30 Apr 2013

Water quality trading in Florida

A guest post by Tina Reine of Water Investments Group

The Florida Water Quality Credit Trading Bill is now being considered in both the House (HB713) and the Senate (SB754). On April 25th it was placed on third reading in the House by the State Affairs Committee and in the Senate, it was read for a second time.*

In 2008, the Florida Legislature passed HB 547 to create a pilot water quality trading program for the Lower St. Johns River Basin. After the success of that program,** Bills HB713 and SB 754 propose to allow statewide water quality trading. The Bill authorizes the Department of Environmental Protection (DEP) to approve water quality credit trading in adopted basin management action plans.

Entities that participate in water quality credit trades must report how prices were agreed on, since they will be negotiated trades instead of determined in a public auction. Additionally, any state funding received by the facilities to the DEP must be reported. This is to prevent any tax payer money involvement in these transactions (double dipping). The DEP cannot participate in establishing the price of credits, but it will post trade information publicly. DEPs main goal is to allow stakeholders to economically achieve their obligations to restore water to a higher quality. DEP appears much more committed than they were at the start of the St John’s River Basin pilot program, in terms of using a trading platform to address water quality issues. The current Bill is broader than the original trading program in that it encourages public-private partnerships to find creative ways to address water quality, water storage on private lands and to restore surface water resources.

The Bill also clarifies that water quality credit trading is voluntary. The Bill authorizes water quality credit trading to occur under any of the numerous local, state, or federal authority pollution control programs (e.g., NPDES, Numeric Nutrient Criteria, district permits). One example of these regulatory programs is the NPDES storm water program, which regulates point source discharges of storm water into Florida surface waters from certain municipal, industrial and construction activities.

Another pollution control program in the State of Florida is the Numeric Nutrient Criteria program, which puts forth standards on Florida’s streams, estuaries and lakes. EPA approved DEP's standards in November 2012.

The new Bill would give an additional option for reducing pollution with more flexibility and/or lower cost to entities subject to pollution controls. The only opponents to the Bill are a few environmental groups (e.g., Conservancy of Southwest Florida) that prefer regulations over markets for addressing water quality. In addition to this, there are facilities that are fearful environmental groups will come after them.

Nutrient trading is a big win for everybody. Water quality goals are being met. Credit buyers are using a less costly way to meet their reduction goals while finding ways to reduce in the longer term. And, credit sellers are being financially rewarded for finding ways to reduce pollution.

Bottom Line: Florida has made huge progress in establishing this Bill. If it passes, there would be an enormous potential for a successful statewide trading program.

* Addendum: The Bill is now awaiting the governor's signature.
** The St Johns River program was considered a successful trial. The trading was limited due to uncertainty of US EPA's promulgation of a rule bringing about nutrient criteria. Report on the Pilot Program to the Governor can be found here [pdf].

Anything but water

  1. "Because America's geographical position is so unique in the world, it has led to a worldview that is often unrealistic and riddled with contradictions. However well-intentioned Americans may be, their view of global politics is frequently at war with itself. Here are three strains of thought in Americans' approach to global affairs that continue to impact their country's role in the world today."

  2. Another great post from Frank van Steenbergen: Good or bad land grabs. He's right to explore the details of sustainable performance.

  3. School choice works for parents and children; not so sure about administrators or teachers who do not want to serve them. I'm not a fan of funding/punishing with test scores, btw. I prefer vouchers; parents are better at choosing what works for their kids.

  4. Using games to help stakeholders reconcile their interests (and deal with climate change).

  5. "Doctoral study has a way of turning your head into a never-ending seminar, and I’m now capable of having complicated, inconclusive thoughts about nearly any subject. But advice helps people when they are making rational decisions, and the decision to go to grad school in English is essentially irrational... To begin with, the grad-school decision is hard in all sorts of perfectly ordinary ways. One of them is sample bias. If you’re an undergrad, then most of the grad students you know are hopeful about their careers, and all of the professors you know are successful; it’s a biased sample. [snip] Grad school is a life-changing commitment: less like taking a new job and more like moving, for the entirety of your twenties, to a new country... Grad school will shape your schedule, your interests, your reading, your values, your friends. Ultimately, it will shape your identity. That makes it difficult to know, in advance, whether you’ll thrive, and difficult to say, afterward, what you would have been like without it."
H/T to DL

29 Apr 2013

Monday funnies

Water, corruption and development

I'll be speaking at the Water Integrity Forum (5-7 June in Delft, free to register)

Here are some "big picture" thoughts on water, corruption and development that I'll discuss:
  1. There is no clear line dividing rich, developed countries from poor, less-developed countries when it comes to water management. A good manager in a dirt-poor slum may deliver better water quality than a team of MBAs and PEs with gold-plated budgets in a rich country. Water management succeeds through the "art" of balancing different interests, not pipe fitting.

  2. Most water providers have a local monopoly over the water their customers (from irrigators to households) use. Some water providers depend on non-customer resources (e.g., international aid, soft loans from the national government, or municipal staff). Monopolists can be lazy, corrupt or biased towards their own ideas; dependent monopolists are subject to the whims and corruption of their sugar-daddies. Real customers, in either case, do not get the service they want or deserve.

  3. Initial water allocations result from a political process. Subsequent reallocations (if any) are usually economic, but sometimes they occur through political force, i.e., water is taken for "higher purposes." (Re)allocations can be distorted by corruption or bias.
These problems show up again and again in failed water management.  Some (e.g., monopoly or bias) are permanent, but others can be avoided. For example:
  1. Managers should not just "listen" to customers; they should explain how prices, costs and outcomes are related. Customers should be able to understand why there's no free lunch -- or allowed to complain (potentially firing managers) when there is.

  2. Providers of water for economic use (i.e., tap, irrigation, etc.) should cover their costs with user fees. A human right to water can be funded by income transfers; loans should be made on commercial terms, with viable penalties for non-repayment. Managers will serve customers when customers pay their salaries.

