that's sustainable in the long run.

28 July 2009

Bleg: Water Audit Calculator

BO wants your help:
I created a self water audit calculator [XLS] that I'm considering putting on our website once I have it tested and developed a bit further.

I'm wondering if you would be willing to test this calculator for your own water use at your home. All you need is your last water bill and some basic information about your household water use.

It would be great if you can tell me if this calculator reasonably estimates your water use, and whether you think this type of thing is useful.

The idea is that a customer would be able to better understand how water is being used in the home and why a water bill may be high,etc.

They would be able to determine their gallons per capita per day and we could then assign a relative rating to this number.

I realize that some of the information on the calculator may be too complicated for the average customer to use. For example, many people don't know how many zones they have on their irrigation system or the flow rate of a particular sprinkler. An alternative method to gathering this info would be to have an option where people estimate the amount of irrigated area (square feet) and apply some one-size-fits-all water demand for this area. This method which I would not prefer, would not be nearly as accurate but would be easier for the customer to input.
Bottom Line: It's hard to know what your water use is and then match that to your bill. That's what these calculators are for. Please give Ben some feedback -- email linked to his name above or comment here -- so he can make a good one!

Water at Airports

I've been passing though a lot of airports recently, and -- by no coincidence -- I've been thirsty a lot recently. The simple reason for my thirst is the requirement that -- for our "security" -- I empty my water bottle at each security checkpoint.

Now most of you will be aware of this requirement, but perhaps not as many of you have thought of the incentives created by the no liquids rules.

First, there is the massive increase in demand for liquids on the other side of security. Although most people will buy bottles of water, some will buy bottles of sugary drinks -- perhaps because they'd rather get some sugar if they are going to pay $2 for 250ml of liquid.

Second, there is phenomenon of "missing" drinking fountains. In the old days, fountains were installed next to toilets, but there is less reason to install them now. That's because so many vendors are selling bottled water, and so many people are used to buying that water.

Note the insidious set of incentives that are operating. The airport managers can save money by installing fewer fountains because people can buy water; the vendors can sell more water because there are fewer fountains (supply) and more people without water (demand); worst of all, the airport managers can charge more rent to vendors because they are selling more water. Who pays? The travellers! This is an example of monopoly (airport manager) taking advantage of the customer -- selling less water for more money. (The same thing has been happening in schools where school administrators have been abusing their monopoly to sell more water -- and soda -- to kids with few outside alternatives.)

Oh, but remember that you are safer from water terrorists -- but not guys with knives.

Third, there's the warm water in the sinks in bathrooms. Although I am sure that this is meant to provide a better "customer experience," my devilish side says that warm water prevents "customers" from filling their own bottles. My environmentalist side says that we are wasting energy for very little gain in happiness.

Fourth, note the baptists and bootleggers dynamics that will maintain the ban on carrying water past security. The TSA (baptists) claim they are keeping us safe; the water companies, vendors and airport authorities (bootleggers) are happy to profit from this "security."

Bottom Line: The costs of the ban on liquids are falling on customers; the benefits are falling on airports, vendors and bottled water companies. With these incentives -- and lobbying realities -- we are unlikely to ever see a return to the good old days (allowing people to carry water). I guess that the terrorists have won :(

27 July 2009

Don't Cut the Trees -- 1878 Edition

AM sent me this interesting tidbit* from the April 20, 1878 issue of The Graphic (London, England)

It's true that there's a connection between watershed health and water flow. A pity that nobody paid attention for the next 100+ years!

Bottom Line: Take care of your environment and it will take care of you. Kill it and...
* You can find it here by searching for document number BA3201425556.

Monday Morning Smile

Holy Cow! These guys are gonna live happily ever after!



Oh, and this is just BAD-ASS...

When Is It Okay to Nudge?

Policy makers are taking a hard look at so-called "soft paternalism" these days, i.e., the idea that people who are making the "wrong" choice can be guided to the right choice by changing the default option. Soft paternalism is a response to the deviation between predicted and observed behavior. For example, many people say that they want to save for retirement, but then fail to enroll in a retirement contribution program. Instead, they "choose" to contribute nothing, i.e., they do not change their retirement contribution from the default ("contribute nothing") to an alternative ("contribute x% per month").

Note that economists often assume that rational individuals will make the choice that they prefer and that suits them. When they observe low retirement contributions, they conclude that people PREFER low contributions. Psychologists, OTOH, claim that people are boundedly rational, i.e., they do not make calculations for every choice they face. In the past, "too low" retirement contributions would lead economists and psychologists to make different recommendations. Economists would accept the contributions as rational and optimal; psychologists would say that they are boundedly-rational and suboptimal. Their policy recommendations would also differ. Economists would recommend providing more information (for better choices); psychologists would recommend a mandatory minimum contribution. Soft paternalism strikes a compromise -- it changes the default contribution from zero, but it allows people to choose (optimally!) to change it back.

Soft paternalism has had some good success. On the pension side, more people are saving more money. In another example -- donating one's organs when dead -- the results are even more striking. In countries where people must check a box to agree to donate their organs, only 10-20 percent of people participate. When they must check a box to NOT donate, participation is 80-90 percent. Since it's not too hard to assume that people have similar tastes for donation, we can see that most of this difference arises from the default option.

Given the importance of retirement contributions, organ donation, etc., soft paternalism promises to bring a lot of benefits at low costs, and that's why we are going to see a lot more of it.

Are there any drawbacks to soft paternalism? I can only think of one: Say that the default has been x for many years, and I have "chosen" the default for many years. Now say that the default is changed to y. I may just "choose" y without looking at it. Put differently, I will pay less attention when I am looking at the default after 5-10 times than when I am looking at it for the first time. So, soft paternalism is a great idea for that first time I enroll in a retirement plan, but it needs to have many more flags if it is introduced to my retirement plan after 10 years...

Bottom Line: People are boundedly rational, and we have to be careful not to assume that they can process and choose among complicated (even simple!) options. Although we can improve things by changing the recommended option to an "expert's choice," we have to make sure that people know when such a choice has been made for them -- and then make it easy for them to change that choice.

26 July 2009

Weekend Discussion: Bureaucrats!

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 better blogging. After that, please give us your thoughts on...

Bureaucrats. Do they have an incentive to do a better job (faster, cheaper) or put themselves out of business? Does that matter? Stories and international comparisons welcome!

