Relevant and even prescient commentary on news, politics and the economy.

Institutions and markets

David Zetland at Aguanomics ponders the interplay of institutions and markets (reposted with authors permission). LocaL conditions in this context are those conditions in a watershed area.

This is what I mean by institutions

I wrote this for some partners on our water project, and I post it here because it seems to give a nice perspective on what we mean by institutions and how to form markets in accord with local conditions.

This section will discuss the potential for using water markets or auctions in the Tajo-Segura basins, along with the institutional details affecting the potential for the successful implementation of markets. Institutional details are important, because they tend to change the nature of markets, making it important to include details in the design and implementation of markets that reflect institutional conditions.

Institutions can take many forms, from the resilient and resistant institutions of culture, to the formal and informal practices of law, to the day-to-day interactions of an evolving population (Williamson 2000). History creates institutions (via path dependency), but history is not destiny. Ideas and actions can change institutions that no longer serve the needs of society.

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Aquifers too deep to be tapped

David Zetland at Aguanomics points us to the way the US ‘too deep to use’ water aquifers for waste water from fracking, and the example of Mexico City drilling deep as a way to handle water shortages:

This article raises an interesting point: the US EPA allows companies to pollute aquifers that it assumes are too deep to be tapped for drinking. If rising water scarcity makes it economical to tap those aquifers (as Mexico just has), then it will not be possible to do so, since they will be polluted.

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Negative externality or just raising money

Lifted from one of David Zetland’s Aguanomics musings on how our conversations mix things up:

Gasoline taxes are often justified as the response to a “negative externality” of pollution from cars, but the money from those taxes rarely (never?) goes to people who suffer from pollution. So is it really a tax on an externality or is it just a way of raising money?

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Water, human rights and government failure

by David Zetland

Water, human rights and government failure

I wrote a paper on a human right to water several years ago,* in which I made the point (using data!) that laws supporting a human right to water are unlikely to work in countries where the rule of law is weak.**
But what about places where the rule of law means something? What about in California, where Governor Brown just signed AB 685 into law? AB 685 was drafted into law as a “do something” response to the problems to the poor quality water that communities in the southern Central Valley were facing. These communities — mostly poor, mostly migrant — are in the middle of California’s “industrial ag” belt, and their groundwater was contaminated by runoff/seepage from cowshit generated at large-scale dairies (Happy cows! California #1!) and from excess pesticide/fertilizer applied at big farms.***
Although AB 685 sounds good, it actually does nothing concrete. It merely espouses a nice idea that will only be implemented if convenient. Here, in fact, is the entire addition to the State’s water code [pdf]:

SECTION 1. Section 106.3 is added to the Water Code, to read:
106.3. (a) It is hereby declared to be the established policy of the state that every human being has the right to safe, clean, affordable, and accessible water adequate for human consumption, cooking, and sanitary purposes.
(b) All relevant state agencies, including the department, the state board, and the State Department of Public Health, shall consider this state policy when revising, adopting, or establishing policies, regulations, and grant criteria when those policies, regulations, and criteria are pertinent to the uses of water described in this section.
(c) This section does not expand any obligation of the state to provide water or to require the expenditure of additional resources to develop water infrastructure beyond the obligations that may exist pursuant to subdivision (b).
(d) This section shall not apply to water supplies for new development.
(e) The implementation of this section shall not infringe on the rights or responsibilities of any public water system.

Although sections (a) and (b) sound good, sections (c-e) seem to create giant loopholes (I still cannot understand what “beyond the obligations that may exist pursuant to subdivision (b)” means).
So, I see this bill as a non-solution to a problem that needs to be addressed by:

  • Reducing pollution from agriculture; and
  • Requiring farmers whose pollution has damaged groundwater to pay for substitute water supplies to communities with “impaired” water supplies or pay for the relocation of the people in those communities (polluter pays).

