12 Dec 2017

We have no insurance against this risk

I wrote this post as a chapter for the forthcoming Life Plus 2 Meters, Volume 2
Nobody can take credit for inventing insurance. All cultures have found ways to protect individuals from the full cost of bad luck.
  • Farmers diversify their crops in type, location and timing to reduce their risks, but storage, trade and mutual assistance help unlucky farmers.
  • Communities diversity their work, assets and family relations to reduce their risks, but migration, sharing and collaboration help unlucky neighbors.
  • Investors diversity among liquid and illiquid assets with short-term or long-term maturities, but laws, family ties and social welfare protect the bankrupt.
Humans evolved these structures — and the rich social bonds and norms that hold them together — over millennia, with each post-event refinement bringing a little more stability to the system and prosperity to the group.

For most of the 200,000-year history of our species, Nature delivered accidents and harm, but those risks became predictable over time and thus amenable to insurance, hedging, and other means of investing a little in good times to avoid occasional, catastrophic losses.

Among those who study climate, "stationarity" implies that patterns vary within clear boundaries over time. For the past 5,000 years, climate has been stationary in terms of temperatures, precipitation and storms. That pattern has been disrupted by acute forces — hurricanes, earthquakes and volcanic eruptions — just as it has evolved under the influence of solar radiation and other geological processes, but those changes (small and local or large and slow, respectively) have not been strong enough to overwhelm our primitive insurances or prevent us from migrating out of harm's way.

Welcome to non-stationarity

Anthropogenic climate change will bring unprecedented risks that will strain and occasionally break our formal and informal coping mechanisms. In October 2017, the World Meteorological Association noted that:
Concentrations of carbon dioxide in the atmosphere surged at a record-breaking speed in 2016 to the highest level in 800,000 years... The last time the Earth experienced a comparable concentration of CO2 was 3-5 million years ago, the temperature was 2-3°C warmer and sea level was 10-20 meters higher than now... The rate of increase of atmospheric CO2 over the past 70 years is nearly 100 times larger than that at the end of the last ice age. As far as direct and proxy observations can tell, such abrupt changes in the atmospheric levels of CO2 have never before been seen.
The unprecedented levels of CO2 and other greenhouse gases (GHGs) and their unnatural accumulate rate in the atmosphere mean that our species is about to experience dramatic changes in temperatures, precipitation and storms.

As a water economist, I am well aware of climate change's impacts on the water cycle and thus on the various categories of water-related phenomena  through which climate change will arrive. Given this experience, I would order the risks in these categories, in order of highest to lowest threat to humans, as follows:
  1. Temperatures too high or too low for unprotected exposure
  2. Droughts or precipitation too long to be buffered by storage or drainage
  3. Changes or crashes in biodiversity that destroy entire food systems
  4. Wind-driven storms stronger than natural or man-made defenses
  5. Changes in sea levels and currents that alter continental ecosystems
Note that I put sea-level rise — the change most closely connected to the name of this project — as the least-threatening category of change.

There are many ways to die

Our formal and informal means of insuring ourselves against risk and disaster are going to fail many people in the decades ahead. Poor people with incompetent or corrupt governments will try to help each other, but their resources can only go so far. Rich people will be partially insulated by financial and political coping mechanisms, but additional costs will undermine markets and overwhelm bureaucracies and taxpayers. People all over the world will face the reality of uninsured losses and the uncertainty of emerging, unprecedented risks.

In 2052: A Global Forecast for the Next 40 Years, Jorgen Randers (one of the original authors of The Limits to Growth) suggested that climate change would slow as humans diverted resources from consumption (and thus GHGs) to investments designed to offset climate change impacts. Although his logic is sound, I see few signs of that switch.

Bottom line: The damages from climate-change driven alterations to the water cycle will overwhelm our coping mechanisms, leading to unprecedented death, destruction and misery. It's unlikely that anyone will have the resources to help you when you need it, so now is the time to invest in securing yourself and your community against those risks.
Comments are closed here. Please comment on the original post -- especially if you find errors in fact or logic!

7 Dec 2017

Stop talking affordable water and start talking poverty

Circle of Blue published this long, aggravating article of the efforts of activists, water managers and (far too many consultants) to "find a compromise" on the price of water that will cover system costs without "burdening the poor."

Let me solve this "puzzle."

First, there's no point in making water cheap to help poor people. Cheap water will not make them rich. If you want to help poor people, then give them money.