Useful Religion

I am agnostic on religion -- it works for some people and facilitates social coordination, but it can also be abused.

Red sent me an excellent example of "conservative religion" creating a sustainable agricultural model.

For many centuries, priests at Balinese water temples decided when and where rice would be planted and irrigated. Their godly system evolved into a complex set of institutions that maximized the production of rice while minimizing water use and crop destruction by vermin.

When the government tried to bypass the water temples in favor of "modern" techniques espoused by the Green Revolution, the resulting decreases in yields and increases in pollution quickly revealed the efficiency of the system supported by "superstitious" farmers. Back to the temples they went.

Bottom Line: If it ain't broke, don't fix it!

Immoral Consumption

For most of human history, there has been no moral constraint on consumption. We have had physical constraints on consumption (you can only consume what you have). We have had moral constraints on other actions (e.g., murder) but not consumption. Why not? Mostly because consumption has always been a "good" thing, something that has allowed us to improve our lives and the lives of those we traded with. Because these trades were voluntary, there was no moral dimension to worry about (see this prior post on "socially-beneficial crime")

Now when did consumption start to take on immoral dimensions? The first obvious case was when people began noticing that some consumption produced indirect harms, e.g., pollution. These externalities are intimately linked to the consumption, so the quick way to reduce them is by reducing consumption. (A slower, more effective way is to change the production or consumption process so each "good" comes with less "bad.")

A less obvious case is when consumption facilitates other activities that are harmful. To some people, overpopulation is one such activity. How does more consumption lead to overpopulation? By making it easier to afford kids.

Take the example of food. For most of human history, food was expensive. Kids, therefore, were also expensive. When technological development (fertilizers, seeds, machines, etc.) made it cheaper to produce food, we got two results: Those who were alive could consume the same amount of food in exchange for fewer resources, and the cost of children fell. Taken together, we can therefore see how the Green Revolution has contributed to both obesity and overpopulation -- two unintended consequences that we suffer from today. (Although these consequences were predictable, they would not have stopped innovation or the Green Revolution. Although society was made worse off as a result, individuals benefitted, and individual benefits are what drive adoption decisions.)

Note that obesity and overpopulation are only "bad" in the sense that they create negative outcomes (public health costs and environmental stresses, respectively); cheap food is not bad, per se.

Bottom Line: Because our internal controls on behavior have developed over thousands of generations, we find it very difficult to change our view of something formerly "good" to something now "bad." As a result, we are likely to behave badly -- unless some external controls (prices) are imposed.

25 July 2009

Speed Blogging

  • Good news! "On behalf of Wherever the Need, a nonprofit working to deliver sanitation and water solutions to the people that need them most, Skadaddle Media is excited to launch TwitterforSh-tters.com, a grassroots social media campaign hoping to get people talking shit again."

  • "In 2003 EPA denied a petition to ban sludge submitted by 63 organizations. Since that time, food contamination and illness as well as deaths have increased. In 1999 over 76 million people were infected by food and many died. Sign the new petition here."

  • Ocean in trouble, part 32: Warmer water and overharvesting of tuna and shark are encouraging a surge in squid and jelly-fish populations. It's not the "rise of slime" that bothers me, but the end of fisheries (you know, like baby salmon).

  • NRDC grades US cities on sustainability. First place goes to Seattle.

  • This op/ed ridicules San Diego's pro growth model. Is growth necessary? It sure is if you are a property developer! (Guess who controls politics in San Diego?)

  • Michael Hanemann (my adviser, the one I see every few months :) is profiled here [pdf] as "the single most successful environmental and resource economist of our time." Since he also likes chocolate, I know we have at least ONE thing in common :)

  • This site (via aquadoc) is highlighting errors in water bills, which are hard to understand and perhaps harder to dispute. I don't know if it's an "anyone can post" or controlled blog but check it out.
hattip to DW

Flashback: 19-25 July 2008

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

What is a Market? An existential question with many answers; also see Water Markets. Speaking of that, Enviros Should Pay addresses those nasty questions -- who has money and what are they buying? In Environmental Flows, I defend water "rights" for the environment.

More Supply versus Higher Prices got a lot of comments. That's because I tell the pro-desalination, supply-siders that they are doing the wrong thing. (They still are :)

Bread and Circuses: Farmworkers march on Sacramento one year ago. Hmmm, sounds familiar.

What Do Farmers Know? highlights a great report on the wisdom of farmers. (No economics, just wisdom :)

24 July 2009

Making Markets for Profit

Many entrepreneurs want to bring products and services into the water sector, to profit from innovations that save water and/or money.

But what about the entrepreneurs who want to change the ways that things are done? How is it possible to bring process innovation or institutional change to the water sector and still make a profit?

Since I consider myself one of these people, I think about this question all the time, and I have identified several problems with this type of entrepreneurial activity:
  • Ideas are hard to control for long enough to get paid. OTOH, it's much harder for people to go from "that's a good idea!" to implementing it.
  • People who work in water are VERY conservative. I say "Hey, you're on fire. Want me to put it out?" and they reply "Naaahhh, I'm used to it..." (When you're a monopolist, failure may not matter.)
  • Institutions are tricky. Push in one place, and something pops out in a different place. Since they are too complicated for one-size-fits-all solutions, innovation requires patience, which is expensive.
  • Entrepreneurial people tend to be dynamic; water tends to be static. This mismatch means that few entrepreneurs are willing to hang around in water. (I have internal deadlines for progress. If I miss them, I have other plans.)
  • It's hard to create a market where none has existed before. The "revolutionary" ipod merely updated the walkman, which merely shrank the radio to portable. Water markets are revolutionary by several orders of magnitude.
These are just factors (or structural elements) that one must consider when trying to bring new processes into the water sector. Can they be overcome? Terry Spragg has spent more than 20 years trying to get people to consider his good idea, but he's run into an engineering culture that prefers pipelines over solutions that may cost ninety percent less.

I have not gotten very far with my "raise prices" idea. Even though higher prices would end shortages in days and for very little money, water managers prefer to spend years and $ billions on "supply side" solutions.

Oh, and here's the worst part. Any entrepreneur who "fixes" things will make very little money for the $ billions they save the public -- that's because people in the water sector have no culture of rewarding good ideas; they just pass savings onto customers. Such "non-profit" thinking does not incentivize hard work!