Without a doubt, this ridiculous bill is a failure because it shifts the costs of a problem caused by agriculture onto public water agencies, giving us yet another example of how farmers representing less than 3 percent of California’s population, economy and workforce screw over the other 97 percent of Californians.****
So, that’s the most recent development in the ongoing, worthless “discourses” in water policy — a human right to water — and another example of how politicians totally screw up policy present empty promises as “solutions.”
If you’re interested in hearing more of my thoughts on this topic, challenging those thoughts, or adding your own ideas and impressions, then tune into tomorrow’s webinar on Chapter 11 of my book (A human right to water), here at 9am Pacific (get the time in your location and test your Flash installation).
Bottom Line: Words are nice, but deeds matter. The easiest way to get deeds is to create an incentive to act, and fine words from activists to politicians are hollow unless those politicians (and their bureaucratic minions) must deliver results.

* I submitted the paper to Water Resources Management in August 2011, but they failed to find referees for it after one year. I withdrew it last week. FAIL.
** I go on to suggest that a property right in water is more likely to result in water service to the poor, since they will be able to convert their rights into money, and money DOES flow towards those who can pay.
*** I asked a representative of one of those counties about the “cowshit plume” in groundwater about eight years ago. She changed the subject to their LEED-certified office building. They were either too afraid of or owned by dairy farmers.
**** This pattern holds in many countries, with the noble exceptions of New Zealand and Australia.

reposted with permission from Aguanomics

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The Land Grabbers — the review

by David Zetland from Aguanomics

The Land Grabbers — the review

Fred Pearce sent me a review copy of his new book, The Land Grabbers: The New Fight over Who Owns the Earth, which I enjoyed very much for its detailed description of the pros and cons resulting from foreigners investing in land in developing countries.

In the book, Pearce appears to see more cons with land deals than I do. Perhaps that’s because he saw only bad land deals, or perhaps he associates ALL large-scale agriculture with exploitation, inefficiency and environmental degradation. Any of you who read my paper (“The Political Economy of Land and Water Grabs”)* will know that I am annoyed that we do not have a good definition of when a land deal is a “bad” grab or “good” foreign direct investment (FDI). Pearce appears to call ALL deals grabs, but I think there are many well-run, sustainable farming operations that produce profits for the farmer, good jobs for locals, and quality food for markets.

Anyway, here are my notes on the 300pp+ book, which has six parts and 27 chapters covering “grabs” from buy-side and sell-side locations in Europe, N and S America, Africa and SE Asia.

