Scarcity to abundance to scarcity

71 Pages·2011·2.03 MB·English

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The End
of
Abundance
economic solutions to water scarcity
(digital edition 1.2)
David Zetland
Aguanomics Press
Amsterdam ∼ Mission Viejo
2011
TheEndofAbundance. Copyright©2011DavidZetland. Allrightsreserved.
No part of this book may be reproduced without written permission from the
Author,except forattributedquotationsoflessthanapage.
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Valley,California(©2008DavidZetland)∼photoofauthor(©2009HughZet-
land)∼interiortypesetinHelveticawithLATEX∼copy-editedbySheriGordon
([email protected]). Version1.2(Oct2011)
ATTN: Quantity discounts are available for orders of 20 or more copies. For
information,[email protected].
Visitwww.endofabundance.comforcommentary,resourcesandupdates.
Publisher’sCataloginginPublication
Zetland,David
The end of abundance: economic solutions to water scarcity / David Zetland
—1sted.
p. cm.
Summary: “An analysis of how management institutions may fail to cope with
freshwaterscarcityandhowtoreformthem.”—Providedbypublisher.
Includesindex.
ISBN-13: 978-0615469737 LCCN:2011905833
1.Waterresourcesdevelopment—Economicaspects2.Waterresourcesde-
velopment—GovernmentpolicyI.Title
HD1691.Z482011
Contents
Prologue 1
The beginning of the end 2
Watershortagesarecausedbywatermanagementinstitutions
that ignore scarcity. Economic tools can efficiently and fairly
manage scarce water. Demand for water depends on tech-
nologies, tastes and prices.
Scarcity to abundance to scarcity . . . . . . . . . . . . . . . . 3
Ice cubes, waterfalls and civilization . . . . . . . . . . . . . . 7
Some economics . . . . . . . . . . . . . . . . . . . . . . . . 11
Overview of the book . . . . . . . . . . . . . . . . . . . . . . 22
I Personal water choices 24
1 Water from the tap 28
Waterpricesthatcovercostsbutignorescarcityleadtoshort-
ageswhendemandexceedssupply. It’sfairandefficienttoset
residential water prices per capita, not per meter.
How can showers be antisocial? . . . . . . . . . . . . . . . . 28
How does water get to our taps? . . . . . . . . . . . . . . . . 29
How much does a water system cost? . . . . . . . . . . . . . 30
It’s hard to recover costs and change behavior . . . . . . . . . 34
How not to end shortages . . . . . . . . . . . . . . . . . . . . 37
Some water for free, pay for more . . . . . . . . . . . . . . . . 38
Don’t drink water from that fountain . . . . . . . . . . . . . . . 42
Success comes in many forms . . . . . . . . . . . . . . . . . 44
No dry taps . . . . . . . . . . . . . . . . . . . . . . . . . . . 46
2 Dirty water 47
The end of abundant clean water means wastewater has to
becleanedinsteadofdumpedintheenvironment. Freshwater
scarcity raises the demand for treated wastewater, which will
justify the cost of additional treatment.
Dirty water . . . . . . . . . . . . . . . . . . . . . . . . . . . . 49
Flushing away those externalities . . . . . . . . . . . . . . . . 50
Technologies to reduce dirty water . . . . . . . . . . . . . . . 55
Dirty hands kill millions . . . . . . . . . . . . . . . . . . . . . 58
ix
Turning black water into blue gold . . . . . . . . . . . . . . . . 59
3 The liquid lifestyle 60
Waterscarcitywillreducewaterconsumptionforlifestyleuses.
Regulating water uses is inefficient and unfair — it’s better to
raise prices and let people pay for the uses they prefer.
Prices based on cost lead to shortages . . . . . . . . . . . . . 62
Desert palms, desert lawns . . . . . . . . . . . . . . . . . . . 67
Fountains, follies and fish . . . . . . . . . . . . . . . . . . . . 70
Recreational water . . . . . . . . . . . . . . . . . . . . . . . 73
Vanity projects take water from the poor . . . . . . . . . . . . 74
The joy of wetness . . . . . . . . . . . . . . . . . . . . . . . 75
4 Water for profit 76
Bottled water is a consumer product unworthy of morality dis-
cussions. Public or private water service providers fail be-
cause they are monopolies, not because of their profit struc-
ture. Businesses need simple prices and reliable service.