  3. Political allocations may have been corrupt or mistaken, but they should not be cancelled as "mistakes," since strong property rights are important in the long run. Use markets or budgets to reallocate rights, since value is created in reallocation.
Bottom Line: Fair and efficient water management results when customers get what they pay for and penalize those who fail to provide good service. Customers with such a role will neither tolerate nor need to endure corruption.

26 Apr 2013

Friday party!

New Zealand just legalized gay marriage (yay!), and this NZ parliamentarian describes its importance.

Now can the Americans climb out of the cave on this and legalize it?

Anything but water

  1. WTF is wrong with Americans? Good question.

  2. A teacher's nightmare.

  3. Must read Interesting "Should I take this seriously? A simple checklist for calling bullshit on policy supporting research" [pdf]

  4. Economists are biased (no duh), but this comment is off the mark on "missing" population growth, since we (economists) look at per capita wealth. Read the original, then see if you worry about our bias towards treating individuals alike (my version).

  5. More problems with indicators, metrics and monitoring systems:
    ...despite investment of massive amounts of resources in monitoring initiatives, there is a surprising lack of evidence for their actual impact on decision-making or management [like I said]
    (I see that Hoekstra has another book on water footprints, a distraction from what matters -- according to me... and the Dutch Environmental Assessment Agency :)
H/T to TM

25 Apr 2013

Energy subsidies and government failures

In the first post today, I highlighted how Ben Ho and I disagree on how to evaluate price subsidies. He says "subsidies should be left in place until you can prove they create net harm." I say that subsidies should be removed if you can show any harm.

We were discussing US subsidies for corn ethanol, but there are many subsidies affecting energy. This post has a roundup of stories that I've collected recently on how well those (don't) work.

The biggest news is the failure of the EU's Emissions Trading Scheme (ETS), a cap and trade system for carbon that's been killed by politicians' failure to undo their previous mistake (not! since it helps their friends) of issuing too many permits on the supply side.

The ETS story has two side stories. The first is the loss of funding for clean energy from the decline in revenue from selling permits. (Carbon indulgences are so cheap that EU energy companies are buying, importing and burning US coal.) The second is the perverse outcome of EU energy companies importing and burning wood from all parts of the globe (NOT a carbon neutral action) due to wood's administrative status as "renewable." Old growth German forests are, for example, being burned. A complementary report estimates that the EU is spending $10 billion a year on biofuel subsidies that have no positive impact.

The US ethanol program is also failing, but politicians are "defending it" from market forces in their quest to keep pork flowing back to agribusiness. One of their stupid ideas is to buy sugar from US farmers who are losing money in production (despite massive protection from cheaper imported sugar [pdf]) and give that sugar to ethanol refiners. Who loses money? Taxpayers. You.

Regulators, meanwhile, are trying to set up a nutrient trading program to shrink the dead zone at the mouth of the Mississippi. The voluntary program may not work, but I wonder if it would be necessary without subsidies that give upriver corn farmers the incentive to plant (and fertilize) corn everywhere. (Corn needs more fertilizer than other crops.)

The renewable sector is also under attack from "conventional" fuels, to the point where some pundits say that peak oil will never arrive (it will, farther in the future), due to shale gas and tar sands. The trouble is that those operations have got their share of problems (including deceptive astroturfing and misleading research, a la Tobacco Institute), which makes it hard to turn to them from renewables.*

So what's to be done? Well, the first thing we need to recognize is that the world's carbon intensity has not fallen. After we see that and agree that renewable policies have really done little good, then maybe we can think of a better idea.

Oh, I know -- how about we stop subsidizing conventional fuels? The IMF just estimated that the world would save $1.9 trillion be ending subsidies (mostly in poor petro-states). Such an end would please me by removing a distortion to energy prices, it would leave lots of money to help poor people directly (instead of profiting petro-producers), and it would make it relatively more expensive to produce carbon. Intensity would fall.

Bottom Line: Subsidies distort decisions by consumers, producers and politicians. End them if you want incentives and markets to work. End them for energy, and we'll get economic efficiency. If carbon is still a bad then tax it to get environmental efficiency.

* Lord Stern just released a report complaining about the $trillions of petroleum assets that would be stranded if the world went off carbon -- the flip side of my worry about $billions in stranded low-carbon assets (a worry that seems to be more justified). I'd love to see lower energy use but there's no sign of it.

H/T to AH and JR

Bad policies -- or bad policy makers?

A few years ago, I debated the costs and benefits of ethanol with Ben Ho (his post with many comments plus my summary*). I used that debate recently in a paper (Economists owe ecology an apology) to illustrate how some economists favor policies that others (me!) wouldn't even consider -- e.g., a price subsidy that distorts decisions.

After I wrote a draft, I sent it to Ben to check for accuracy. Our subsequent emails reveal how differently we see cost-benefit analysis (CBA) and government interventions. This post (with his permission**) has part of our exchange. Tell me what you think.

Ben: I agree with your chapter, but I was so frustrated that you were so convinced that ethanol is bad and are so convinced that pursuing ethanol is like "striding off a cliff." My position was never that corn ethanol was good. My position was always that there is not enough data to reject the null hypothesis that corn ethanol is good.
Me: No, it's the subsidies. The cliff is NOT about corn. My null hypothesis is that subsidies should not be used if you can falsify the claim that they are good, i.e., find a single problem (beyond the obvious one of sourcing funding for it) in the subsidy. But you're relying on an overall CBA that (1) can never be resolved if you include long term data and (2) will always depend on assumptions. Note also that I'm not talking about corn ethanol, but subsidies. Ethanol -- or flower power -- or whatever is fine with me IF it competes...
Ben: I thought you might go with your default "do nothing" proposition. It sounds like a good principle, and in line with popular notions like the precautionary principle that is written into EU environmental law, and the classical liberalism of John Stuart Mills. But it's fundamentally irrational. Your position says we should do nothing relative to a status quo where there is no subsidy. But that's not the status quo. The status quo is that there currently is a subsidy. Getting rid of an existing policy has many costs as I teach in class right from Baron's textbook. It is costly in political capital and time. Congress and the president has a very finite amount of time and so changing policy has shadow costs. It is costly because existing companies have made sunk investments in existing policies, and therefore changes to policy are real costs. It is costly because recent theories of Kahnemann and Tversky argue that your reference point is set by expectations. And if your expectation is that ethanol subsides exist, then changes are coded as a loss. Therefore, the safer precautionary approach can arguably be the one that leaves existing policy be.

