The End of Abundance - A Review

I finished reading David Zetland's "End of Abundance: economic solutions to water scarcity" a few weeks ago on the ferry from Victoria to Vancouver, BC. To begin, David provides a comprehensive overview of the many facets and issues that are being discussed today in the world of water. What's most fascinating about this book is how economics, good public policy and institutions (with progressive leaders) can help shift water practices that are inherently inefficient and inequitable to ones that are just and sustainable.

David's core thesis is that the end of abundance (which means increased water scarcity in our world) requires institutions and leaders that are willing to use economic incentives and pricing to radically change the way we use water. His bottom line is that the solutions to our water crisis must be local in nature because what happens in water area is unique to that area.

The book is divided into two parts. Part 1 looks at "personal water choices". This refers to the water we use in our households, on our lawns and for personal use.  Part 2 explores "social water choices" which is primarily a discussion of the political and bureaucratic dimensions of water on topics like the environment, infrastructure and climate change, for example. I'll provide a story from part 1 and part 2 that capture the essence of his arguments in these respective sections. Following that, I provide my one critique of the book and a conclusion about why the book is important and why you should read it!

In the first part of the book, David provides us with his insights on what kind of pricing structures we should be using in our cities. He refers to a pricing structure called inclining block rate (IBR). He tells the story of Santa Barbara, California that went through an egregious drought in the 1990s. A number of strategies were utilized in response to this drought including the water agency using rigid IBRs. With the IBR pricing structure, the first block of  water delivered to Santa Barbara households was $1.09 (the first block was 375 litres and is essentially enough water to meet basic needs like sanitation and water for cooking). Additional blocks were 200 percent higher at $3.27, $9.81 and $29.43 per unit.  The rationale of this pricing structure is simple: as you use more water, you pay much more per unit.

This brought changes in behaviour and aggressive price penalties were fast and significant as gross water consumption dropped 50 percent and median monthly household consumption dropped from 25 to 17 cubic metres per month. When the drought eventually ended, prices were lowered but consumption was still only 60 percent of pre-drought levels. The main message here is that Santa Barbara priced their water based on shortages. The economics is simple, the political will is always the tougher battle which is why many places in North America have not brought about IBR structures yet.

There is so much more to part one including how we can better embrace reclaimed water techniques, how we can re-think our approach to bottled water,  the energy-water nexus and how we can create valuable and equitable water markets to allocate water more efficiently. Part 1 also provides numerous graphs that explain his water pricing models in a very accessible and non-esoteric way.

Part 2 is even more intriguing and is hard to capture in one paragraph. Zetland discusses several topics including the importance of good visionary leaders in water management, why building more water infrastructure is not the solution to our problems, water and the environment and the human right to water. All fascinating topics that I won't cover in this post.

I think the compelling message in part 2 is that local water management is perhaps the most useful framework we can use to manage our water and alleviate scarcity. I totally agree with Zetland and argued this in a conference presentation in February. In short, there can be many competing values and interests in a shared watershed. A farmer might be using the water to irrigate his/her crops, a city might be getting a lot of its water supply from it or some other group may be using it for whatever reason. These stakeholders might be fighting with each other claiming that they have historical rights to use their allocated amount of water. How do you reconcile the values of diverse communities on a scale that includes everyone experiencing the costs and benefits?

Part of the answer to the question above is to establish rights in baseline quantities and qualities and then facilitate reallocation of those rights. Consider the example of Michigan, U.S, where there is a law that makes all water users responsible for not impacting a watershed. "Property owners and riparians have a right to use water under or adjacent to their property, but any new use that may cause environmental harm needs to be offset by changes to existing uses. The key to this system is a web-based tool that allows anyone to estimate ecological impacts from a new well. If no impact is predicted, the system approves a permit and the well is registered. If impacts are predicted, then neighbours discuss how to reduce it. In the 25 percent of cases where neighbours cannot agree, a state employee gets involved; they reject only 4 percent of the cases they see" (page 184).