  • Many grabs convert “fallow” land to industrial-scale agriculture, but local communities often “cultivate” this land in long rotations of crops, grazing and recovery. Their methods are not just sustainable; they are cheaper and more productive for meeting a diverse range of local needs. Nomadic herders have practiced sustainable land management for centuries.
  • Such methods are also egalitarian. Poor farmers can eat, but poor urban residents will suffer from political corruption and/or favoritism.
  • That said, Pearce seems over-suspicious of markets (and financial instruments) that can improve food security and supply, views that I recently called shortsighted and misleading.
  • Food security, for example, is often used as an excuse for protectionism that favors local food growers over consumers. Grabs directed at security also fuel “countervailing” grabs in which market supplies are replaced by managed supplies that will waste calories, inputs and environmental flows. Yes, the Saudis are engaging in grabs, but that was only after their failure to grow wheat at home (a bad idea that wasted water) and their exposure to volatile food markets. The trouble with their “grab” strategy is that they will not be able to export food if large-scale shortages arise and their “indigenous” farms are wasting water now that they will need in the future. It’s far more efficient, for example, to rely on markets for supplies, store a year’s supply of grain in case of market failure, and save water for cultivation should market interruptions last longer than a year.
  • Land grabs are also often water grabs. The weak property rights that allow land grabs (by definition, a grab takes land from other users) are almost surely accompanied by even weaker rights over water and even greater misuse of that water.
  • Grabs, as a business strategy, often depend on corrupt dictators who will not be around as long as the 50-99 year contracts may promise, making it difficult to invest over the long term or care about sustainability.
  • Even worse, most grabs are arranged in distant bureaus, where “buyers” and “sellers” may not have a clear idea of what they’ve agreed, let alone who else may be interested/affected by their agreement.
  • It seems that Pearce considers deals involving foreigners to be “bad” while deals with locals are “good,” but local thieves are not just more common, but more thorough, since they know the maximum local tolerance for greed.
  • That said, it’s great to improve local productivity. It just takes a lot longer because locals do not just “copy/paste” good ideas from other areas. The upside is that locals who develop “organically” will have diversified, robust systems that will contribute to market stability. Pearce would agree with this assessment, I am sure, but local is not the ONLY way to go…
  • Remember remember remember that foreigners cannot just show up and exploit (at least not in these post-colonial days) — they need corrupt local partners, and THOSE people are the ones with power to make or break a deal (as I discussed in my paper).
  • Unsustainable operations are a bigger problem than grabs. They are fueled by a combination of short-term thinking (high discount rate) that may be fed by over-capitalization (need to generate cash to pay off debt), poor property rights (get money before land is gone), tragedies of the commons (get water before neighbors take it), etc. These problems occur in ALL countries, but they can be minimized by stable, sensible policies.
  • Land grabbers may be taking “marginal” land (often conservation areas, etc.) but only because domestic farmers have already taken prime land, often before environmental perspectives had any weight.
  • Pearce appears to laud reverse grabs, e.g., when Chavez or Mugabe break large farms into smaller holdings, but those “fair” actions are often driven by corruption or revenge. Even worse, the land often ends up with cronies who cannot farm instead of poor farmers who can.
  • Remember that there would be NO land grabs if individuals or communities had title to their land! That’s why many grabs are occurring in Africa — about 80 percent of the land there is “managed” using informal, communal methods.
  • Pearce also covers the interesting case of “green grabs” — where environmentalists take land out of production (or protect it), to keep it pristine. These grabs sometimes exclude locals from their traditional lands; they can also be sustainable (e.g., locals live in the lands under traditional conditions, while earning money from fees paid by foreign tourists who want to hunt beasts with cameras or guns).
  • Pearce loses his way when discussing “grabs” in Australia that are really FDI. That’s not the case in Cambodia, where corruption underpins land seizures, but it’s not good to mix up fair deals (even if they upset nationalists who prefer to avoid competing with foreigners for land) with theft.
  • There’s an interesting discussion of grabs in Malaysia and Indonesia, in which rainforests are cut down for timber and palm oil plantations. It’s not just that these grabs impoverish locals of their traditional lands, or that the biofuels produced on the land may actually be “carbon positive” but that the wood products produced from them are certified “good” by the FSC when they really are not. The main point is that eco-labels are meaningless unless there’s a 100 percent accurate way to prevent counterfeits — and that’s hard in corrupt countries.
  • Take this last point with my point on property rights and long term views above, and you will see how real sustainability results from accurate pricing of resources that belong to a community over the long term (50+ years).
  • The world’s largest sugar farm in Sudan uses 2.4mafy (~3,000 GL), or 4 percent of the Nile’s flow!
  • Water grabs, no surprise, reduce environmental flows that nourish wetlands that traditional users depend on for food, fiber and fish. No rights = hunger.
  • Mega farms may be unsustainable, but subsistence farms cannot generate enough production. Perhaps the middle way — small-scale, mixed-use farms managed by owner/entrepreneurs who innovate and adapt to local conditions — are the best way to feed the world over the long run. Oh, and don’t forget that these guys need to trade and benefit from trade.

Bottom Line: I give this book FOUR STARS for its vivid description of the problems related to land grabs that benefit outsiders at a cost to locals whose land is taken from them. Read it to understand the choices between hunger and food, rebellion and stability but don’t forget that property rights (legal, traditional or communal) would stop unfair grabs while allowing local people to benefit from their resources, locally and globally.

* The working paper is no longer online, due to spurious copyright claim by the publisher of the book where it eventually appeared. Email me if you want to see it.

reposted from Aguanomics

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Hurricane Sandy and choices for the future

by David Zetland   David Zetland is a senior water economist at Wageningen University in the Netherlands and maintains a blog on water issues at Aguanomics

Hurricane Sandy and choices for the future

I live in the Netherlands, where living below sea level for many years has driven the Dutch to take flooding and storm surges very seriously.*
It’s therefore interesting to compare the damage from the storm to the early warnings that Americans had from the Dutch and scientists. Were the Americans right to have ignored those warnings? After all… “Hurricane Sandy was a fluke, right? A storm surged from 90-mile-per-hour winds of a hurricane colliding with a northeaster, perfectly timed with a maximum full-moon high tide. The statistical likelihood of this is once in every 500 to 1,000 years.”
Huh. I guess the 2010 book on my table [pp 51-52 of Book II here] is about 497 years early:

Storm surges along the eastern seaboard of the US are associated with either late summer-autumn hurricanes or extra-tropical cyclones in the winter period, so called nor’easters… the height of the hurricane surge is amplified if it coincides with the astronomical high time and additionally occurs at the time of new and full moon… hurricanes have struck the coastal New York area six times in 1900-1990, resulting in severe coastal flooding, damage and destruction of beachfront property, severe beach erosion, downed power lines, power outages and disruption of normal transportation.

When I visited with Piet Dircke in Rotterdam (the center of Dutch vulnerability to floods) two years ago, we discussed the problem of flooding, and he gave me his book (free to download, by the way). He was also disappointed that New Yorkers were not interested in investing the time and money necessary for protecting their city from surges and floods. How was that possible when the CEO of New York was saying this?

Well, it’s possible because they were trying to avoid relocating people and neighborhoods or paying $20-30 billion for a real (i.e., Dutch-quality) system for protecting the area that would [p. 59]:**

… stretch across from Sandy Hook, N.J. to Far Rockaway, Long Island… providing protection to the outer boroughs of Brooklyn and Queens, additional northern NJ communities, Jamaica Bay and JFK Airport.

Now it would probably have been impossible for New Yorkers and others in the region to build such a system in time for the (unexpected) arrival of Sandy, but was there any plan in the works? Not that I know of. That’s unfortunate, as the storm caused $20 billion in damages to New York alone.***
So what will happen next? The Dutch would engage in a ruthless triage — moving people away from vulnerable but poor areas while building up 1-in-10,000 year defenses for places that are too valuable to abandon (e.g., Rotterdam).

Will the People of Sandy engage in the same ruthless triage, or will they make the same mistake as we’ve seen with the rebuilding of the Ninth Ward in New Orleans? That political decision to rebuild is a costly and populist gesture that is likely to end when the returnees are flooded again in the future.

Although that mistake is possible, I am hoping the Bloomberg and others take the time to read this book (and all the other warnings and studies) and make the right decision to rebuild in safer places while leaving those who want to stay in unsafe places to pay for their own foolishness.

Bottom Line: Climate change means that the environment is not going to be reliable and business as usual is going to get more costly. We need to learn a few things from the Dutch: (1) Be realistic; (2) Plan seriously; and (3) Spend seriously. Anything less is not just going to be tragic, but criminally incompetent.

* You may want to read my posts on the Delta Works and Delta Commission, which addressed these dangers in the past and for the future, respectively. Read this post on why it’s difficult for the Dutch to export their water “expertise” — mostly because the rest of the world faces water shortage rather than water superabundance.
** They were paying more attention to redeveloping New York, since valuable real estate generates property taxes and flood barriers cost money. I just saw Urbanized (2011), which has an extensive narrative on The High Line and other cool projects but nothing about urban defenses.
*** As well as causing vast grief and inconvenience. People unable to use the flooded subways or tunnels took to bikes to avoid horrible traffic jams (as well as the need to buy gasoline, which was available for sex). It’s a gratuitous tragedy that so many politicians have embraced “anti-gouging laws” that prevent prices from rising to balance supply and demand. Some gas stations stayed closed to avoid angry customers (or offer fuel for sex!); others stayed open but had cars waiting for hours to fill up. Read more on how these laws are counter-productive here and here.
H/Ts to MR, MS and MV
Labels:climate change,floods,infrastructure,institutions,NL,oceans,OPM,politics,sustainability

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About reporting and water issues…

by David Zetland    David Zetland is a senior water economist at Wageningen University in the Netherlands and maintains a blog on water issues at Aguanomics.

It’s not as simple as selling books

Many people ask me to comment on statements made by journalists covering the water sector. Most of the time, I am happy to see journalists covering water issues, since they tend to promote awareness of the need to change our ways, but there are two big exceptions. The first is when a lazy journalist fails to see that water shortages are not caused by a failure to rain as much as a failure (of managers) to keep demand below supply. In those cases, I often leave comments or send emails to correct them, hoping that they look a little deeper in the future.