Furthermore, you discuss the costs and benefits of ethanol, but I could just as easily spin a story of the unmeasured benefits of ethanol, the importance of supporting US farmers, the pride Americans feel in home grown fuel, the advances in ethanol technology, the advances in ethanol infrastructure, the option value in case of future oil embargoes. And then we can weigh that against [your costs of] "groundwater depletion, surface water pollution, an enlargement of the dead zone at the mouth of the Mississippi, distortions in global food prices, deviations in land use, and (most recently) claims of engine damage."
Me: In short, your method pretty much allows government to subsidize whatever it wants. You could [spin that theory], but would you bet a month of salary on it? Even assuming you could quantify CBA?
Ben: I would bet that the benefits I listed outweigh the costs you list. Anyway, just very very very very back of the envelope. Spending on agricultural goods is 1-2% of GDP. As for oil, that's roughly 5% of GDP. So magnitude of effects lean in favor of oil.
My response [not in email] is that his benefits include "supporting farmers, pride, more technology and infrastructure, and energy independence," which are, respectively: a wealth transfer, worthless, the result of subsidies that may go to waste, and wishful thinking. His 2 vs 5 percent figures compares cash receipts but ignores substantial non-measured costs from groundwater depletion, surface water pollution, etc. (I'll allow that engine damage is not YET a big factor.)

Bottom Line: Ben thinks that a subsidy should be left intact because politicians are busy, companies have invested in subsidized activities, and people expect the status quo to continue -- unless it can be proven to be bad. That may sound good to an ethanol lobbyist or lazy politician, but it wouldn't last for a second at a profit-seeking company. Businessmen don't need proof of bad before they make decisions; they kill products that are not showing good results because they need to redeploy resources to products that DO produce benefits. Is government different, or do we just expect government to continue bad policies?***

* In that post, I bet that ethanol would be a de facto loser ("More evidence will come out that supports my POV OR congress will cancel the program as the economic/ecological disaster that it is. If the program expands AND a majority of evidence supports your POV, then you win.") It looks like he ignored that bet, which is handy given that I've won; see next post for more.

** Edited to save space, but I've tried to maintain the gist of the back-and-forth.

*** I just revised my paper on a groundwater tax that the Dutch government ended. SOME governments respond to costs and benefits.

24 Apr 2013

Water and development

This video has a decent overview of the problems (I've got quibbles)

Speed blogging

Ok, I'd LOVE this in front of my house (more pix)
  1. Sanity on the Colorado? It seems that Minute 319 allocates additional River water to Mexico if that water is allowed to flow through the Colorado delta to the Sea of Cortez (the language in the minute is all legal mumbo-jumbo to me). This newsletter [pdf] gives a clearer description of the minute, which has other elements related to water sharing. I worry that it does not take lower average flows into account. Your thoughts? (Will this help or hinder Colorado's [media] status as America's "most endangered river"?)

  2. Definitely true: "Any country or industry that wants to stay competitive must properly manage its water."

  3. Forget the old tap. How about a "high tech drinking fountain" that delivers cold, bubble water and advertisements... for anyone with a smart card? (I hope the local government is not wasting taxpayer money on this!)

  4. A simple and free groundwater modelling course: MicroFEM.

  5. Join Binayak Das to discuss water and integrity (corruption) on 25 Apr (13:00 GMT) over at the Water Channel [click here]. Related: I'll be speaking on 5 Jun at a conference Bin's organizing.
H/Ts to RM and SM

23 Apr 2013

Aquacue gets paid for innovation -- and customers win

I've been advising Aquacue for a few years, and I'm pleased to announce that Badger Meter (biggest metering company in the US) bought Aquacue for about $15 million a few weeks ago. I introduced them and got some compensation, but three cheers to Shahram and his team for building up that much value in 3-4 years!

Aquacue makes smart meters that -- importantly -- use cellular spectrum to broadcast real time use to webpages, smart phones, etc. Cellular means that it's possible for one person to get a smart meter; it's not necessary to put up new infrastructure for a whole neighborhood.

Aquacue has rebranded itself "Badger Meter's Silicon Valley Innovation Center," and I expect that their new partnership is going to bring their great ideas to you a little sooner.*


Bottom Line: There's innovation in the non-monopolistic side of the water sector.

* Now that I'm out of a job with Aquacue, I may have some time for you. Email me.

Madmen for the 2010s?

Always in style?
We started watching Season 1 recently, and there are some interesting differences between life then* and now.

First, there's the big sexist angle. Hopefully "modern" men and women are equals in terms of fidelity and power.

Second, there's the drinking, which is DEFINITELY out these days (I like to have a beer at lunch, but I'm an exception).

Third is that everyone is smoking, everywhere and always in the show. That's clearly out, but I wonder what's replaced it in terms of ubiquity and impact. My suggestion is obesity, as it seems that a majority of the population (in the US and many countries) is overweight or obese.**

Even more interesting is the parallel between effects of smoking and obesity, i.e., higher health costs, negative externalities (it's not nice to smell smoke; it's not nice to see jelly rolls), and an industrial interest in keeping people smoking or eating.

But consider this: The fall in smoking has increased lifespans for smokers and perhaps for secondary smokers. A reduction in over-eating might do the same by helping formerly fat people live longer AND -- through the reduction in their demand -- by making it easier to feed the world's growing population. That would be really cool.

