I found your interview on Econ Talk very interesting and look forward to reading your book. As a civil engineer and someone with an interest in environmental economics and policy, I have put a decent amount of thought into issues surrounding water scarcity.And then there's this, from RP:
I have long thought that variable/surge price would be an effective mechanism for managing demand but until listening to you, I hadn't really thought about the potential financial disincentives for utilities implementing measures that would ultimately reduce water sales/revenue - I now understand why you favor keeping fix costs relatively high to stabilize revenues.
I was very pleased to see in your book that you mention the possibility of issuing rebates with excess surge rate revenues. I personally am fond of a pricing model where surge pricing is implemented rather liberally, but essentially all of the surge revenue is distributed equally back to customers on a semi-regular basis (quarterly maybe). I believe that requiring customer to pay a "market" rate on their monthly water bills would help manage demand, but rebates would help avoid complaints of price gouging or social justice. Additionally, utilities could require costumers have no outstanding balance in order to receive the rebates which should help reduce unpaid water bills - Detroit, Michigan for example has made a lot news due the fact that a huge percentage of customers never paid their water bill.
First of all, I loved your talk. Water scarcity is something that I ponder often and your talk brought up some interesting things I hadn't thought about before.In reply, I wrote:
I do have a scientific question though that your talk brought up for me. If water usage is greater than natural replenishment what happens to the molecules of water after they are used? Seems to me that they would go back to the "system". When I drink water, I later pass it as waste. When someone waters their lawn (even wastefully) the excess goes down the storm drain or evaporates to the atmosphere (to come down later as rain). Why can't cities capture this wastewater, clean it and then "balance" their problem. Let me restate that I agree with what your are doing... Just trying to think through the larger picture. Why doesn't the usage balance out? What am I missing? I know it has to be something as it doesn't appear to be working out that way? I understand the aquifer issue (we don't have millions of years to filter through sandstone) but seems like we should have an abundance of wastewater with all the wasteful use of previously stored aquifer water?
Glad you enjoyed it. The simple answer is that the water does not return to the right place at the right time to be 100% "replenished"
I tend to say that we use the water "economically" rather than "physically" e.g., it's THERE, but polluted.
Many cities are looking at closing the loop -- as opposed to discarding wastewater -- b/c the economics (and regulations) are converging. Check out chapter 4 in my book :)