Consider all of these factors at once and you can see why there's more innovation in one percent of the water business (bottled water) than the other 99 percent!

Bottom Line: People love to make things better, but they will not try to improve things unless they receive intrinsic (praise and pride) and extrinsic (money) rewards. The water sector has very little innovation because these rewards are so low powered.

Bleg: Water and Population

Hey Folks,

I am writing another article for the Encyclopedia of Water Politics and the Environment. This one is on the relation between water and growth (population and sprawl). It's a juicy topic, and I basically say that cheap water has driven growth/sprawl in the western US.
Here's an interesting fact: Clark county (Las Vegas) had <3,000 people in 1900. It had 750,000 in 1990 and over 2,000,000 in 2008. Tell Pat Mulroy that I've found the reason for her water "shortages." Oh -- and don't forget that Vegas has some of the cheapest water ($30/month on average) and highest per capita consumption (260 gcd) in the US!
I've posted a draft here [PDF]. If you can read/comment on it before July 30 (my deadline), I'd be grateful!

The PDF has line numbers so you can reference your comments (helpful to me and others) in this post. Anonymous comments welcome -- as usual.

Addendum: Here's a .doc version for you markup fans...

Bottom Line: For many years, cheap water drove growth. That pleased politicians and real estate developers, but it was not sustainable. The end of abundance means that we can no longer have cheap water. Raise prices!

23 July 2009

Water in the High Desert

A guest post by Joanna Cornell:*

“I had my farm with water rights but no water access for over a year,” shares Bob, the organic farmer, standing next to a narrow stream. It’s a New Mexico spring, with a wide blue sky above a high alpine desert breaking into bloom. I don’t feel like I’m in America anymore. The more I learn about water rights here, the less I feel like I’m even in this century. Living on a 470-acre ranch at 8,000 feet, surrounded by sage brush, is a dramatic change for me; after years in academia and government working on east coast water issues. Until I settle again, I’ve set out to experientially learn about sustainable living and water resources in various regions.

Bob describes the acequia water system still used here in northern New Mexico. Originating back to the traditions brought by Spanish and Mexican settlers in the 16th century, the system diverts water and uses gravity to bring water from a river onto private property. The main river is diverted into acequias, hand-dug ditches with thin wooden boards as dams. Those with approved water rights can open their little dam on their allocated day and flood their property with stream water. It’s a true commons here. The acequias are maintained by the community, with group work-days when people walk the stream corridors removing debris. After having worked on water resources for more than a decade, I feel my jaw drop open as I learn about the local system. Is this possible? In America? In 2009?

Water rights that come with a property do not guarantee access to that water, as there are approximately three times as many water rights on paper as there is water actually available. In New Mexico, water rights are defined by the “first in time, first in right” philosophy. So my organic farmer friend, being new to the area and white, falls far back in line as to being able to claim the water rights on his property. The actual ability to access the water is ruled over by Majordomo. He decides which users can access the water based on a complex range of factors, including rainfall that season. The politics in play run deep, into family blood and cultural ties. The area is a mix of traditional Hispanic, Native American, and white traditions. The interweaving of rules from different cultures intrigues me. Although with its drawbacks, I like the idea of local people having power over their local water, being able to make decisions that directly impact everyone in the community.

“So how did you finally get your water?” I ask. “At one of the meetings, the Majordomo casually mentioned that his pigs were hungry. I had a big squash crop that season, so I delivered a whole pick-up truckload of squash to him. It surprised him. That softened him, he finally saw me as a farmer and not just a white man new to the area. I was granted permission the next year to open the dam to get water onto my property.” His farm water needs are supplied by a well and weekly access to the surface water which floods onto his land. What role did those squash really play? Was the decision ruled by higher predicted rainfall the following year? I will never know. But I like the story of getting water rights through gifts of squash, here, in America.

What about enforcement? I mean, what is stopping someone from opening their flimsy wooden dam in the middle of the night? “People are always watching,” shares the farmer. It’s a different world here in the small towns of New Mexico. For example, I ordered a dessert at a corner stand, and a few hours later a local resident stopped by my ranch asking how I enjoyed the dessert. Yes, if strangers hear about orders of desserts then it really is possible that water usage is being watched here.

When I first learned about the system in place, I felt my academic core stiffen. I felt my modern training clash with this traditional system in place. But the more I learn about it, I see how it’s working. It’s far from perfect, but so is any other system. The modern water delivery systems in place, with water coming out of taps and hoses, disconnect people from the source of their water. Water looses its reverence; it becomes a commodity. It is taken for granted. The acequia system maintains the community connection and the mystical.

Bottom Line: I strongly feel that our water issues will not be solved by scientists and bureaucrats alone. Complex water issues will not be solved intellectually alone. It will take a truly interdisciplinary leap, allowing in more than science and policy. My research explores how to connect people to their natural world at many levels. Education tends to focus on the intellectual aspects of our being, but we can not leave out spiritual, creative, and cultural components. I had the pleasure of participating in a water-blessing ceremony on a property where water had not flowed for more than a decade. The newly restored flow, which had taken much physical work, was celebrated with songs and prayers. The water’s sacred nature was integrated into its new role on the property. What would it be like if people treated the water coming out of their taps with the same reverence?
* Joanna received her PhD in Environmental Science and Policy from George Mason University in 2007.

Water IS Energy

A guest post by Christian von Hirschhausen*

Out of the ~300 papers presented at the recent Conference of the International Association of Energy Economics (IAEE) in San Francisco, only one dealt with the relation between energy production and water (I recommend you to look at Sandia National Lab’s website on the “energy-water-nexus”).

Energy economists hardly ever think of water as an important input into the production process. Just having met David I thought I need to correct this: Water is not only essential for energy production, WATER IS ENERGY !!!
  • 20 percent of worldwide electricity production comes from hydropower. Currently many countries, in particular emerging and developing countries, consider the expansion of their hydroelectricity capacities to meet increasing demand in an environmental-friendly way;

  • Water is needed in many conventional thermal power plants for cooling. Remember the hot summer in 2005, when French nuclear power plants had to shut down due to insufficient cooling water? In the South-West of the U.S., the choice of electricity generation technology is likewise often determined by the availability of cooling water;

  • This is not to talk about the “virtual water” contained in the raw materials going into the production of many industrial goods, and even more so in metal, concrete, and steel;

  • Last but not least, there are tremendous amounts of water required for the production of conventional hydrocarbons, and even larger amounts for producing unconventional oil and gas for shale, for example. Thus, the shale gas-rush in Barnett (TX) and elsewhere is only possible using large amount of water for cracking the shale and thus releasing the CH4.
Who owns the water that is used for energy production? Do users pay the appropriate price? Are there external effects involved, such that the user of water upstream impacts the utility of a downstream user? Is there is enough water available to sustain the current pattern of energy production and consumption?