Second, water utilities are neither charities nor social innovators. Their job is to deliver safe and adequate quantities of water at prices that cover their costs of operations, maintenance and expansion. Utilities that are underfunded (like those in India that lose money on every cubic meter delivered) cannot provide good service.* Utilities that are asked to take care of poor people (like those in England where the government is too stingy to help poor people [pdf]) lose track of their primary mission (good service) as they struggle to identify who is "poor".**

Third, any politician who claims that water needs to be cheap to help poor people is a lying, lazy incompetent. It's the politician's job to tax the rich to help the poor, but US politicians work for the rich. Sad.

Bottom line: Water utilities need money to operate and deliver safe, adequate water to customers who should pay for it. If those customers are too poor, then the government should give them money, not undermine utility finances with counterproductive "affordable water" mandates.

*FYI, I pay about €50 ($60) per month for water, sewer and water security (protecting Amsterdam, and thus my house, from flooding). I provide this figure NOT to show how it's less than my TV bill (I don't have a TV) or mobile phone bill (that's €25/month), but to show how world-class service can be quite cheap. Why is that? Dutch professionals are pro-active and their utilities compete to provide the best value for money, so they avoid many mistakes common in under-funded locations.

** According to Donoso (2017), the government of Chile pays for some share of the cost of water in poorer households, i.e.:
Affordability criteria are met by the provision of subsidies directly to the most vulnerable house- holds. Households are classified based on an annual survey (Encuesta Casen) which estimates household per capita income. In order to qualify for the subsidy, households must not have payment arrears with the service provider. The central government transfers the block subsidy to the municipalities; the latter uses this to pay a share of each of the eligible household’s water bill. The subsidy considers a payment share from 15 to 85% of the water bill, with the poorest families getting the highest share, and covers water consumption up to 15 m3. The WSS providers bill the benefiting households for the consumption cost not covered by the subsidy, but indicate the full consumption cost, and then charge the municipality for the subsidies granted. The advantage of this subsidy scheme is that it does not distort price signals.

5 Dec 2017

The unexplored costs of our online persona

Rory writes*

A few weeks ago as I attempted to access my profile on a well-known social media site I was blocked from doing so. On closer inspection it appeared that someone, somewhere had gained access to my account, changed my password, removed certain security steps I had arranged, and was only shut out after about 20 minutes of unrestricted access to my online persona. Whilst this experience may be common it prompted me to think of how I interact and use my online environment, and the effect an experience such as this has this.

Nowadays a reliance can be built around use of online accounts, through the use of email, social media and online banking. It's not difficult to see that we save a huge amount of time by being connected to the web in this way, we save money through the use of online banking, and we enrich our social lives through the use of social media (I'm aware this final point is arguable however for simplicity I'll accept its validity). However all of these savings and benefits must have a cost. In this case one of the costs is our security, by making these webs of reliance over various online accounts and personas we are able to interact with our online environment, on the other hand we can simultaneously expose ourselves to the risk of identity theft.

After an attack or theft of one's online identity, there are two ways in which one can approach interacting online, either keep using it the way they have, aware of this danger, or alter their behaviour to reduce this risk. There are obvious ways in which this can be quantified, for example the time costs of having to manage bank accounts in person in branch, or perhaps the added financial cost. Additionally there are less easily quantifiable social costs in removing oneself from a social media environment which seems to have a monopoly on arranging any social occasion. It's not for me to say which course of action is most prudent, however it is possible to see there is a relationship between an individuals' utility and their exposure to risk. Whilst I can gain much from fully using my online environment, I lose much security in this process. Alternatively I can sacrifice my time and social life in favour of peace of mind, another impossible to quantify factor.

Or is it? This factor could possibly be quantified if I ask myself; how much would I pay for a sort of insurance which assures me that my online environment will not be hijacked? Or alternatively how much would I have to be paid to put myself in this risky situation? In essence the answer to both of these questions would be more or less the same as the utility loss of altering my behaviour to not use social media, email, and online banking.

Bottom Line: There are hidden costs to interacting with our online environment, attacks on t our online identity simply make these costs obvious. We may think we pay for the ease of the online world through ads or through data-mining, but we may also pay with our security and peace of mind.