The second problem is much more dangerous: a journalist posing as an expert.

But what does it take to be an “expert”? Well, it doesn’t mean you need a PhD or need to spend years studying the topic. You need a decent framework that explains causes and effects within local institutions that also matches the knowledge and intuition of those who have lived with the situation for many years.
Journalists can certainly explain the causes of a problem, how to resolve it, and why resolution may not be occurring. That’s why I admire the work of Fred Pearce and Cynthia Barnett, for example.

But then we run into journalists who turn a few shallow anecdotes into a problem that can be “solved” in ways that won’t work. Although some of these journalists are sloppy (see above), others intentionally over-reach because they are making money.

I’m going to name two here (with specific examples) because I want to call attention to their need to do a better job in their jobs as “experts” (I’m not saying anything about their work as journalists) and our need to bring an appropriately critical perspective to their opinions.

Why is this post important? People with limited attention rely on “prime time” outlets rather than study complex problems. That means that mistakes in those outlets can lead to an abundance of bad decisions.

So, that’s a preamble for why we need to care about journalists’ accuracy, but let me also also clarify why I — as an academic — feel a need to correct their contributions to public discourse. It turns out to be more complicated than “that’s what academics do.”

As you know, I’ve been giving my opinion on water policy for many years, writing on this blog, giving public talks, holding discussions with experts and stakeholders, and so on. In most circumstances, I combine my knowledge of economics, a familiarity with facts, and a sensitivity to other perspectives into an opinion on what I consider the “right” thing to do.

Economists say that I do “normative economics,” i.e., the economics of what should be, but most economists practice what’s called “positive economics,” i.e., the economics of what is. These positive economists may carry out research describing the connection between water service and child mortality, or measuring the efficiency of water markets or the impact of new water tariffs on consumption behavior. I go further, using these results to advocate for policy changes.

In that sense, I am not an academic concerned with the details of reality as much as a pundit* promising to deliver a future to those who follow my advice. I am not alone in that, and thus we arrive at the problem of identifying who’s right, a problem that is often ignored because people standing on high are more often believed than people standing on firm ground.

It’s well-known, for example, that there are two ways to become a famous blogger: be famous or work hard.
This definition will raise a warning signal to those interested in maximizing the quality of debate. There may be, for example, hundreds of people qualified to advise on improving urban water management, but these people may not get as much attention as a single tweet from Madonna (“OMG, I’m no virgin, but showering in recycled toilet water? Yuck. Gimme NATURAL water”).

That tweet will be heard by many. Most will ignore it, but others will change their opinion about recycled water. In the resulting debate over indirect potable reuse, experts are buried under an onslaught of collective ignorance, the motion to recycle water is denied, and the utility continues to overpump a river full of wastewater into the drinking water system — to the future regret of everyone.

The problem of short and clever vs 78 pages and precise is widespread. We see it in political debates, cocktail chatter, and the know-it-all friends with the same solution to every problem (some variation of education, regulation or markets).

These opinions may be 50, 70 or even 90 percent right, but they tend to leave out caveats, qualifications and limitations that can render the opinion irrelevant or counterproductive. The trouble comes when readers and listeners assume the opinion is 100 percent right — perhaps more right than even the author would admit, given his attempt to present the essence of a complex idea while still understanding its limitations.

That’s why academics can provide a useful service by recognizing the limits to what they know or can claim and explaining how complex systems are neither simple enough to understand nor manipulate. Academics, in short, are trained to be humble with their ideas.**

So what can we learn from academics?

  1. Take the position of the other side, to understand and address their objections. This process means that you will need to either admit or correct your weaknesses.
  2. Contextualize your idea within the conditions where it is appropriate while acknowledging that those conditions are not universal.
  3. Think very carefully about how your idea will interact with existing policies, taking into account the ways that people have tried to deal with the problem — or not — in the past.

Now, after all that long introduction and context, let me get to the journalists whose opinions are not expert in a few recent pieces.