So, how would we move to a post-obese world? The same way we've cut down on cigarettes: cut subsidies to food, improve education on the impacts of cigarettes and -- most important -- say that fat is NOT normal.***

Bottom line: "Everybody does it" does not mean that everybody should. Stop overeating.

* I'm curious to know if the 1960 (or 1960 New York) was really like that. Opinions?

** My BMI is 23, but 44 percent of American men (15+) have a BMI of more than 30 (obese). Calculate your BMI.

** There will be some people who prefer to be fat the same way that some prefer to smoke. That's fine; I worry about those who ended up there by accident. And, yes, I know about "glandular" conditions and so on. Very few of those are real.

22 Apr 2013

Monday funnies

Bloggers know this (and we reveal the truth anyways :)

The Earth needs YOU

Although every day is Earth Day (and Water Day and Toilet Day, etc.) at aguanomics, some people like to pay attention to the Earth once per year, i.e., TODAY.

Well, here's my message to you:
  • The Earth doesn't need us; we need the Earth.
  • The government is not always the best protector of the Earth; sometimes individuals need to find a way to protect the Earth (and themselves) from harmful government interventions.
  • We all share the environment, but it's hard to organize a few people to do work that benefits many (i.e., take a collective action to protect a common pool good), but collective action is possible without government coercion.
  • Such action is easier when more people are doing it.
So I suggest that you do three things for the Earth today:*
  1. Do something to clean up the commons. Pick up litter, curb your dog or bike to work.
  2. Talk to one person about a joint responsibility that you'd like to manage better, whether it's the dirty dishes in the sink, an overstuffed office fridge or the rubbish at the end of your road. Make and implement a plan.
  3. Go enjoy the nature we all share, in a park, next to a river, or on the beach in the rain, sunshine or moonlight. There's no point in cleaning up if you can't enjoy it.
Bottom Line: Bottoms up solutions are easier to start and more efficient at addressing problems. Once everyone is doing their own version of bottoms up, it's also easier to arrange collective actions to coordinate people. Then, at the last step, it's possible (and probably efficient) to implement top down programs that rely on coercion and/or regulatory incentives.

* I'm answering emails on how to manage water, writing this blog post for you, and going for a bike ride, respectively :)

Addendum: I also just updated my essay, Economists owe ecology an apology, so read it if you're interested in THAT topic.

19 Apr 2013

Friday party!

Reggie Watts has TALENT!

Fisheries and Google WTF?

Our hangout on fisheries, catch shares and the division of profits was interesting, although there was no agreement on how to achieve the "economically optimal" path of balancing property rights, innovation and returns to working fisherman. Here's the MP3 (61 min)

In related news (for anyone who winces from our technical struggles), I need HELP on working with google hangouts, i.e., I can set up an event in advance with a hangout "off air." OR I can start a hangout "on air" live but not in advance.

Any suggestions of how to schedule an event -- an "on air" hangout -- in advance (so people have the URL)?

Anything but water

  1. Here's a free, 128pp primer that explains regulation (esp. in the US) in clear terms. Regulation, for example, can be in the public interest (benign), captured (industry controls bureaucrats), economic (interest group balancing) or corrupt (self-dealing or myopic bureaucrats)

  2. A right to legal counsel, like a right to water, needs to be funded if it's to be meaningful. Without funding, it's an empty right or, worse, a ticket to prison.

  3. Interesting essay:
    If you are talented, greedy, impatient and slightly slapdash, leave academia and come and work in business. Academia is much more rigorous than business – a single misplaced decimal point in a paper can kill your whole career. But we in business have one advantage. For an idea to succeed, it does not have to be perfect, it merely has to be less stupid than your competitors’ ideas.
  4. Another interesting perspective, on our needs to THINK about the machines we use, instead of just accepting the inventor's decisions of what's best for us (or the planet).

  5. Great story of Mexican "hackers" preventing the MX legislature from wasting money on bullshit e-services.

  6. Good summary of the costs and benefits of DDT and Rachel Carson's truth vs impact

18 Apr 2013

Water management in Singapore

Way back in January, we made a short visit to Singapore and I had the great luck to get a tour of some of the facilities of PUB, the public corporation that manages all of Singapore's water, from rainfall to tap to toilet to treatment, discharge and recycling.

Singapore is an exceptional country in many ways: a city-state with a British colonial heritage; a population of Chinese, Malay, Indian and many other nationalities; an import-export powerhouse; impressive governance; and a high quality of life.

The government in charge of Singapore Inc. reminds me of the Dutch government: planning everywhere, strong economic incentives and decent policies and outcomes.* It lacks the forbearance over matters of marijuana, sex and chewing gum, which may explain why Singapore doesn't have a reputation for fun and beauty.

But these differences may stem from Singapore's security situation. It split off from Malaysia in 1965 (relations are cordial rather than warm) and needs to be self sufficient in a rough neighborhood with scarce resources (even sand).

Water is one of the most scarce resources in Singapore, so PUB (no longer known as the Public Utilities Board) puts a lot of emphasis on security of supply and management of demand.

George talks about PUB's big ideas
I was very impressed with PUB's operations and strategy. You may be familiar with their NEWater program, in which they treat wastewater for reuse. The big users of this water are industrial customers that prefer very clean water (tap water is "contaminated" because minerals need to be re-added after NEWater treatment).

They also took 20 years to create an enormous reservoir (see photo) by cleaning up the catchment and blocking the mouth of a formerly saline estuary. PUB now stores a lot of freshwater in the estuary. (PUB discloses neither its storage capacity nor its reserves of water, for security reasons.)

Those supply-side, engineering projects are complemented by sound demand-side management and incentives. Residential consumption is 153 LCD; non-revenue water is 5 percent; all wastewater is captured and treated; most residential and commercial customers pay the same tariff: SGD 1.17 per m3 plus a 30% conservation tax means SGD 1.52/m3 (USD 1.25/m3 or $3.50/ccf); excessive residential use and water exporters pay more. Poorer households pay the same price as everyone for water; they get some direct financial aid.