Profit in a bottle . . . . . . . . . . . . . . . . . . . . . . . . . 76
Private companies selling public water . . . . . . . . . . . . . 81
Businesses will pay fair prices . . . . . . . . . . . . . . . . . 87
Profit from the poor but don’t subsidize the rich . . . . . . . . 89
Incentives matter . . . . . . . . . . . . . . . . . . . . . . . . 92
5 Food and water 93
Farmers make profits with water. Ground and surface waters
shouldbeco-managed. Watermarketshelpfarmersandcom-
munities and maximize the social value of water. Weak prop-
erty rights harm fishermen and fish eaters.
The flow of water for irrigation . . . . . . . . . . . . . . . . . . 94
Farmers use water to make money . . . . . . . . . . . . . . . 98
Markets for water . . . . . . . . . . . . . . . . . . . . . . . . 101
All-in-auctions for scarce water . . . . . . . . . . . . . . . . . 107
What about fish-as-food? . . . . . . . . . . . . . . . . . . . . 111
More farmers means bigger reforms . . . . . . . . . . . . . . 113
Farmers can surf the wave or be crushed by it . . . . . . . . . 115
6 Water for power for water 117
Energy production requires water; water transport and treat-
ment requires energy. The “energy-water nexus” is a myth:
accuratewaterpricesaresufficientforgoodenergyandwater
management. Water scarcity makes biofuels less attractive.
The water in energy . . . . . . . . . . . . . . . . . . . . . . . 118
The energy in water . . . . . . . . . . . . . . . . . . . . . . . 121
The energy-water nexus . . . . . . . . . . . . . . . . . . . . 124
Wasting water to waste energy . . . . . . . . . . . . . . . . . 125
Prices for water and energy increase efficiency . . . . . . . . 126
7 Managers and politicians 132
Managers and bureaucrats may make decisions and policies
affectingcollectivegoodsfortheirownbenefit—notthebene-
fit of constituents. Community oversight and/or benchmarking
outcomes can reduce abuses.
Markets for allocating excludable goods . . . . . . . . . . . . 133
Cooperating to provide collective goods . . . . . . . . . . . . 135
Managers and politicians . . . . . . . . . . . . . . . . . . . . 137
Managers with the power to fail . . . . . . . . . . . . . . . . . 147
We’re all in this together . . . . . . . . . . . . . . . . . . . . . 149
8 Dams, pipes and pumps 151
Water infrastructure users like to shift costs to others. Mis-
placed and mispriced infrastructure can encourage wasteful
wateruseanddistortdevelopmentforalongtime. Fightsover
infrastructure increase with scarcity.
The use and abuse of benefit-cost analysis . . . . . . . . . . 152
Cheap water increases sprawl and shortages . . . . . . . . . 161
Infrastructure projects involve hard choices . . . . . . . . . . 163
Corrupt dams hold back progress . . . . . . . . . . . . . . . . 165
Local projects and local money for local people . . . . . . . . 167
9 Water and the environment 168
Environmental water flows are increasingly valuable. Special
interests support policies that ignore values, waste water, and
harm the environment. Technology will not save a misvalued
environment.
Managing environmental goods . . . . . . . . . . . . . . . . . 169
Technology versus cooperation and politics . . . . . . . . . . 174
Survival first, nature last . . . . . . . . . . . . . . . . . . . . . 179
It’s our environment to manage . . . . . . . . . . . . . . . . . 180
10 Weather and climate change 181
Humanadaptationcanreduceharmfrombadweatherandcli-
matechange. Marketsandpricesmakeiteasiertoimplement
robust, decentralized systems of protection.
Water and the weather . . . . . . . . . . . . . . . . . . . . . 182
Risk and uncertainty . . . . . . . . . . . . . . . . . . . . . . 183
Carbon and climate change . . . . . . . . . . . . . . . . . . . 184
Robust adaptation with markets and insurance . . . . . . . . . 185
Bad weather kills poor people . . . . . . . . . . . . . . . . . . 188
We live in interesting times . . . . . . . . . . . . . . . . . . . 189
11 A human right to water 190
The human right to water is useless when governments are
corruptorincompetent. Turnhumanrightsintopropertyrights;
all citizens will benefit from incentives that encourage better
water services.