In my review of Charles Fishman’s Big Thirst, I said “his journalistic style was too breezy.” Indeed, his op/eds at National Geographic and the New York Times are oversimplified and misleading. In the former, he omits the facts that Ireland has charged residential users for water in the past and that non-residential users pay for metered water. Besides these omissions, which make his claims sound more significant than they are, he forgets (or does not know) that meters are not always cost-efficient to install and that customers always pay for meters, either up-front or in the long run.

In his NYT piece, Fishman’s “obvious” command and control “solutions” have been tried in many places. In some they work, in others they are inefficient from a cost or water perspective. He also omits the more fundamental discussion of why other, more effective actions are not taken (raising water prices in Las Vegas, for example) — an omission that makes me wonder if he’s looked any deeper than press releases and speeches by water managers and politicians. Journalists sometimes get a little over-used to dealing with the contents of the box they are given instead of looking outside the box — a job that academics (and activists) are accustomed to executing. His over-simplified perspective may sell books, but his solutions are more likely to be counterproductive than useful.

Frederick Kaufman expresses a fear of water markets in Nature and Wired magazines that is straight out of science fiction: global water markets in which derivatives allow traders to hedge shortage in Kazakstan with grain production in Australia by borrowing against wetlands in Canada. His working hypothesis is weak on many levels. I responded to his Nature piece and Wired interview with several comments, but these will do here:

  • Water is NOT EVEN CLOSE to fungible. Are you kidding about “icebergs and aquifers” as interchangeable? Go get $1 of tap water (about one cubic meter) and then move it to the other side of the room. Hard to do? Sure, since 1,000 liters weighs one ton. Water systems — let alone markets — will NEVER be integrated like oil, gold or computer ship markets because the costs of transactions are so high.
  • The greatest distortions in the efficient use of water are caused by political interference. In this sense, bad water management is the same as bad financial management, but don’t blame markets for bailing out “too big to fail” fools or failing to get water to efficient farmers or taps in poor countries. Blame politicians.
  • Water markets have been VERY useful in reducing water waste and directing water from the powerful and rich to the poor and powerless – because the rich are getting water at a lower price than the poor are willing to pay…

Go read these pieces and ask yourself: Do these guys know what they are talking about? Should politicians and citizens turn their views and ideas into policies for managing our water? More fundamentally, remember that some people put out uneven work (I know I do). These pieces may not represent the norm for these guys (I sure hope not), but they risk damaging reputations built on solid work that combines relevant facts into a plausible narrative to explain how a situation arose and how it might be improved.
No matter your answer, please leave comments here (or there) to tell me and them what we got right or wrong.

Bottom Line: Journalists can cause a lot of damage when they misdiagnose problems, offer the wrong solution and appeal to fear, uncertainty and dread. What they need to do — and what I try to do — is explain the facts and barriers to change before suggesting gradual reforms to improve our water management.

* “Pundit” comes from “pandit,” a Hindi word for a scholar or teacher who has mastered a topic (classically Sanskrit language, vedic scriptures, Hindu law, etc.) under a guru. This definition could be applied to any “doctor of philosophy,” since PhD programs are designed to impart mastery over a topic to a student under supervision. I wouldn’t be surprised if pandits were also supposed to possess wisdom, a characteristic not required of PhDs.
** I may be giving academics too much credit, as many of them disregard their training when it comes to arguing that their opinion is right “because I have a PhD.” Academics, OTOH, are routinely absent from debates in which they could make a useful contribution, due to a combination of shyness (PhDs are known for long hours of study not extroversion), professional incentives (professional publication is more important than social impact), and aversion to debate with non-academics who may neither respect their credentials nor engage in “structured fair play.”

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Will San Diego make the desalination mistake?

(Dan here…a recent talk I attended on water in Burkina Faso reminded me to look at another important issue even for the US)

by David Zetland    David Zetland is a senior water economist at Wageningen University in the Netherlands and maintains a blog on water issues at Aguanomics.

Will San Diego make the desalination mistake?

Poseidon Resources has been lobbying to build a desalination plant in Carlsbad (San Diego County), California for around a decade, and I’ve been skeptical of that proposal (earlier posts) — mostly because water consumption in San Diego is still quite high (ranging from 100-300 gallons/capita/day; compare that number to Sydney or Melbourne at 50 gcd!).

