Water Economics and Energy

Why do kids like to go to birthday parties? Because there is lots of sugar and other kids. Academic economists are not that different. Energy economics has attracted a lot of new bright minds both young and not so young. The reason for it is simple: It’s an important topic, the people working in this space are people you want to hang out with (yes Severin, Lucas, Catherine, and Meredith I mean you) and there are lots of really good data (the sugar).

What surprises me is that water economics has not experienced the same influx. Although there are some world class economists working on this important resource, there is no rush into this field. The reason for it is simple: The data are terrible. Why am I thinking about this?  The repeated calls for me to conserve water during this drought. They go something like this. “Dear Dr. Auffhammer, please reduce your water consumption by 20% this summer. There’s a drought. Thanks a lot. Your utility.” Well here is a letter I am sending to my water utility:

Dear Sir/Madam:

I received your very nice note asking me to conserve water. It was printed on recycled paper and all future generations and I thank you for it. But I have three issues with your call for conservation:

1) I get a letter every three months telling me how much water I consumed. I have no idea or way to figure out how much water the drip irrigation I put in with my bare hands uses (compared to the inefficient spray system the previous owner had). Trust me. I tried. I lifted the 30 pound concrete plate over my water meter and chased away a few black widows the size of chickens to find out that my water meter is analog (yes with a needle). Even running my irrigation system at full speed for 15 minutes did not move it significantly. There must be a better way. I can monitor real time electricity load for my house using my cell phone and a rainforest gateway. It must be possible to replace the 19th century meter on my house with something that uploads consumption data to my phone. The black widows want to be left alone.

2) How about charging me more for water when it’s scarce? In summers when there is a drought, charge me more! It does not have to be perfect, but if you raised my second tier rate by 25% I would decrease my consumption significantly. Even without a meter. I am scared of second tiers. 

3) How about you roll out some real time meters and let us energy people do some experiments in your service territory! The electric utilities (e.g. the cool kids) are doing it and are learning a lot from the essentially free consulting (I know how much McKinsey charges) from us academics. Some of the best work in energy economics has exploited randomized controlled trials to help us better understand households’ responses to quasi-shaming (Hunt Alcott’s work on OPOWER), used service territory borders to better understand the price elasticity of electricity demand, analyzed the magnitude of the rebound effect and so on and so on.

While I understand that this is a major change in the way we study water demand, now is the time. Monitoring has become much cheaper and the information we gain from better monitoring will lead to a better understanding and potentially more efficient allocation of water. We will gladly help you look at the effects of shaming your neighbors. We could have a startup called H2Opower! We will help you run experiments which will evaluate the effectiveness of different pricing strategies! The opportunities are endless. 

Best wishes,

Dr. Max

Photo Credit: Energy and Water Economics/shutterstock