For more details, I suggest reading this 2006 article [PDF] on PUB's performance and a list of dos and don'ts that Singapore gets right but most water utilities -- in developed and developing countries -- get wrong (e.g., cross-subsidies between users, failure to recover costs, untreated water, etc.)

George was very helpful in explaining the roots of PUB's success in Singapore's development model of no corruption, lots of education, and promotion based on meritocracy. He said that Singapore's -- and PUB's -- future challenges will come from a lack of qualified workers and the rising cost of energy. Everyone else faces the same problems, but Singapore is going to have an easier time tacking them.

Is Singapore unique? Although money and professionalism are important (necessary) conditions for producing these results, I think it's also important to have either control over or a very good coordination among managers of various water flows, from environmental to drinking to irrigation to wastewater. A small country like Singapore can do this more easily than a larger one with more layers of government, but that only means that water managers in larger countries need to work harder (they can hire PUB to help :)

Bottom Line: Singapore has the best -- most sustainable, fair and efficient -- urban water management that I've seen. PUB's successes are important as proof to those who say it cannot be done because it is being done.

* The government doesn't just have road tolls to limit congestion, it auctions the ten-year permits to HAVE a car. They now cost about USD 50,000.

17 Apr 2013

Google hangout on fishing, catch shares and small communities

After commenting back and forth a few weeks ago, Darren and I found a time to have a google hangout TODAY, so join us at UTC 17:00 (that's 10 am in California) for an interesting discussion.

Technicalities: You need to have a Google+ account. It's a video hangout. If you're not in my circles, then add me (click the link).

Speed blogging

  1. Government failure or lazy in Arizona? How special interests kill general improvements. Oh, and don't forget that rich subsidized farmers are a big special interest in water.

  2. Other farmers, faced with dropping groundwater, get their act together.

  3. Don't discriminate against fracking water users (but make sure they clean up after themselves).

  4. How not to drill a well (includes pipe in the balls accident!)

  5. The paperback version of TEoA is now $18 at Amazon. They appear to be taking a smaller cut (my royalty is the same), so maybe I'm a volume seller? :)

16 Apr 2013

So, you want to be a water economist?*

HA writes:
I would like to ask you what one needs to do to become an water economist? I'm a finance and accounting professional if that helps at all??

I live in South Africa. What material or source does one need to seek for information?
I wrote back:
Well, I think you just need to get started on understanding what goes wrong and what goes right.

The key idea is to make connections from policies, incentives and actions to good or bad outcomes.

THEN you need to get people's attention.

Remember, above all, that water is not managed in markets (usually), so there is LOTS of space for discretion -- for better or worse.
Do you readers have more ideas or resources to suggest?
* I began a comment on reddit with "I'm a water economist," and the next comment was "I doubt it." How does one lay claim to such a profession? There's no union or certification, so you just have to DO it. It's handy to get paid for doing it, but I'd say that it's more important to have sensible understanding and ideas on the issues.

Real or fake water conservation?

Here's the problem:

Water conservation in urban areas doesn't make sense if there's no recycling of wastewater, since any "savings" eventually gets stretched across a larger population (or other uses). It's necessary to reduce net diversions if conservation is going to have an environmental benefit.

Conservation in areas with agricultural irrigation is exactly the same, more crop per drop leads to more acres of crops. The only way to reduce diversions from the environment is through fallowing or a switch to different crops.

Given these facts (applied to both surface and groundwater), it seems that the easiest way to induce conservation that leaves more water in the environment is to charge for net diversions. Water managers/stewards could then find the right mix of policies to put that water to highest and best use.

Those policies may result in low flush toilets, dead lawns or shorter showers -- or they may not. All that matters is the net water flows.

Bottom Line: Water conservation affecting one step in a multi-step flow is unlikely to be efficient; it may even be useless or counterproductive.

15 Apr 2013

Monday funnies

How the Dutch view the world (pretty accurate)

[click for larger]

Anything but water

  1. Insight from an eminent scientist that more economists should recognize:
    Pioneers in science only rarely make discoveries by extracting ideas from pure mathematics. Most of the stereotypical photographs of scientists studying rows of equations on a blackboard are instructors explaining discoveries already made. Real progress comes in the field writing notes, at the office amid a litter of doodled paper, in the hallway struggling to explain something to a friend, or eating lunch alone. Eureka moments require hard work. And focus. Ideas in science emerge most readily when some part of the world is studied for its own sake. They follow from thorough, well-organized knowledge of all that is known or can be imagined of real entities and processes within that fragment of existence.
  2. I've been told that I may use "fcuk" too much in these posts but I used that word (and others!) many times when preparing my tax return this year. Check out this PDF if you want to see Kafka in action.*

  3. A great article on the rise of fraudulent "open access" publishers in academia (prior post).

  4. Like me, Jerry Brito thinks that income and "money consumption" may not be the best things in life:
    What do I do for a living? Essentially I read a lot, I talk to a lot of interesting people, and I blog, tweet, and write articles like this one... For all intents and purposes, I am indeed working only 15 hours a week just as Keynes predicted. My income today is roughly the same as that of my parents. However, as someone with a law degree, I could have chosen a path—as many of my law school classmates did—that would have doubled it... Yes, I could have done better than my parents, but instead I chose to consume more leisure.
  5. Three posts on government failure: The European Commission wants to standardize "ecological footprints," i.e., guarantee work for consultants and confusion for consumers (price externalities instead!). Alabama will steal land for businesses in "favored industries" (auto parts?!). The US Government has no national energy strategy and that's a GOOD THING, since individuals and businesses have thousands of strategies that are better targeted, flexible, etc. (prior post).

* Maybe I have a complex return, with foreign income and capital gains, BUT the US is one of few countries to tax citizens worldwide AND capital gains calculations are only complex because of all the loopholes inserted by Congress for their rich buddies (and selves!).

H/T to MV

12 Apr 2013

Friday party!

This guy, via CD, has got style and a great message -- grow your food to know your food, bureaucrats be damned.