Rights . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 190
Human rights in water . . . . . . . . . . . . . . . . . . . . . . 193
Property rights . . . . . . . . . . . . . . . . . . . . . . . . . . 194
Private property helps the poor . . . . . . . . . . . . . . . . . 201
Let the people control their water . . . . . . . . . . . . . . . . 202
12 Water wars 203
Water is hard to capture in conflict. Politicians making subjec-
tiveallocationsofscarcewaterdonotwantmarketallocations.
Most water conflicts are about money, not survival.
It’s hard to capture water in a war . . . . . . . . . . . . . . . . 204
Some conflict is not caused by scarcity . . . . . . . . . . . . . 205
Politicians can benefit from conflict over water . . . . . . . . . 207
A case study in zero-sum behavior . . . . . . . . . . . . . . . 208
We’re all in it together . . . . . . . . . . . . . . . . . . . . . . 210
Afterword: What you can do 211
Acknowledgments 214
Glossary 217
Notes to the text 230
Works cited 258
Index 288
xii
List of Tables
1 Water use by sector . . . . . . . . . . . . . . . . . . . . 11
2 Private, club, common-pool and public goods . . . . . . 19
3 Some for Free residential water pricing . . . . . . . . . . 40
4 How to meter a business . . . . . . . . . . . . . . . . . 89
5 All-in-auctions for bulk water . . . . . . . . . . . . . . . 109
6 Human rights to water do not deliver water . . . . . . . . 193
List of Figures
1 Demand vs. quantity demanded (shift vs. slide) . . . . . 14
2 Average cost pricing encourages shortage . . . . . . . . 18
3 Scarcity pricing can prevent shortage . . . . . . . . . . . 33
4 Block rate pricing: uniform, decreasing and increasing . . 35
5 Market supply and demand vs. scarcity pricing . . . . . . 63
6 Scarcity prices can prevent shortages . . . . . . . . . . 66
7 How subsidies work . . . . . . . . . . . . . . . . . . . . 157
8 Subsidies compared with opportunity costs . . . . . . . 158
xiii
The beginning of the end
Water shortages are caused by water management institu-
tionsthatignorescarcity. Economictoolscanefficientlyand
fairly manage scarce water. Demand for water depends on
technologies, tastes and prices.
In the drought year of 2009, San Diego faced a water shortage. Lo-
cal water managers needed total demand to fall by 20 percent, so they
ordered each household to cut its consumption by 20 percent below
historic levels. This solution sounded good on paper, but it failed to
consider that some people had been conserving water for years. The
proposed rule would penalize water misers for consuming volumes that
water wasters could use without facing penalties.
Thepublicoutcrysurprisedmanagersandpoliticians. Theyreplaced
the 20 percent plan with a regulation on lawn watering and used more
water from storage. Crisis was averted, but the result failed to deliver
reliability, efficiency, or fairness. San Diego’s water managers claimed
that they did their best in extreme conditions, but San Diego has strug-
gledwithwaterscarcitysince1946. Theyweresavedin1977and1992.
They were saved in 2009. Will they always be saved?
These struggles are showing up more often in more places. They
are not the result of incompetent water managers. They are the re-
sult of managers and their political overseers using outdated or inap-
propriate institutions (customs, rules and laws) that assume demands
must be met, abundant supplies can always be found, and a functional
and efficient system needs only strong pipes and breakeven revenues.
Those institutions may not consider how the value of water varies with
use,reconcilehistoricrightswithcurrentnotionsoffairnessorefficiency,
or appreciate the social and environmental costs of ad-hoc rationing in
shortage.
This book uses economic tools to tackle the end of abundance and
managethescarcitythatresultsfromdemandexceedingsupply. These
toolsvaryfromthefamiliar(marketsandprices)tothesubtle(behavioral
cues, property rights, and community associations). In all cases, they
2