Bottom Line: In times of climate change and increasing awareness of the value of water, we cannot ignore these essential questions on the connection between water and energy.
* Chair of Energy Economics and Public Sector Management, Faculty of Business and Economics, Dresden University of Technology

22 July 2009

Some Interesting Papers

These two World Bank notes come via Edouard Perard, one of the co-authors.
  • The number of developing countries implementing new private water projects was the lowest since 1995 [PDF]. Even more, three of the nine -— China, Brazil, and Algeria —- accounted for 89% of new projects and 85% of investment.
  • China accounts for more than half the water projects with private participation implemented in low- and middle-income countries in 1998–2008 [PDF]
Ricardo Paredes sent me this paper [PDF, in Spanish] on water rights in Chile.

Dan Rodrigo discusses [ppt] the many dimensions of an index of water sustainability in Southern California.

Schultz et al. discuss [pdf] how comparison of energy use among neighbors can have positive effects (reduced use) or "boomerang effects" (increasing use) -- depending on how well one is doing relative to the neighbors.

Darwin Hall, in “Politically Feasible, Revenue Sufficient, and Economically Efficient Municipal Water Rates [pdf],” discusses how "water rates are designed to meet multiple objectives, typically resulting in tradeoffs among the objectives of economic efficiency, revenue sufficiency, and related revenue stability." He goes on to analyze how Los Angeles established increasing block rates to increase efficiency in 1993.

The Department of Messing Up Farming

The Pacific Institute has released an updated version of their report on agricultural water conservation.

My response to their report from last year ("farmers are not dumb") was based on their notion that farmers need only install high-tech irrigation technology (e.g., drip) to save water. I pointed out that farmers are not going to do that unless it's profitable. Peter Gleick and I had an argument about that opinion; see comments in the original post, this and this.

Right. So that's some background. What about this year's version?

Here are my initial impressions:

First, the PI authors claim that California farmers can use efficient irrigation technologies to save about 5.5 maf of water in an average year. That's about 14 percent of the State's water or about 17 percent of what farmers use now.

Second, they make extensive reference to the cost of installing this technology (good!). Unfortunately, those costs are BIG: Efficient irrigation technology will cost $4.2 billion (or more) and "save" about 1.1 maf in an average year.* That's about $3,800/af conserved. Assuming a ten-year payback, that's $380/af, which is pretty damned expensive when farmers pay about $10-30/af now...

Third, they mention the need for water pricing and markets to create incentives to conserve water. Good!

Fourth, they call for extensive monitoring and reporting on water use. While I support that idea for ground water, I do NOT support it for overall water use. Why? It doesn't matter how much water is being used when its owner is making the decision. Ground water is different because it's often shared by many.

Fifth -- and this is my biggest point -- they propose that the cost of conservation be paid by a combination of tax breaks, government grants and other subsidies.** In other words, they propose to save pennies by spending dollars. This idea is totally backwards, unwieldy and probably doomed to failure. Why? Because subsidies rarely create the anticipated changes in behavior. You know that law? The Law of Unintended Consequences? That's where the title of this post comes from -- the inevitable government bureaucracy that will be interfering with farming decisions.

In conclusion, I think that this exercise in simulation should not be implemented. If it were, it would not produce the promised results.

Bottom Line: Farmers use a lot of water. If you want them to use less, give them a profitable reason, i.e., selling that water for more money, elsewhere.
* Note that "saved" water is really a reduction in applied water. Flood irrigation doesn't waste water when excess seeps into ground water; see this and this.

** They said the same thing in 2008. I said this:
Besides calling for a "realignment" of subsidies to discourage farmers from growing low-value crops -- something that makes no sense when farmers grow the most-profitable crops they can -- they think that farmers should get "tax breaks for water-saving irrigation systems." Those tax breaks would change the profitability of certain practices, which means that farmers are bound to react to them -- but at what cost? (Remember ethanol!)
Addendum: Looks like Spreck @ EDF and I agree.

Astroturf and Politics

In the ongoing war of words over who should get water in the San Joaquin valley (and Delta), every interest group claims that its interests are more important than those of others.

(Why a war of words? Because the decision on how to allocate the water is being made through political and judicial channels, not economic channels, i.e., markets. If water was allocated by price, we'd hear nothing but the sounds of smooth efficiency :)

In this war, some agricultural interests have hired a PR firm to create the impression of grassroots support (e.g., the Latino Water Coalition). The trouble is that this support is not from "the People" but from paid hacks.

So what's the opposite of a grassroots political movement?
astroturfing [is] a "program that involves the manufacturing of public support for a point of view in which either uninformed activists are recruited or means of deception are used to recruit them." In other words, rich people with a lot of money but no popular support for their cause (getting richer), will create the illusion of broad public support by half truths, manipulation, disinformation, spin doctoring, creating false impressions, and cash. It also involves ghost writing op-ed columns and letters to the editor from little people, to generate the perception there is widespread public support for the client’s position. Grassroots is bottom up. Astroturf is top down.
And you may have noticed that these astroturfers are getting a lot of support from Arnie. (He's already sympathetic to the interests of Valley farmers, but media coverage gives him an excuse to promise more water. Interestingly, he's willing to give water to help SOME people in the state while others -- fishermen -- are left with no help.)

Besides the interesting manipulation in these water fights, there is the interesting question of who is doing the manipulation and how they are doing it. The PR firm behind the Latino Water Coalition (Burson-Marsteller) is the same firm that has advised Blackwater USA on how to spin accidental killing of civilians, the Nigerian government on how to improve their image after killing activists, the firm behind Three Mile Island, and -- get this -- AIG on their public image. Dubbed "the PR firm from Hell," it seems that B-M is one company that will do ANYTHING for enough money. Not the kind of people you want looking after your kids.

Bottom Line: All's fair in love and war, and those fighting the war over water are willing to lie and deceive to get what they want. Just remember that it may not be what YOU want.

