23 February 2011

Demand goes up and down*

RT asked me this awhile ago:
You might know that Australia has recently been through a horrific drought during which water restrictions that were imposed for a lengthy period and other demand management activities were undertaken. I'm wondering how water demand is likely to recover following the drought.

Will people 'bounce back' to normal demand levels.

Is there any experience from the US that might be relevant?

Are you aware of any papers that have looked at post drought consumption?
I replied with:
So the relevant question is the mix of "demand destruction" vs. its temporary suppression (demand curve shifting in vs sliding up in econ jargon).

This post describes an excellent study where demand dropped to 50% of pre-drought and then bounced back to 60% of pre-drought, once the "crisis" was over.*

So, demand should bounce back, but not by 100% of the drop...

Love to hear any numbers on change in demand. I think that Brisbane got down to 140lcd, but I reckon that's back up again, hmmm?
RT replied:
If you know where I'd get information on the current levels of consumption per household in Santa Barbara please let me know.

In Aus - the bounceback in demand hasn't happened quite how people would expect. Queensland dams have been overflowing but people aren't using much water.

A few reasons I think:
  • Need for water is less when it rains.**
  • Strangely, policy is such that the usage price is now higher than ever
  • Govt has invested so much in convincing people water is precious and should be conserved, and
  • There are some permanent measures that have been undertaken - people have installed rainwater tanks etc
I replied with:
All of those reasons make sense. Demand destruction is meant to be permanent.

According to this [pdf], SB dropped from 165gcd to 90gcd and now they are @ 120gallons/cap/day. So that's 630lcd (!) down 45% and then up 33% (down 28% permanently).

Yes, you may piss your pants @ these numbers, but SB is a VERY rich city in a state where "normal" residential use is 400lcd+
Bottom Line: Demand can go down in a drought, and then it can go back up in shortage. The trick, then, is to send signals of scarcity to make that happen -- and prevent shortages.
* The title of this post unintentionally sounded like Bill O'Reilley's claim that tides prove God's existence (watch on the Colbert Report). Changes in demand do too are the result of people's choices.

** This exchange took place before the current floods in QLD.

1 comment:

  1. They also built a bunch of huge desalination plants. I know at least one of them has been mothballed because of the overflowing dams but operating them at the necessary 5-10% capacity to keep the membranes wet is still expensive.

    Other plants have contract stipulations stating that the city must buy certain amounts of water from the desalination plants despite overflowing dams. This water can be three times more expensive than dam water.

    Basically, you wouldn't expect demand to pick back up as much with these plants driving the price of water way up, even though they are not needed.

    Check out this article:
    http://www.globalwaterintel.com/archive/11/12/general/aussie-plants-go-hibernation.html

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