The practice above may sound progressive but it is proving to work in Michigan. It's important because it reconciles the diversity of interests surrounding water and the stakeholders have to think about how they are impacting the environment.

My critique of Zetland's book is his limited discussion of water and climate change adaptation.

Climatopolis - A Review

I recently finished Matthew Kahn's newest book titled "Climatopolis". I was looking forward to reading this book from the summer but did not find the time this past semester to indulge in Kahn's thought-provoking piece.

To begin, I highly recommend this book to anyone and especially those who love cities. According to the UN, 60% of the world's population will be living in cities by 2030. Climate change is bound to and already has affected urban areas. There are many opportunities for urbanites and Kahn is optimistic about how we will adapt.

Climate change has been a topical subject since 2006 when Al Gore and Nicholas Stern frightened the world about the future risks humanity would face if we did not take action. Gore, Stern (to a lesser extent) and a number of climate change researchers including climate scientists, economists, geographers etc, often focus our attention to climate change mitigation. This means looking at tools or systems (such as a carbon tax, cap-and-trade emissions standards, energy conservation) that will help lessen the impacts of climate change by emitting fewew greenhouse gas emissions. Few, however, talk about the importance of adaptation, or simply adapting to climate change in our uncertain future.

Matt Kahn's book takes us on economic journey (he's an environmental economist) exploring how residents of global cities such as Los Angeles and New York City can adapt to climate change if they receive proper signals about the importance of doing so. In a time when people have better access to information (thank you Google) there is more knowledge being created about the risks of more frequent natural disasters - flooding, hurricanes, earthquakes, heat waves and droughts are all severe and highly damaging to any city in the world. Whether it is a developed or developing city, some residents are far more impacted than others (take hurricane Katrina in 2005 as a good example).

Throughout the book, Kahn talks about two vastly different groups and how they will respond or adapt to climate change. The first group is the Homer Simpsons of the world; those who are lazy, myopic and unwilling to sacrifice for their long-term good. They might be more skeptical of climate change and do nothing to protect themselves from it. Or, there is the traditional economic person who is cold, calculating and self-interested who Kahn calls the Mr. Spocks (Star Trek) of the world. The Mr. Spocks will take advantage of all of the information available on climate change and take pro-active steps to cope with the uncertainty surrounding climate change.

Take this example from the book: Kahn explains a situation where Al Gore (Mr. Spock) and Homer Simpson are both offered an opportunity to buy a home at a low price in an area that climate change scientists believe is at a high risk for serious flooding. The Al Gores would say either no thanks or if they accepted this offer, would take steps such as elevating the home and other costly flood-proofing actions to protect it. Homer (the ignorant one) would not be aware and take the offer right away. The Homers might take advantage of the low cost and migrate (or as Kahn says, "vote with their feet" by moving) away from a safe city such as Salt Lake City* to more risky and desirable cities like NYC, if they could trust their government and engineers to invent a credible protection strategy. The local government could construct seawalls for example, to help protect households living on the coast. That would be costly though and the money would come from all taxpayers including those who decided to live in less risky areas. As more and more households start to live in these risky areas, the federal government would provide more funds for protection because their political clout increases. So, if there is no flood, Homer will live on to be a happy person. If there is one, Al Gore will not suffer and Homer will.

Kahn provides examples like this to illustrate how both information and incentives can drastically change the way people think and adapt to climate change. Forward-looking entrepreneurs can innovate (earning huge profits) and be ready with a variety of products to help the Homers cope with their new reality. Thomas Mayne, an architect at UCLA, is discussed in Kahn's book because he is designing a "floating house" for New Orleans' residents. Such innovation can earn him big bucks for those wishing to live in riskier flood-prone areas.