* Please help my environmental economics students by commenting on unclear analysis, other perspectives, data sources, etc. (Or you can just say something nice :)

Les Motos du Faso

Marty writes*

“Les Motos du Faso” or the motorcycles of Burkina Faso are as much of a staple as bicycles are in the Netherlands. Throughout my life I have spent many holidays in Ouagadougou and every year I go back it seems like two-wheel traffic increases exponentially. Locally, all two wheelers with engines are simply referred to as “motos” and are a way of life. I have learned that you cannot go anywhere in Ouaga without running into swarms of “motos” criss-crossing through traffic and revving their engines at every stop light. This video shows the typical intersection in Ouaga, 30 seconds into the video you see what is habitual at every traffic light in the city. This post will discuss what factors have to be taken into account when evaluating the environmental cost of the widespread use of “motos” in Ouagadougou.

According to an article published on TRT (Turkey Radio and Television) there is approximately one “moto” for every two people in the capital city, that is 760,000 “motos." When analysing the cost of widespread “moto” this number would serve as our starting point in identifying their indirect cost to the environment, and those living in it. The average distance travelled per day along with an average for CO2 emissions per kilometer would have to be calculated to figure out total CO2 emissions. However, then a cost has to be assigned to CO2 emissions. A major question arises at this point, is the cost of CO2 emissions the same everywhere or are certain areas affected more? To elaborate on this, can we calculate the cost of CO2 emissions for only Ouagadougou or would a greater area have to be involved, and if so how would this be included in a cost-benefit analysis?

Additionally there are various externalities which occur as a result of high motorcycle use. The cost of these externalities are perhaps harder to measure than the direct environmental impact of motorcycles. A main example of this is waste produced by motorcycle mechanics who are dotted on the sides of roads throughout the city. These usually resemble a small shack surrounded by a few motorcycles and one or more mechanics. As most of these garages are informal there is no legitimate waste management system, as such many of them dispose of “motor” oil on dirt roads (sometimes to combat dust), or in open sewage. A practice that potentially has serious repercussions for the groundwater supply.

Bottom Line: The widespread use of “motos” in Ouagadougou has serious environmental consequences, some of which are easily measured. However, many of externalities of their use have hidden costs nearly impossible to measure.
* Please help my environmental economics students by commenting on unclear analysis, other perspectives, data sources, etc. (Or you can just say something nice :)

4 Dec 2017

Will Nicaragua's intracontinental canal fight poverty?

Gabriela writes*

Nicaragua has developed and implemented pioneering strategies to fight poverty. Thanks to these strategies, the Central-American country has managed to reduce poverty from 42.5% to 29.6% in a record time of five years. Nonetheless, it’s Human Development Index (HDI) it’s lower than the average of Latin America and the Caribbean, ranking 124 out of 188 countries. This is a clear sign that the Nicaraguan government still has a lot to do to foster development in the country.

As an attempt to promote economic growth and fight against poverty, the government of Nicaragua has enacted plans to start the construction of a canal that connects the Caribbean to the Pacific Ocean. The project promises, according to Nicaraguan president Daniel Ortega, to lift around 400 thousand people out of poverty. The canal will extend 278 km across the country through the path shown in the following picture. If the canal is constructed, there are many environmental (in the broad sense of the word) issues that will appear.
Nicaragua Canal route
To begin with, one of the worst impacts comes from long-term water security. The canal will cross the Cocibolca lake, which is the biggest fresh water reserve of Central America. To make up for it, the government affirmed they will include a water project to make up for it, but it is not yet formally proposed. The construction of the canal would negatively impact more than 80,000 people who use the water and will negatively affect the ecosystem of it, too. Out of those, the main issue comes with the people that fish and use the lake as their main source of income and food. In addition to that, it will cause hydrocarbon pollution, salinity and turbidity problems in the lake. The construction of the canal would also translate into deforestation as new land must be cleared for it.

To construct the canal a wide range of forests will be cut down, out of those, the canal will cross through 8 environmentally protected areas.  This causes an increase of vulnerability to disasters such as floods and droughts. Reasons for this is that the land will be less resilient, and there will also be an increased soil erosion. Animals from the protected areas will be forced from their natural habitat to other places, which increases competition in other habitats.

With regards to the people that will be displaced from their lands, there is also an issue of reallocation. The government has not yet proposed a plan of how people are going to be compensated from their lands nor if they are going to be reallocated to other parts of the country. In general, many issues derive from internal rural to urban migration, given that the habitable space that Nicaragua has will be substantially reduced, it might become more complicated.