21 July 2009

Acid Rain

My friend Soazic Guezennec made this piece:


Acid Rain © 2008 Soazic Guezennec

Poll Results -- Vacation!

Hey! There's a new poll (caffeine!) to the right ---->
Vacations are good for... (This poll runs until July 20)
getting ready for more work 2%2
enjoying life 62%73
thinking about life 19%22
spending hard-earned money 5%6
keeping family together 8%9
stimulating the economy 4%5


After one month of careful research, I have concluded that vacations are indeed about enjoying life -- and thinking about it. But don't trust me -- go do your own research!

Bottom Line: No one ever died wishing they spent more time at the office. Live a lively life!

Endangered Species for Sale?

NW asks
With so many endangered species losing their natural habitats, would the usual prescription of allocating private property rights be suitable for dealing with this crisis?

On the one hand, centrally planned economies that had no or little private property are among the most environmentally damaged countries. On the other hand, I can't imagine private property rights being a good idea for saving natural habitats that are shrinking, especially if they're allocated in some form of a market to a developer, oil/gas company, or mining company that wants to destroy the ecosystem for the land's natural resources. Plus, once a natural habitat is damaged, I can't see the usual "market forces" working to punish these companies by reducing their profits for what they've done.

Thus, based on what we know from economics, how should we manage the natural habitats of endangered species?
NW makes a few standard observations here (government has screwed up; can't trust companies) but fails to consider the economics of conservation.

Why conserve? Because the "item" is more valuable alive (vs dead) or intact (vs desecrated).

Now notice how we take care of our houses, our cars, ourselves, our pets, etc.

Why? Because those items our OUR property, and we benefit from their wise use.

Endangered species, OTOH, are often in trouble because they have NO owners. As the Soviets found, "what belongs to all of us, belongs to none of us, so let's exploit it!"

That's why blue whales are endangered -- because nobody own them.

That's why the Brazilian rainforest is disappearing -- because government policy makes it easier to slash and burn and move on than to conserve the greenery.

The way to protect the rainforest, the whales, etc. is with stronger property rights, and individuals and companies (e.g., the Nature Conservancy) are set up to provide that protection. (To learn more about this kind of free market environmentalism, visit the Property and Environment Research Center.)

What about oil companies buying up land and then destroying the environment while they exploit the resource? That will happen if a clean environment has no value and/or there's no way of enforcing environmental quality. Thus, someone has to be willing to pay for the clean environment, and that payment needs to be linked to results. If the Nigerian government gave property rights for "clean environment" to the people in the Niger Delta and was NOT corrupt, then Shell Oil would have run cleaner operations and avoided the current conflict in the region.

Bottom Line: The difference between abundant chickens and endangered tigers is property rights. Chickens are owned by individuals who protect them from others; tigers are owned by "us" and protected by nobody. If you want to save the tigers, sell them.

20 July 2009

Speed Blogging

  • Bad neighbors: Trash from Tijuana, Mexico flows downstream and north, desecrating the environment near San Diego, CA. The solution? Gringo money for pollution controls. The likelihood of this solution? Slightly greater than zero.

  • "Urban Sacramento is the leading source of pesticide contamination disrupting the Delta aquatic environment"

  • "As Borneo's rain forests are razed for oil palm plantations, wildlife centers are taking in more and more orphaned orangutans and preparing them for reintroduction into the wild. But the endangered primates now face a new threat — there is not enough habitat where they can be returned." Blame the dead babies on government bio-fuel policies.

    Note: This post has more on how to recover the rainforest.

  • The cost of obesity in California? $40 billion. The budget deficit? $26 billion. Maybe we can solve both problems by making fat people walk to pick up Arnie's IOUs?

  • The Aral Sea is in even worse shape. The USSR started the murder; the Kazaks and Uzbeks are finishing the job. What's the weapon? Subsidized irrigation water.

    Note: Turkmenistan has an even stupider idea -- diverting a river to make a BIG lake in the desert.

  • Joseph Shaefer has an interesting article [part one part two] on future water wars and investing in the companies that will make money from shortages. Although I am not so pessimistic on wars and think that government policies can destroy many companies' business plans, the articles are thought--provoking and informative. I DO agree that "lifestyle" water (meat, consumption, etc.) is going to be EXPENSIVE.

  • The bottled water industry is diversifying its (advertising) message in an attempt to stay alive. Demand fell last year after years of double-digit growth.
hattips to PB, LC, EF, JWT

Monday Morning Smile

These numbers are obvious, but their importance is only obvious with context:



Watch Robert Glennon on the Daily Show! Jon seizes on an excellent idea: brine stream amusement parks! (Glennon, unfortunately, talks about a change in morals more than a raise in prices :(

Robert Glennon
www.thedailyshow.com

Opportunity Costs

Do exports of water-intensive crops hurt drought-prone California?

Yes and no. To understand why, make sure that you know what "opportunity cost" means.
Put simply, opportunity cost refers to the cost of your action in terms of other actions foregone. If you are choosing between seeing one movie you value at $15 and another that you value at $12, then the opportunity cost of seeing the $15 movie is $12 of benefits foregone. Put differently, the net benefit you get from watching the "better" film is its marginal value of $3. What about the $10 cost of the movie ticket? Just deduct that amount from values to get marginal benefits of $5 and $2, respectively. What's the opportunity cost? Still $12. What's the net benefit? Still $3!

Is this confusing? Yes. Why? Because we rarely think "on the margin." That doesn't invalidate the importance of opportunity costs.
Yes because that water could probably go to better uses than growing alfalfa and grasses for export to places outside of California.

No because that water cannot be put to those better uses. Why? Because markets for water are non-existent and/or underdeveloped.

If you agree with me, you will also agree that this is silly:
"This is water that is literally being shipped away," said Patrick Woodall, research director at Food and Water Watch, an international consumer advocacy group with headquarters in Washington, D.C. "There's a kind of insanity about this. Exporting water in the form of crops is giving water away from thirsty communities and infringing on their ability to deal with water scarcity. This is a place where some savings could be made now, and it's just not being discussed."
It's silly because that water does not belong to those "thirsty communities." If they want the water, they should not complain about "having to deal with water scarcity." They should either reduce their demand (higher prices!) or buy the water from those who have it.