There are countless examples in the book of such risky areas (like fire zones with wealthy landowners) where a market or insurance system can be created to price land based on climate change risk. An example comes from the state of Missouri where some local governments encourage developers to develop on high risk flood plains. This so-called "land assembly problem" allows developers to build on really cheap land in flood prone areas and make huge profits. The local government is excited about the new tax revenue and the job creation that accompany these projects. Alas, when floods happen in that state the federal government comes in a bails out the developer with tax payers' money because they were foolish enough in the first place to build in risky areas! Kahn suggests that insurance companies and markets need to appropriately price this land so that any risk takers who suffer from such disasters are solely affected by it, and not the taxpayers who probably disagreed with the development in the first place.

The bottom line is that there are a number of opportunities in cities across the world to embrace a more market and insurance oriented approach based on climate change risk. When insurance companies start to price land based on future risk, people will respond in different ways - some will migrate and some will stay and take advantage of the new demand for products such as floatable houses, more energy efficient air conditioners, rain water harvesting systems and many more. They will, in effect, adapt and create a greater market for such products allowing for better innovation and design from the business world thereby creating a safer city in our uncertain future. Keep in mind that while these adaptation technologies sound very promising, they will probably be very expensive and hence out of reach for the poorest and most marginalized - the group most affected by climate change.

These are just some highlights from the book. I do not agree with all of Kahn's points but I commend him for his forward-looking approach on a significant global issue of our time. He talks about Los Angeles and NYC extensively in his book because they are good case studies of climate change risk and adaptation potential. There is also a good amount of writing on China in the book and Kahn's predictions about how they will (or will not) green their cities in the face of climate change.

I have a copy of the book and would be happy to lend it to anyone interested.

I will write a post in January about some of the lessons urban planners could learn from Kahn's book.

*Kahn comes up with a list of the United States' top five most resilient cities that will cope best with climate change. These include 1) Salt Lake City 2) Milwaukee 3) Buffalo 4) Minneapolis 5) Detroit

SuperFreakonomics: A quick review

I just finished reading SuperFreakonomics: Global Cooling, Patriotic Prostitutes, and Why Suicide Bombers Should Buy Life Insurance. The authors are Steven Levitt and Stephen Dubner. The book is a follow-up to their first book titled Freaknomics which was a NY Times best-seller and led to the creation of blog to continue the dialogue.

There are a number of really fascinating and very insightful stories found in SuperFreakonomics- stories that really make you think about how human beings can respond or alter behaviour based on reasonable economic incentives. At first, their insights and comparisons seem to be completed unrelated, but Dubner and Levitt are very creative and pull together correlations that leave you amazed. Overall, I would recommend this book to anyone. It is not about recessions, financial markets or inflation, instead the authors use compelling statistics to illustrate how selfish and irrational we can be and how incentives, pricing and public policy can lead to a more harmonious and healthy society.

Instead of touching on how drunk walking is more dangerous than drunk driving, or why doctors are so bad at washing their hands or if people are innately altruistic or selfish or how monkeys respond to economic incentives, or what Al Gore and Mount Pinatubo have in common, I will share an example with you which covers a controversial topic known as geo-engineering.

In short, geo-engineering is large scale engineering of our environment in order to combat or counteract the effects of changes in atmospheric chemistry.

While I don't have a particular stance on geo-engineering, it is worth some discussion. Let me share one SuperFreakonomics example with you where a geo-physicist has figured out a way to counteract a natural disaster provided by Mother Nature, hurricanes.

Hurricanes are deadly, since 1900, more than 1.3 million people worldwide have been killed by them. Between 2004 and 2005, there were six hurricanes in the U.S. with combined damages of $153 billion dollars. Without going into all of the technical details, hurricanes become more potent (accumulate more thermal energy) when they hover over warm waters. A geo-physicist has proposed a solution that can help prevent the water from getting too warm and thus too destructive.

The trick is as follows: hydraulic head is a force, created by the energy put into the waves by wind. This force would push the warm surface water down into the long plastic cylinder, flushing it out at the bottom far beneath the surface. As long as the waves keep coming in, the hydraulic head's force would keep pushing warm surface water into the cooler depths, which will lower the ocean's surface temperature. A molecule of warm surface water would take about three hours to be flushed out the bottom of the plastic cylinder.