Bottom line: In a nutshell, Nicaragua remains one of the least developed countries in Latin America. Combined with its geographical and ecological position, marked by heavy deforestation, it remains one of the countries in the region which is most vulnerable to disasters. The construction of a canal that would affect the Nicaraguan environment especially in regard to water security, deforestation which would accentuate the magnitude of natural disasters and with the communities displaced. There is a clear need to assess the environmental costs and benefits of maintaining it and using it as a tourist haven, taking advantage of the beauty of forests and the Ometepe volcano.


* Please help my environmental economics students by commenting on unclear analysis, other perspectives, data sources, etc. (Or you can just say something nice :)

The short-run demand curve of Groningen’s gas

Tom writes*

Since its discovery in 1959, the Groningen gas field has been exhausted for approximately 80 per cent of its total supply (NOS 2017). These drillings have caused more and more earthquakes in the region, sparking intense protests by the locals, who demanded gas drillings to be downscaled severely (Dempsey and Suckale 2017). The gas has been very profitable for the Dutch government, as it has earned €290 billion over these 60 years (NOS 2017) and despite many protests in Groningen, the government has been very hesitant to downscale the gas extraction in Groningen. As what follows will suggest, the main reason for this is the monopoly of the gas produced in Groningen on the gas provision in the Netherlands and parts of Germany, France and Belgium, leading to a static demand curve for Groningen’s gas.

In the Netherlands, 7 million households are dependent on the gas produced in Groningen (Rijksoverheid 2017). On top of that, 4 million households in Germany and 2 million households in France and Belgium also rely on gas from Groningen (Bremmer 2017). The demand for this necessary good, as it provides people with one of their basic needs, is relatively inelastic, so a shift in the quantity demanded, i.e. a shift on the demand curve, is unlikely, because people simply want and need to keep their houses and water warm to a certain extent. It becomes, however, even more complex, when we consider the more technical elements of this story. The problem of the Groningen gas is that it is of special quality. Most natural gas, also gas from Russia, is ‘high calorific’, whereas the gas extracted from Groningen is ‘low calorific’, also called L-gas. As a result, most houses in the Netherlands, and also the German, French and Belgian regions depending on Groningen, are built with a system that can only handle L-gas (Bremmer 2017). This means that alternatives for natural gas from Groningen can simply not be used, since all alternative supply of natural gas is H-gas, unless this high calorific gas is transformed to L-gas by adding nitrogen to it in expensive installations (GasTerra 2015). These, however, take time to be built and, therefore, to replace the L-gas from Groningen.

A demand curve can shift due to various reasons, but none of those reasons is present here, at least not in the short term. A change in income or tastes or preferences is not going to alter the fact that people need natural gas to keep their houses warm (see earlier point). In the short term, the population size will not change significantly, as to affect the demand, and on the long term the problems described above might already have been solved. And, lastly, there are no substitute goods available in the short term, whereas currently it is not so much the issue of complementary goods, but rather of a complementary system, which is all constructed to facilitate the use of particularly natural gas from Groningen.

This does not mean, however, that inhabitants of Groningen province are protesting in vain. From this year, 2017, onwards, only gas devices that are fit for H-gas as well, (Luyendijk 2016) are allowed to be sold and installed in the Netherlands. Germany will complete its transition from L-gas to H-gas and France in 2020 and France and Belgium will have done so in 2024 (Bremmer 2017). Until then, further downscaling the gas extraction in Groningen will simply not be possible.

Bottom line: In the long term, however, reducing or even ceasing to extract from the Groningen gas field, though not profitable for the Dutch government, is absolutely possible.

* Please help my environmental economics students by commenting on unclear analysis, other perspectives, data sources, etc. (Or you can just say something nice :)

Monday funnies

Authentic LMAO

Machines are rising from funny

1 Dec 2017

Grassroot initiatives for reducing food waste

Danielle writes*

Food waste is a huge problem, according to the FAO, worldwide 1/3 of the food is wasted. In the Netherlands, the average amount of food waste per person is 135 kilo per year.  Food waste is a problem happening on different scales and involves multiple actors, as visible in this infographic:
A Dutch initiative, Instock, prevents food waste as the meals they serve in their restaurant are prepared with products that cannot be sold in the supermarket anymore but are perfectly fine for eating. Products that are ‘rescued’ by Instock are for example overstocked, mislabeled, or have aesthetic flaws. Typical rescued products are one-day old bread and vegetables with a spot on them. Instock cooperates with Albert Heijn, food of around 150 regional supermarkets and distribution centres is collected, and transported to Instock with electrical vehicles.