Once you're done with that, watch Jamie Oliver's talk on food and kids.

Speed blogging

Collecting water in Maharashtra
  1. This ODI publication -- "Private sector investment in water management: company forms and partnership models for inclusive development" -- has a useful discussion of the differences between cheap talk corporate involvement and serious community engagement in water management in LDCs. It's not about money as much as shared governance; local people know more about how water is (mis)used, and companies can benefit by partnering with them (not just giving them money).

  2. Two steps forward, one back in Mexico, whose water agency (CONAGUA) is looking to drop water subsidies (good!) while the UN plans to subsidize water saving devices (good in terms of demand destruction bad in terms of poor targeting).

  3. Fahad Al-Attiya of Qatar talks about his country's quest for food self sufficiency -- by growing food with desalinated water from solar panels. It would be easier, cheaper and better for everyone if they just finished the Doha (yes, the capital of Qatar) round of free trade talks, so that Qatar could import its food from a functioning, secure market for food.

  4. Los Angeles discussing waste-used-water recycling. That will be helpful when LA loses access to water from Northern California.

  5. An undersea water pipeline from Turkey to Northern Cyprus? Sure, if the Turks are willing to waste money on subsidizing farmers there.

  6. An update on water markets in Australia [pdf] has this snapshot (but read the whole thing!)

H/Ts to MC and DL

11 Apr 2013

To centralize or not to centralize?

I've run into many instances of a struggle between small- and large-scale governance, e.g., local vs. regional or national water management.

These struggles occur over money, regulations, water allocations, and so on.

I can see why they happen -- someone in power decides to take over responsibilities from a lower-level of government* -- but I can also see why they are inefficient and unfair. It's one thing, for example, to impose the metric system on a country, entirely another to impose the same water tariff!

The problems of overcentralization are three (at least). First, centralization tends to impose one-size-fits-all solutions onto situations that do not require them. Second, those solutions tend to create correlations in mistakes that would normally offset each other, e.g., standards that strike high or low. Third, centralization increases the cost of gathering information, administering the system, etc. because details are lost in aggregation.

In the EU, they speak in terms of "subsidiarity," i.e., pushing responsibility down to the lowest possible level of competence, and that's the right term to use here. The Swiss have been well governed for centuries due to their relentless pursuit of it. The Dutch have done the same with their water boards. American mayors tend to their potholes and schools.

But there are many examples of failures: The Colorado river is NOT managed across the whole watershed (Upper and Lower in the US, separated from the Mexican tail), water and wastewater are often managed by different organizations, the US Department of Education intervenes when there's no need to homogenize methods across the country. You get the idea.

So my advice is to solve problems based on solutions that are formed at the right scale. Incumbents who are at higher scales may protest at their loss of power, but those who care about results (instead of their power) will relinquish it.** That's a tough conversation, of course.

Bottom Line: Centralization has costs and benefits. Don't tell me what to eat for lunch, and I won't tell you how to educate your children.

* Ukraine has a Ministry of Regional Development, but why does the center need to develop the regions? It appears that the MRD redistributes money taken form the regions, but that's an invitation for imbalances.

** Economists speak of Tiebout competition among different cities that attract citizens looking for different mixes of amenities, but there's also a value in publicizing these differences, so that people (and administrators) can compare ideas without having to move.

10 Apr 2013

Your team is the best team, right?

Question of the week

I've always downplayed the importance of the "generation gap" as mostly a gap in knowledge of pop culture, but what if people of a different generation just THINK differently?*

This comment on Reddit made me step back:
Person 1: Many people have flawless mechanical memory, but most of them are quite bad at understanding tasks and using logic.

Person 2: Part of that is the focus in high school in memorization of facts rather than critical thinking and problem solving.

Person 3: Welcome to the world of No Child Left Behind and standardized tests. This is what happens to education when non-educators try to reform the school systems.
So I'm thinking that Person 1 is right, since I've run into people who are good at the facts or details but who cannot put them together in a logical way. Is that a function of nature (born that way) or nurture (trained that way)?

Persons 2 and 3 seem to think nurture. That leads to the next question: is this a national or global trend?

Please comment.

* Read this on how we think. Excerpt:
Someone who is really seeking the truth should be eager to collect new information through listening rather than speaking, construe opposing perspectives in their most favorable light, and offer information of which the other parties are not aware, instead of simply repeating arguments the other side has already heard.
If you like that, then read this discussion on the difference between intelligence, rationality and groupthink.

9 Apr 2013

The nexus of bullshit

I've criticized the idea of a water-energy-food-land-climate-everything else nexus for some time, but the underlying problem with the concept just hit me: it's an excuse for water managers who do not want to take the blame for their inability to sustainably manage their supplies.

Nexus logic "says" that energy must be managed to reduce the load on water sources. That means, in other words, that energy demand for water is too high.

Fine, but how about reducing the quantity of water demanded from energy users by, e.g., raising its price (administratively) or rationing its quantity (in a market)?* Water managers can do either and get rid of the problem.**

Bottom Line: There is no water-energy nexus. There's only water managers' failure to ration their valuable product.
* "Demand" consists of a "demand curve" that's a function of technology, tastes, substitutes, etc. That demand can be reduced by a change in taste, etc. Quantity demanded -- given that curve -- will fall if the price of water rises (holding tastes, etc. constant).

** With political support, but that would be forthcoming for any manager who says that action is necessary for sustainability.

8 Apr 2013

Monday funnies

These comments were in response to the announcement of a newer, better desalination technology.

Anything but water

I've got a TON of material for analytical posts, but I'm in a hurry, so enjoy these cool links:
  1. This project (in Dutch, use google translate if you want to read more) had children tell their city councilors what actions are most important to them (and the city). A good way to integrate citizens AND improve representation!

  2. A philosophical digression on hats and being a man, and A model discusses how awkward it is to live through your (fleeting) looks.

  3. A clever article showing just how far we've come with technology since 2000. Now we need to bring some of that innovating spirit -- with caution! -- to water management.