The devices would take the form of rings made from old truck tires filled with foamed concrete and lashed together with steel cable. The cylinder extending six hundred feet deep into the ocean, would push the warm surface water under. The trick is to modify the surface temperature of the water. Bottomline: in large numbers, these devices could possibly make warm water cooler and thus less likely to build a destructive hurricane.

So, would this hurricane killer actually work? These devices would range in price (depending on size) but could be as little as $100,000 - allocating 10,000 of them around the world would cost $1 billion or one tenth the amount of hurricane property damage incurred in a single year in the U.S. alone.

This is just example proposed by imaginative scientists who think that such tricks could help decrease the impact of destructive hurricanes. Levitt and Dubner discuss specific geo-engineering examples here. They are controversial and may never be adopted by governments, but their point is this: changing the behaviour of individuals (to drive less or pollute less for example) is never an easy task, using geo-engineering solutions can cool the temperature of the earth at a cost considerably cheaper than public awareness campaigns or large scale government spending on carbon reducing technology. The ideas may seem far-fetched, but would be worth carrying out in smaller projects.

Take their thoughts and findings with a grain of salt, but understand that such solutions could be cost-effective if they were funded and embraced by governments.

Rapid Conflict Prevention Support

Earlier this summer, I read a book called Economic Gangsters: Corruption, Violence, and the Poverty of Nations by Raymond Fisman and Edward Miguel. The book draws on number of correlations between seemingly random things that have important policy implications in economic development.

While Enviro Boys does not directly write about international/economic development, the book reveals important ideas that pertain to climate change which we know is a global issue that requires expertise from several disciplines. I wanted to share one concept from the book that has the highest degree of relevance to this blog. The concept is called Rapid Conflict Prevention Support (RCPS) which is a form of aid that targets countries suffering temporary income drops due to poor weather or commodity price declines. It would provide immediate financial aid to such countries to help stabilize sectors of the economy before conflict erupts.

One of the rationales of this idea stems from Chapter Five titled “No Water, No Peace” where the authors discuss the country of Chad and its complete dependence on rain-fed subsistence agriculture. When the country goes through intense droughts, farmers suffer as their crops die and this affects the entire country's economy. Research from Miguel and his NYU colleagues found that a 5% drop in per capita income due to drought, increases the likelihood of a civil conflict in the following year by nearly one half. Thus when water does not fall from the sky, not only does the economy suffer but there is a risk of greater instability.

To partially remedy this problem, the authors discuss the merits of RCPS as it could provide temporary public work jobs for unemployed young men; the group most likely to participate in armed violence. The authors suggest how donors of RCPS would be able to track rainfall and famine conditions through publicly available websites. As the authors write "Rwanda relies heavily on coffee export earnings to provide for its people, so when the world price of coffee plummets, so do most Rwandans' income. In this way, a sudden drop in key commodity prices acts a lot like a drought, leading to an unexpected decline in income that leaves the population desperate and violence-prone". Miguel explains how potential donors of an RCPS program could track coffee prices on the Chicago Board of Trade and respond to falling prices accordingly.

Similar to large scale environmental issues, the need for prevention is far more critical and cheaper than dealing with the aftermath – floods, droughts, earthquakes or whatever else it may be. Forecasting precipitation, monitoring commodity prices or even an imminent earthquake are not always easy to predict. As such, there is a need for some precautionary mechanism to ensure that matters are not worsened when the event actually happens. Miguel’s RCPS idea would use economic indicators to identify nations most likely to suffer future strife, increasing aid before violence erupts. Such prevention is better than a more costly cure.

Sure, there might be some corruption that takes place through a program such as RCPS, but in a time when droughts are bound to get worse, RCPS can provide immediate funds to help prevent and or alleviate the economic hardship. It could supplement investments in education and infrastructure for long-term sustainability.

If you want to learn more about this topic (and other topics in violence, corruption and poverty) read their book; it's very insightful and a fun read in general. They identify a number of remarkable correlations and provide policy solutions such as RCPS.

Check out Edward Miguel's Bloomberg article here.