Bottom Line: My water is NOT your water. I will try to maximize the value of my water. If you think you have a higher value, then offer me more money than I can get using it myself.

19 July 2009

Weekend Discussion: Better Blogging!

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 showers. After that, please give us your thoughts on...

Improving this blog -- better posts, more readers, different features, etc.

Questions from Mr. T

Mr. T wrote in an interesting email:
  1. Here's a good example of a public agency that cut corners to cut costs and harmed their customers.

  2. The public (and therefore political) perception is wrong about water: Water agencies are not seen as providing a service, rather they are seen as charging for something that is "free." I think that needs to be addressed before politicians will be willing to raise rates. We can insist they raise rates as the professionals, but that usually gets your commissioner voted off the board and they know that.

    DZ: That's true, and that's why I say that higher prices are justified as the cost of reliable water (demand less than supply). It's also why I compare water to gas all the time...

  3. Currently, water is managed in such an ad-hoc way from supply to tap that it is hard to properly distribute funds. A city's water supply/infrastructure might be managed by the city, a regional board, a statewide board, a watershed group, and even international groups. This is sort of akin to America before the federal Interstate system. I believe a federal organization needs to be created that can actually fund drinking water infrastructure improvements in a similar way to how interstates are funded. As you mentioned with a recent article a large infrastructure improvement might be two or three agencies removed from the real rate structure. The net effect is that the end party doesn't have the political will to raise rates because their immediate needs are not satisfied by raising rates.

    DZ: The trouble here is that water is managed with a bureaucratic accounting system that may reflect neither costs nor benefits. If prices were accurate (arms-length, competitive, etc.), then attribution of costs would be less-controversial AND simpler. Just think about how a dollar spent on a gallon of gas is distributed among the parties that bring it from the field to the refinery to the station to you...

  4. By far the largest users in cities are industrial processes. Because of the politics involved in raising rates on business for fear of losing jobs the average citizen gets to shoulder the burden of most tiered rate structures.

    DZ: Yes, the "cheap water for jobs" mantra is popular -- and false. First, there are few businesses that will relocate ONLY to get cheap water. Second, those cities that do offer cheap water are more likely to run out later (since prices are unsustainably low...), which is REALLY bad for business!

  5. Maintenance instead of main breaks. We need to provide our utilities with the funds necessary to rehabilitate and perform maintenance on their system rather than reacting to main breaks and disasters.

    DZ: A weld in time, saves... lots of water and money. I'd say that many utilities are starved of funds for capital maintenance. I'd also say that their managers are doing a poor job in communicating this need. It's not easy to get an adequate maintenance fund when you are bragging about how cheap your water is!

  6. Your recent post on the B&V report may be warranted but your position as being neutral could be challenged as well -- aren't you solely promoting your (economic) method for alleviating water issues?

    DZ: Yes, I am solely promoting sound management of water as a scarce commodity. Yep, economics :)

Wrong in One Picture


This graphic (via the AWWA) shows that median charges for water are the same in the West as in the Northeast. Now, we all know that the West has water "shortages," and now we see why -- the water is too cheap! (10 ccf is 7,480 gallons.)

NE prices are the same because they -- like prices in the West -- reflect the cost of service, NOT water scarcity. If scarcity prices were included, the price of water in the NE would probably be the same, but prices in the West would be much higher.

Bottom Line: Water shortages in the West are manmade -- that's because we do not raise the price of water (unlike every other commodity) when supplies are running short. Don't blame the drought -- blame politicians and water managers.

18 July 2009

Flashback: 12-18 July 2008

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

All-in Auctions are the way to reallocate water while protecting property rights. IID, meanwhile, overruns its 3MAF allocation. Interestingly, water conservation may not be the solution! Common Carriage, OTOH, can bring competition into water provision.

Forbes.com published The Water Shortage Myth, my most "famous" op/ed. It's still a good read, and here's some feedback on how it was received.

How to Set a Carbon Tax and why we should have one. Other reasons are avoiding Carbon Credit Scams and killing ourselves while participating in The Growth Cult.

Small is Beautiful -- The Review

EF Schumacher, a British economist, published this book in 1973 from essays that he wrote in prior years. I have heard about it for years and just now read it. It's truly a wonderful book, full of thoughtful -- yet revolutionary -- ideas of how to structure a sustainable economy. I give this book my HIGHEST recommendation to anyone interested in the economics of development, environment, natural resources and community.

The 297 page book has four parts:
  1. The Modern World has essays on sustainability and scale.
  2. Resources discusses land, education, energy and technology
  3. The Third World gets very deep into the similarities and differences between economic systems in "our world" and a poor village.
  4. Organization and Ownership discusses different ownership structures and how their incentives (dis)serve man and society.
Schumacher's perspective is informed by Gandhian and Buddhist concepts of scale, i.e., the appropriate scale for a business or a job is the scale that an individual can understand and enjoy. As such, he runs directly against the "bigger is better" philosophy of mainstream economics that argues in favor of increasing scale until marginal costs begin to rise. Further, Schumacher goes against the idea that profits, per se, are the only goal. As a free-market economist, I have strong doubts about these ideas; as an environmental economist concerned with sustainable systems, I have to agree that his ideas are more sensible than those that pursue profits at all costs.

If these ideas had displaced mainstream economics (to the extent that Gordon Gekko said "small is beautiful" instead of "greed is good"), we would be living in a very different world today. Schumacher is certainly aware that he is fighting an uphill battle, but his analysis never veers from good economics. He does not hope that people will just "do the right thing." Instead, he pays attention to incentives and how they can be changed to accomplish his goals.

This book is full of wisdom, and the writing sparkles. Although you should read it to experience it yourself, I will leave you with this passage:
We are always having all sorts of clever ideas about optimizing something before it even exists. I think the stupid man who says "something is better than nothing" is much more intelligent than than the clever chap who will not touch something unless it is optimal.
Bottom Line: Economists study how humans use scarce resources. Their decisions are motivated by philosophies of why they want to use those resources. This book discusses those decisions with an important question: Is the goal more consumption or happier people? Since consumption does not appear to make us more happy, we have to ask what does, and Schumacher answers that question by noting that people living in communities and doing meaningful work are happier.

17 July 2009

Dust Bowl or Salad Bowl

This June 20 photo (via LC) shows the same protest sign noted in this post. The difference is that the "dust bowl" doesn't look so dusty.