Connected to overstocking is the issue of the legal expiration of products with a long storage life. Products packaged in e.g. cans are legally required to have a ‘best before’ date, after which supermarkets are forbidden to sell them, even though there is no risk to food safety. Dutch government is in the progress of expanding the lists of products that are not required to have a ‘best before’ date to reduce food waste.

A big part of the food waste that Instock uses, is caused by people’s unrealistic perception of how food should look like. Although the taste is the same, vegetables and fruits that do not look ‘perfect’ are less likely to be sold. Besides Instock, there is another Dutch initiative that tries to prevent the waste of food with aesthetic flaws. Kromkommer is a social enterprise that tries to raise awareness about and reduce unnecessary food waste due to overproduction and consumer’s preferences. Kromkommer produces soups of vegetables that do not meet the aesthetic requirements, which is applicable to around 10% of the produced vegetables.

For further progress, a cultural shift in perception towards food waste and leftovers is needed. The negative attitude towards using leftovers and ‘imperfect’ food is one of the challenges that initiatives like Instock and Kromkommer face and simultaneously are changing.

Interesting to note is that Instock does not pay for the rescued food, it would otherwise have been thrown away. Besides majorly using rescued food, Instock also limits their own food waste. Their ‘leftovers’ are eaten by staff, are donated or are used to make biogas.

A fellow student critically asked whether Instock is effective. She wondered whether the supermarket might take less action to reduce food waste as the food will get a ‘good’ destination (at Instock) anyway. Therefore Albert Heijn would not be incentivised to prevent food waste. However there are financial incentives for supermarkets to prevent food waste as it results in losses for the supermarket, which is still the case when Instock rescues food as they do not pay. When I visited Instock Den Haag (on 15-11-2017), the manager told me that supermarket Albert Heijn has become more conscious of the problem of food waste thanks to Instock and is taking action to reduce their food waste.

Bottom line: Food waste is a huge problem which cannot be resolved by initiatives like Instock and Kromkommer alone. However they are raising awareness for the issue and are a step towards the needed systematic change to reduce food waste.

* Please help my environmental economics students by commenting on unclear analysis, other perspectives, data sources, etc. (Or you can just say something nice :)

Highways: asphalt or concrete?

Ronald writes*

Most highways in the Netherlands are made of asphalt. However, in the US only about 65% is made of asphalt,** while the rest is mostly concrete. Why is there such a difference in the materials used? Should there not be one clearly superior to the other?

While both materials are largely made up of aggregate (various fractions of crushed stone and sand), they are bound together differently.** In asphalt surfaces, the binding agent is bitumen, a refinement product of crude oil, while concrete is bound together by cement. These chemical differences create inherent distinctive characteristics. Asphalt, being a product of crude oil, emits various hazardous compounds to its environment during the period it is used. Some of the compounds that are of most concern are PAH’s. These compounds can be toxic for both humans and the environment, and this cost is not necessarily accredited for in the construction price. On top of this, the laying of asphalt is very energy intensive, both in pre-production as well as on-site. This brings in further environmental concerns, as especially on-site energy use usually relies heavily on fossil fuels. The pollution and CO2 emissions of burning fossil fuels are also externalities that should be accounted for.

However, the only serious alternative for highways is concrete roads. While cement is not such a contaminating substance as bitumen, is also creates a more brittle surface. For high-intensity roads, which highways usually are, large amounts of steel reinforcements are needed. The production of steel is very energy intensive, and might offset any benefits gained by using cement instead of bitumen. The combination of these two materials, concrete and steel, creates a much more durable road surface, more durable even than asphalt. This should be taken into consideration when assessing the total costs for society of using either of these materials. Reparations or early replacements will also have a cost, and an extra cost to society through the various externalities both options have. Partly due to this durability, concrete is considered to have a lower environmental cost than asphalt, while asphalt has a lower production cost. To do a proper cost-benefit analysis of both materials, environmental and social costs should be considered on top of the internalized costs over their entire normalized lifespan.

* Please help my environmental economics students by commenting on unclear analysis, other perspectives, data sources, etc. (Or you can just say something nice :)

** DZ: Sorry, but some of these links are behind a university firewall. Fucking Proquest

Friday party!

Fuck, yeah.