  4. Academics try to find out how many fish China is reporting catching. Seems that African nations are losing their food supply.

  5. Lawrence Lessig describes how Americans vote in elections that are fixed... by the 0.00042 percent. Sharp presentation with solutions. The Economist offers (supportive) context for partisan politics, worldwide.

  6. Banks and money: Save banking by killing it (i.e., separate deposits from loans), bankers are intellectually naked (they take risks with your money that they do not with their own), and an interesting book on how the monetary cycle -- not economic growth -- drives investment values. (I've thought this for years, in terms of money moving in and out of markets; that's why retiring boomers are likely to kill equity returns by selling shares.)

5 Apr 2013

Friday party!

Monkeys know how to party!

Alberta, fuck yeah!

I've been following the tarsands/fracking/Keystone debate with interest, as I plan to be in the region in a few months (with my awesome girlfriend, of course :)

I think that Keystone is a good idea, BTW, since the oil is going to get transported one way or another, and the pipeline is better than trucks or trains.

But forget the Keystone. Did you know that Alberta has a carbon tax? It may be too low to matter, but that's better than most US states can claim.* (Yesterday there was a big announcement/PR ploy/negotiating tactic to set a much higher carbon tax.)

But forget the tax. What's cool about the 2003 law enabling the carbon tax [pdf] is this magnificent example of spin:
WHEREAS the Government of Alberta has a deep and well
established commitment to protect Alberta’s environment for future
generations through proactive and responsible stewardship of the

WHEREAS the Government of Alberta owns natural resources in
Alberta on behalf of all Albertans and manages the exploration,
development and production of renewable and non-renewable
resources in Alberta;

WHEREAS Alberta is recognized around the world for
leading-edge innovation in environmentally sustainable
technologies that maximize the value of Alberta’s natural resources
and the prosperity of its residents;

WHEREAS the Government of Alberta recognizes that the
management of emissions of carbon dioxide, methane and other
specified gases will serve to protect the Alberta environment;

WHEREAS the Government of Alberta will work co-operatively
with other jurisdictions to harmonize efforts to reduce emissions of
carbon dioxide, methane and other specified gases without
impairing economic growth;

WHEREAS the Government of Alberta is committed to providing
certainty to all sectors of the Alberta economy in pursuing
sustainable development objectives through the establishment of
clear emission reduction targets for carbon dioxide, methane and
other specified gases and related objectives, frameworks, plans and
measures; and

WHEREAS atmospheric carbon dioxide and methane are not toxic
and are inextricably linked with the management of renewable and
non-renewable natural resources, including sinks;

THEREFORE HER MAJESTY, by and with the advice and
consent of the Legislative Assembly of Alberta, enacts as follows...

* Addendum: The tax (officially called "payment to the Alberta Clean Technology Fund") is not levied on most (95%) of emissions due to exemptions/targeting.

4 Apr 2013

Bleg: What's the best way to transfer EUR to USD?

I need to send 5,000 EUR to the US from the Netherlands and get a good rate AND low fee.

Addendum: I've looked at Paypal (2% fee, not including redemption charge) and I'm interested in Bitcoin, but that may be too tricky (illiquid).

Speed blogging

  1. Carpe Diem's "New Visions, Smart Choices" gives several examples of how various communities are coping with water scarcity. I don't agree that all of these choices are smart (San Diego's desalination plant is a waste of money), and many involve water transfers (a zero-sum game) instead of using less, but the details may be instructive.

  2. Cheap nano-tablet to purify water. VERY cool.

  3. Head over to the International Waters Learning Exchange and Resource Network if you're looking for LOTS of ideas, teaching and information. It looks quite bureaucratic (lots of codes) to me, but there's also LOTS of information from places all over the world. Tell me if it's good!

  4. Vulnerable people don't protect themselves from floods; they protect themselves when they experience or know someone who experiences a flood. (Insurers know this.)

  5. I glanced at Water Governance in the 21st Century: Lessons from Water Trading in the U.S. and Australia and found it an exercise in glass-half empty as well as wishful thinking in terms of overthrowing property rights in favor of "social" management of water that's more likely to fail than succeed.That said, I enjoyed its summary of the issues (I would say that there are only a few, limited, water markets in the US).
H/Ts to AA and ER

3 Apr 2013

Postmodern hydrological cycle

That's the title of this image originally posted on Waterwired, but I think that "money flows towards water" is more modern than postmodern.

A postmodern water cycle would have water flowing in the environment EVEN after using some of it productively. I'm working on that.

Water managers* are selfish like us

That's the title of the first publication from my dissertation, which was accepted five years ago and just published in the Handbook on Experimental Economics and the Environment.

Abstract: Managers of public water companies present themselves and are seen as public servants maximizing public welfare. Because water is rarely allocated through market mechanisms, this maximization requires that managers cooperate in a bureaucratic version of a social dilemma. Members of the Metropolitan Water District of Southern California (MET, a consumer cooperative) face just such a dilemma: MET's member agencies make policies as members (setting prices, for example) that they obey as consumers. This chapter reports the results of experiments that quantified cooperation among MET's member agency managers (MAMs) using public goods games. The results indicate that MAMs are neither relatively nor absolutely cooperative in comparison to, respectively, groups of students and a threshold efficiency consistent with maximizing social welfare. Additional results on type indicate that MAMs have a larger share of cooperators and free-riders than students, but MAMs are twice as likely to be free-riders as cooperators. MAM also appear to engage in cheap talk: Their responses to trust questions (stated preference) have no correlation with their experimental behavior (revealed preference); student preferences are correlated.

You can read the chapter (revised and improved since I originally wrote it) here [PDF].
* You might want to call them service providers or water stewards, but those titles are not appropriate if you take these results seriously.

2 Apr 2013

Delivering water quality to the tap

I'm now in Kiev (looking into their water utility regulation), and a typical problem has popped up, i.e., the difficulty in delivering water quality to the tap.