Whoops.*


Bottom Line: If you're gonna do that agit/prop, make sure you don't contradict yourself in plain sight!
* Shawn Coburn assures me that almond trees are turning to firewood. What's behind that contrast (alfalfa growing while trees die)? The lack of water markets in California. You know where to find me if you want 'em.

Using Software to Model Environmental Damage

A guest post by Blake Shurtz*

Economists use stock-and-flow models to forecast the economic impact of environmental changes in the face of uncertainty.

One popular application of the stock-and-flow model is towards climate change. By constructing feedback loops between geophysical and economic parameters we can estimate the optimal discount rate. The discount rate is simply how much we value future damages in the present. The literature abounds with arguments for high and low discount rates between 0.1% and 7.0%. Economists argue for an optimal discount rate on the grounds of efficiency: A rate that is too low would mean overinvestment in emissions reductions while higher return investments in non-climate-related capital are neglected, and vice versa.

I am using the stock-and-flow model to analyze the effects of drought in the Mahbubnagar district of Andhra Pradesh. Given a variety of agricultural parameters (soil condition, rainfall, water availability, slope, elevation, etc.) based on historical data, I am using statistics to predict the availability of water in the future and the economic impacts. It is essentially a risk-assessment: if X water is available, the production losses will cost a farmer $Y. Or to rephrase it: If water costs $X, the farmer can increase their income to $Y by switching to crop Z, which uses less water (holding all other inputs constant).

I am using three pieces of software:
  1. Stata, to predict macroeconomic effects on the secondary and tertiary parts of the economy.

  2. WinEPIC, a non-proprietary, open source, stock-and-flow model available for download form Texas A&M. You can download it here and the Aggies will email you the password.

  3. ArcGIS to perform geostatistical analysis of non-spatial data. ArcGIS lowers transaction costs by bundling the weather and economic information together in a visual framework; see image at right.
Bottom Line: 70% of India’s population practices subsistence agriculture. Agriculture’s share of GDP has been decreasing for years. This is may suggest that development agriculture is becoming more efficient, but there is work to be done. To learn more about stock and flow models, take a class at your university.


* Recent graduate of the Environmental Economics and Policy program at UC Berkeley now doing research at ICRISAT. Read Blake's blog here. ICRISAT is a non-profit and non-political research organization that serves the poorest of the poor in the semi-arid areas of the developing world. We use science as a means to serve the poor, not as an end in itself. This is the human face of science and agricultural research.

16 July 2009

Hanging Your Thoughts on a Framework

J Shogren gave a big picture, "I wonder about this and that" talk [PDF] at a small conference I attended last month.

He covered a LOT of ground, but I liked these comments/clarifications:
  • Environmental and Resource Economics is economics applied to life sciences.
  • Behavioral Economics is psychology applied to economics.
  • Experimental Economics applies an experimental mindset to economics.
He then offered a simple Venn diagram showing the overlap (and non-overlap!) between markets, missing markets and non-markets. The idea is that we can handle SOME things in markets (e.g., bread), that markets are missing for some things (e.g., carbon) and that we cannot manage somethings with markets (e.g., love). People are likely to put different goods in these rings (or make the rings different sizes), but it's a good place to start.

J made the additional observation that bounded rationality, limited willpower and imperfect self interest make it hard for us to interact in any of these spheres. Good point. What do you do, once you believe it? If you're a human, act cautiously. If you're a researcher on human behavior, act MORE cautiously.

Bottom Line: Markets are not right for all goods in all places. (No, this is not some kinda conversion -- I KNOW that!) Because of this fact, it's important to design the right institutions to deal with the characteristics of the goods of interest.

Empty Houses and Homeless People

In many parts of the world, the economic bust has produced an interesting paradox: Many people are losing their houses, and others are losing wages that would help them buy houses. On the supply side, a wave of new housing has hit the market at the same time as new vacancies have increased. With a fall in demand and increase in supply, there's a surplus of properties and that's why we see for rent and for sale signs popping up everywhere.

So what's the solution for this problem? Excluding big factors (sudden increases in incomes, the desire to own, property destruction, etc.), the answer is lower prices.

Well, problem solved, right? Not exactly. That's because prices for real estate tend to be "downward sticky," i.e., owners are happy to see them go up (and charge higher selling or rental prices), but they are unhappy to see them going down. So, even if "the market" indicates that prices may drop, owners may not drop them. Instead, they stick to their higher prices and hope to find someone willing to pay them. The trouble is that this "someone," unless he's an uncle or has a rare myopic disorder, is probably going to be looking at market prices are buying houses that offer "good value for money." And so the overpriced houses remain unsold and the overpriced business locations remain unleased.

Besides waiting for owners to realize that they are losing more money by waiting than they are gaining with an eventual -- and not guaranteed -- sale, there is very little that outsiders can do to affect this situation. By far the most common -- and most stupid -- "solution" is offering cheaper finance to new buyers. These government-sponsored programs do nothing to reduce prices in the market; they merely add a subsidy to demand.

I would prefer that the government organize auctions of property for rent or sale. The basic idea is that there is no RIGHT price except the price that emerges from the auction. If there are enough people looking for property "at the right price" and enough property available, they will be able to match up in an auction. After all, a city with low vacancies is a city full of residents and businesses that are contributing to that city's vitality. A city with homeless people, few small businesses and vacant signs here and there is a dying city.

Bottom Line: The real estate market does not adjust very well when big changes hit it. Auctions to match supply and demand can restore balance and increase the utilization of one of our precious resources: real property.

15 July 2009

Glennon and Zetland on the Radio

Here and Now, a program from Phoenix public radio station KJZZ, hosted Dr. Robert Glennon today and also had a short interview piece with David. Audio is here (water discussion starts about 20 minutes into the program), comments to the show here.

It was an interesting show, although I wish Dr. Glennon spoke a little less sparkly and a little more accurately. For example, David mentions raising prices, and Glennon mentions he agrees. However, he retorts that raising prices is a third rail and somewhat hopeless to pursue as a strategy for reducing demand. The example he gives? Tucson, AZ, which he claims raised prices in 1976-77 and subsequently saw its council members that supported the increase recalled in a referendum. What he fails to mention, however, is that the replacement council members, elected on a repeal-the-increase platform, ended up agreeing with the original price increases, and actually ended up raising them more, within 6 weeks of the recall election. They were not recalled.