It makes more economical and environmental sense, in other words, for San Diego to reduce its demand before going for more supply (this year-old analysis of their supply alternatives [pdf] lists desalination at $1,600/af but that cost is now up to $2,000+/af).

But San Diego politicians are not thinking in terms of environmental or economic sustainability. They are at war with the Metropolitan Water District over imported water and in alliance with property developers who want more supply to build more subdivisions. (It’s ironic, in fact, that SD leaders worry about the burden of paying too much for more water imported from Met via the Delta [pdf] when they are prepared to throw caution to the wind for a local “solution.”)

Those are just some preliminary comments and opinions based on my observations over the past 7-8 years, but there are some new developments that make these comments even more relevant.

First, the San Diego Country Water Authority is thinking of signing a 30-year water purchase agreement to buy water from Poseidon, an agreement that will make it possible for Poseidon to borrow money from the State of California (!) for constructing the plant.

Second, that agreement does not specify how much equity (“skin in the game”) Poseidon will bring to the table in financing the $900 million project, but it DOES specify how much money Poseidon will receive for “overseeing” a project that it will neither design, nor construct, nor operate.

Third, it appears that SDCWA will pay about $3.2 billion over 30 years for water that will be twice as expensive as its existing water supplies from Met. Given the industry-norm of charging average cost for water, that means that SDCWA will be selling water it buys for $2,000 per af for about $1,200 per af. Try swinging that business model past Wall Street. (The Independent Rate Oversight Committee sure doesn’t like it! [pdf])

Fourth, you should read my 6-page analysis of the water purchase agreement (all 550 pages of what-the-hell-are-these-lawyers-saying!?!). The Surfrider Foundation paid me to prepare it, but — as usual — I acted as a consultant with a conscience: I put my original opinions in that report, since I am paid for honesty and accuracy, not groupthink. But read it for yourself.

Bottom Line: San Diego should not build a desalination plant because it would be an expensive non-solution to water reliability problems that are actually caused by poor management of regional water at Metropolitan and a failure to restrict demand to sustainable levels.

reposted from Aguanomics

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Wait. Canadians make more money than Americans? Yep.

David Zetland passes along some income figures via Aguanomics (re posted).  (Dan here…There are more American billionaires and millionaires, so not to worry) :

Cornelia and I were discussing household income and living standards, and I mentioned that median wages in the US were around $35,000.* She was shocked, saying that they were much higher in Canada.
Wait. Canadians make more money than Americans? Yep.

[1] USD** Median household income
50,050  USA
71,300 Canada
Household size
2.6  USA
2.5 Canada
[2] USD GDP per capita (2011 nominal)
48,400 USA
50,400 Canada
USD GDP per capita (2011 Purchasing-power-parity)
48,400 USA
40,500 Canada
[3] Gini Coefficient (CIA, 100 = most unequal)
45 USA
32 Canada
So here’s how I reconcile these numbers:

  1. Median household income is nearly 40 percent higher in Canada, even after adjusting for the number of people in the household.
  2. PPP GDP per capita is higher in the US by nearly 25 percent. This number, mind you, refers to total economic activity and cost of living, not income to individuals.
  3. These numbers are reconciled via inequality: Canada is more egalitarian (similar to Spain and Italy) than the US (similar to Bulgaria and Iran), circa 2005-2007. I reckon that inequality has recently worsened in the US.

So it seems that the income derived from economic activities in the US is skewed in distribution — with more going to rich people than the average person — compared to Canada.**

Bottom Line: Canadians are well known for their higher levels of social harmony. This harmony may be due to a fairer distribution of income, but it’s also accompanied by a higher average incomes.*** Americans are both poorer AND less equal than their neighbors.

* Average wages in 2011 are $42,000 in the US and $32,600 in Canada, but those numbers do not account for employment (66.7% and 71.5%, respectively) or the distribution of wages/capital gains. Right, Mitt?
** Gross income is not the same as income net of taxes, and total taxes are 27% of GDP in the US and 32% of GDP in Canada, but those rates ALSO do not take the distribution of the tax burden into account.
*** My definition of the American Dream — “being able to do what you want” — does not match common definitions that include upward mobility. That dream is — relative to the past and relative to other countries — more dream than reality [pdf].

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