The physical layout of water systems -- taking raw water from ground or surface sources, treating it, pumping it through large pipes to smaller pipes, then to building pipes and finally to the tap -- means that there are multiple points at which clean water can get contaminated. There's the problem of dirty water at source and poor treatment, of course, but the more common problems occur when water in transit gets dirty from old or leaking pipes.

By my understanding, most utilities run their systems to deliver clean water to the building (usually at a meter), with the quality of the piping between the meter and the tap being the building owner's responsibility.

Building piping has two problems. The first is old or leaky pipes that may contaminate the water. The second is that some buildings have many residents who share the same pipes (and sometimes the same meter). Neighbors therefore need to find ways to share their water (rather, the bill) as well as keep their communal and unit-plumbing in good condition.

There are several ways to share the bill (divide by people, install submeters, etc.), but I want to concentrate on the plumbing problem in buildings and networks. The first issue is to know whether the water is safe to drink at the tap. If that's not true, then it's important to find where it gets contaminated. That question can result in finger pointing between customers and the utility as to who should pay for water testing, so I came up with this idea, taking as given the fact that utilities (and their regulators) need to ensure that water is safe to drink; it's not the customer's obligation, even if it's in the customer's interest. Such a "fact" means that utilities need to take the lead on quality testing, and here's how I'd do it.
  1. Any utility that says its water is safe also needs to persuade customers of that fact.
  2. So it can include coupons in a few hundred bills (every month or so) that can be used to get a free water test at the customer's tap by a qualified tester. The real cost will be $10-100, depending on local labor costs.
  3. Qualified testers are listed on a website; they are certified and equipped to test water in the house. That website also provides them with free advertising.
  4. Customers contact a tester who measures their water quality (hand held testers are getting better and cheaper). Test results are posted on the internet (without an exact address) and to the utility. 
  5. "Safe" results allow the tested customer (and some share of neighbors) to have a better opinion of their water -- and drink more of it.
  6. "Unsafe" results will trigger a second test by the utility, to determine if water at the mains is clean (thus the building plumbing has issues) or also dirty. Those results will make it easier for the utility and/or building owner to take action.
  7. There's a potential problem if tester trying to get false results of unclean water (to get more business), which can be reduced by witholding payment from those whose tests are contradicted in a retest. Those who get too many false positives can be removed from the list (in 2), which will hurt their business. So they are likely to be honest.
  8. We also hope that the utility is honest, but that's the regulator's responsibility -- and no utility will be able to cover up bad test results for very long.
This idea will help utilities find contamination problems and persuade customers that water is safe to drink (and thus worth paying for!) at the same time as it supports an independent industry for assuring water quality. (Such an industry could survive in places like the Netherlands because testers are also likely to be plumbers who are ALWAYS needed.)

Bottom Line: Water quality is hard for an individual to determine, but utilities can make it easier -- and make their product more attractive -- by paying for random water tests.

1 Apr 2013

Monday funnies

[A "serious" idea that's silly -- like this and this -- on April Fools? The water sector is crazy.]

The folks behind Gordon Rogers* of World View Water wants $250,000 to fund research on solar desalination. The good news is that he's using girls in bikinis and surfer videos to promote the "cultural vision that is world view water." The bad news is that he's unlikely to make any dent in the (multi-billion $) desalination market by selling bikinis and biodegradable plastic bottles.

Four girls with water bottles? Where do I sign up?
But that may not matter: the money you pledge will be spent even if they do not reach the funding goal, and I'm sure that a few girls will get nice swimsuits.

Bottom Line: There are good ideas in the water sector, and then there are silly ideas that take advantage of people's concern over water issues. (Watch this and this video if you doubt me, then watch this if you want a serious laugh.)

* "Gordon Rogers is The Founding Member and primary product and application designer for the World View Water Project. The project is chartered to perfect a technology and its protection and to develop a business model for production of drinkable water at prices competitive with existing sources, with favorable environmental impact while substantially increasing the total available amount of potable water worldwide.

Gordon is a Quality Engineer for a major defense and aerospace contractor in which role he leads many efforts to assure contract satisfaction for delivery of vision systems. He is the chair of the Environmentally Controlled Areas Team, a multi-disciplined group of material scientists, instrumentation, facilities, manufacturing, environmental health and safety, information systems, audit and management personnel. He was the founding member of the team and has staffed and managed the group since its inception in 2003. Gordon is Site Champion for design for manufacture using numerical methods. He currently develops compliance strategies for new product development and supports design and production engineering and program management for many new products in large contracts. Gordon’s friendly, honest style has gained him trust and support throughout the organization and customer base.

Gordon started his entrepreneurial development at twenty-three, when he invented a massively parallel optical information system. The effort provided invaluable insight into venture capital practices, and the impact of tax changes, market conditions, and communications on start-ups. He was the primary inventor for Parallax Engineering’s initial product. The conditions of sale of that start-up to another stereo video manufacturer allowed him to continue in quality assurance in a motion control firm where he was the senior quality engineer and into line management roles."

Speed blogging

  1. Sri Vedachalam wants to know what you think of his new paper discussing public attitudes towards private or public investment in US water infrastructure.

  2. There's a free online course on international water politics at the Global Water Forum that starts with twelve semi-academic essays and moves later to videos. I'll be doing some webinars to discuss draft chapters of End of Abundance 2 next month. I'll do classes on water economics after the book is published (hopefully in the summer!)

  3. The drought that "ravaged" US crops in 2012 is likely to persist (snowpack in the western US is also below par), but farmers are unlikely to care. That's because they make money if their crops come in OR if their crops fail, since the US government always bails them out. Why take climate change seriously (or even think) when the government will save you from stupidity?

  4. Speaking of manipulating markets, privatized water companies in the UK are using offshore finance to pay themselves special dividends while passing the charges to customers. This is exactly the kind of manipulation that gives privatization a bad name... or is it merely an example of failure at Ofwat (the regulator)?

  5. Interesting post discussing how plastic can improve yields and profits at farms. Now all we need is that the plastic is biodegradable.