Furthermore, as David always says, his proposal to increase prices for profligate use usually comes hand in hand with cheap prices for necessary use. So if leaders educate voters and bring them price increases that make economic sense, there is no need to assume that a price increase will automatically result in job loss.

And of course, given that Dr. Glennon is not a libertarian (at least as far as I can tell), I am bound to disagree on other points too. For example, he said
"What do we think water is for?" That kind of language annoys me because it indicates that one person's use ought to be judged as if society/politicians know what uses of the resource are best for individuals (Hayekian problem...). This came up when a caller mentioned an employee of McDonald's washing their parking lot everyday. The caller was bewildered, but it is a perfectly rational thing to do given McDonald's desire for cleanliness and the price of water in Phoenix. Dr. Glennon and others seem to prefer to keep water cheap, and then choose rules to govern which activities are allowed (watering driveways only in the evening, but not if they are larger than 1000 square feet, and not if they are owned by an entity based in another state, etc.)

Bottom Line: More water discussions on the radio are good, even if they are imperfect.

Addendum: Here's the 1:35 MP3 of David's bit...

More Bushels for Less Water with Technology

A guest post by Brandon Hunnicutt*

It is that time of year again in Nebraska, irrigating time. The time of year that can truly make or break a crop. In a state where there is as much rain variability from the east side to west side of the state, as west coast to the east coast, water is very important. We sit on the Ogallala aquifer which serves as a great supply of groundwater for many years to come. But we want to manage it to the best of our abilities.

We have utilized different resources to help in this. We have changed many acres from flood/gravity irrigation to center pivot irrigation. We have many pivots that run only on electricity which we can have the power company interrupt during peak electrical usage time. Over the years, we have used gypsum blocks to sense when we need to irrigate. We have utilized consulting services to help determine when to start and stop irrigating. Now we are striving to go more sensor-based to determine water usage and water need of the plant.

We are using three different methods for irrigation this year. One is using Watermark sensors, which measure the amount of water in the soil. We are in our third year of using this.

The second is the AquaSpy. This one measures more points at a given time and sends the info right to my computer. Looks like something we can utilize for a long time to come.

The third piece of our puzzle is an ET gage. This helps us determine the amount of evapotranspiration for almost all our fields.

The final piece is a chart that gives an estimate of what the crop is using for water at a certain growth stage. By combining all of these resources we can get a very accurate reading of what our crop is using and when we should begin and end irrigating.

Bottom Line: The more these tools advance, the less emotion there will be in irrigating. Hopefully one day we will be able to let the crop and the soil and projected weather tell the pivot exactly when to run and when not to run. That is at least what I dream about as I am driving the 4-wheeler to check the next Watermark sensor in a field.
* A corn, popcorn, and soybean farmer in South Central Nebraska.

Speed Blogging

  • An interesting article on using algae to treat wastewater and produce outputs of clean water and biofuel.

  • Michael Jackson the environmentalist? I have to hand it to him for his 1996 "Earth Song," but I am more bothered/perplexed by the NON-release of the song in the US. I guess it's not part of Earth? Feel free to make snarky comments...

  • A good article outlining the danger's of private public water management in Coachabamba. Locals want COMMUNITY management, and they should get it, since they have built their water systems from scratch and managed them to serve their community's needs. The central government bureaucrats have other ideas, unfortunately.

  • SciDevNet has a special supplement on reducing emissions from deforestation and forest degradation (REDD). Lots of info!

  • Nation-by-nation carbon footprints, and one way to reduce them -- meat-free Mondays!

  • Stimulus money and the water market: "GE estimates the global market, with subsectors including water technology and infrastructure, pollution control, water management and treatment, to be worth around $400 billion. New, cost-effective technologies are also emerging to facilitate remotely metering water use, treating waste water for reuse and desalinating sea water, the panel said."

  • No free lunches! "According to Jim Glanz in Wednesday’s New York Times, an earthquake shook Basel, Switzerland on December 8, 2006, damaging buildings and terrifying the residents. It had been 650 years since an earthquake toppled the towers of the Basil cathedral. This time at least it was not the hand of God. In an effort to produce almost limitless clean energy, a hole had been drilled 3 miles deep, fracturing the bedrock that separates Earth's crust from its molten interior. Water was heated by passing it through the fractured rocks. The project shut down immediately, but many smaller quakes continue to rattle the residents. A similar project to harness geothermal energy is underway in Sonoma County, CA." Read more on that here.
hattip to EF

14 July 2009

Captains of Disaster

(via DW) San Diego water department officials are worried that people are not paying attention to watering restrictions meant to reduce use.

What's their tool of choice? "City water officials expected and hoped neighbors would keep an eye on each other’s lawns." Oh, so the city wants everyone to turn water-nazi on each other, eh?

And then what happens? The City will send out letters! "We've actually sent out 227 letters as of Monday" Well, beat me with a drip-line! That's gotta be the most effective thing I've ever heard of! Letters! Yep, that'll get 227 households -- out of 450,000

I swear, these guys couldn't be more incompetent if I was trying to write the script. If you want people to use less water, then RAISE PRICES!

Bottom Line: Command and control water managers are commanding their ship right into the iceberg.

What Does Reliable Mean?

A guest post by Jeffrey A. Michael*

I have been reading and listening to California’s agriculture industry a lot lately. Reliable is their favorite word. They need a reliable water supply. They need a reliable labor supply. And they want the government to adopt policies to ensure reliability.

In most situations, reliability problems are solved by paying more, but the farmers do not support higher prices/wages. To the agricultural industry, reliable seems to mean cheap and abundant.

It works well politically. The public is more supportive of “reliable” than “cheap.” Reliability is now promoted as the desirable goal of water policy. The first recommendation of the Delta Vision Report is “The Delta ecosystem and a reliable water supply for California are the primary, co-equal goals...”

I’m afraid this goal will only perpetuate unrealistic expectations of Delta water supply without a clear definition of reliable. In recommendation 10, Delta Vision restates it as “the co-equal goals of ecosystem revitalization and adequate water supply for California.”

So, reliable means adequate? My used car is not reliable, but it is adequate.

Bottom Line: If you want something to be reliable, you have to pay for it. Raise prices now! We may find our "unreliable" supply is adequate after all
* Director (Business Forecasting Center) and Associate Professor (Eberhardt School of Business), University of the Pacific