Fracking and water pollution

My new article for The Energy Collective is up: Hydraulic Fracking and Water Pollution.

There's much debate about whether shale gas "fracking" (i.e. hydraulic fracturing) poses a risk to our freshwater resources. However, alongside the fact that the water demands of fracking are relatively small compared to other uses, the available scientific evidence actually paints a fairly optimistic view of the situation. Thus far, no causal link between drilling activity and water pollution has been found -- despite researchers scrutinizing some pretty extensive data.

That said, water is so fundamental to our lives that it's entirely reasonable for residents to demand insurance against possible contamination. I give a brief overview of how property rights plays a key role in all of this, and my preferred regulatory framework for making sure that people are protected in the event of a dangerous leak.

Here's my conclusion:

It would be strangely naive to suggest that there are no potential risks to our water resources due to fracking activity. Like all energy sources, there are trade-offs to securing the benefits of shale gas and the possibility of water contamination is one of those. However, anti-fracking advocacy groups do their credibility few favours through the selective interpretation of – or pure disregard for – the existing scientific evidence, and what this actually says about the extent of these risks. Several comprehensive studies have thus far failed to establish any systematic relationship between drilling activity and water pollution. Important research is ongoing, but we clearly have reason to be optimistic at this stage. Regardless of the final outcome, I believe that such matters should be handled according to a clear regulatory framework that incorporates full liability and assures other stakeholders of the requisite contingency plans should an accident occur. After all, effective risk management is an entirely different animal to prior restraint.

Click through to read the full article.

Hayek contra Coase... on property rights?

Say it ain't so!

Well... I guess it ain't technically "so"... but hear me out on this one.

Noah Smith, citing his personal experiences in Japan, writes that irreducible transaction costs place a not insignificant constraint on the gains to be had through privatisation:

[T]he existence of a government-owned "commons" often makes people feel more free, not less. Sure, the commons is financed through taxation, and sure, that means that people generally don't receive benefits exactly equal to what they pay. But the difference can be small, and is often canceled out by the fact that you only pay once rather than a million billion times. [...]Past a certain point, the gains to privatization are outweighed by the sheer weight of transaction cost externalities. (Note that transaction costs also kill the Coase Theorem, another libertarian standby; this is no coincidence.)

Of course, these aren't new points... Even yours truly has been known to say similar such things. From time to time. Ahem.

All that being said, the above is really just an elaborate segue to something else that I read earlier this week: A 1995 paper by the late Paul Samuelson, Some uneasiness with the Coase Theorem.

In typically pithy fashion, Samuelson hits on several issues surrounding the Coase Theorem that have come up in the blogosphere. Such as:
- What exactly qualifies this as an original "theorem"?: Many disciples cheerfully agree: There is no Coase Theorem. (Cf. Env-Econ.)
- The problem of distorted incentives in establishing an efficient allocation of resources: "If I go the road of buying off those who would burglarize me, I soon evoke a new supply of threatening burglars." (Cf. Matt Rognlie.)

His biggest concerns, however, are reserved for the Coaseian tendency to collapse -- and then conveniently file away -- important strategic considerations under the umbrella of (zero) transaction costs. Of course, information asymmetries between bargaining parties are an intrinsic characteristic of unequal property rights distribution, thus severely inhibiting the possibly of achieving Pareto optimal outcomes.[*] More fundamentally, though, Samuelson argues that bilateral bargaining agreements such as Coase envisaged between, say, a land owner and free-roaming ranchers, suffer from the same inherent inefficiencies as standard duopolies / bilateral monopolies. That is, they are beset by various (game-theoretic) strategic considerations that undermine the negotiating process:

What really interested me amidst all of this was Samuelson's invocation of Hayek to highlight the crux of his argument. Here's some of the meat:

The Coase-Samuelson generation were brought up witnessing the great debate between von Mises and Lerner-Lange concerning the feasibility of socialist rational pricing to produce Utopia. (That was a reprise of earlier Pareto-Barone-Wieser-Taylor debates.) Many contemporaries believed Lerner-Lange triumphed in the debate. I came to believe that Friedrich Hayek was the true victor.

Under static conditions where all is known or knowable (to whom?), whatever optimal states laissez-faire might occasion, so could some computer solution or some algorithms of play the game of competition also achieve. But in the real world all is changing, even in the time it takes me to write this sentence. Hayek has been persuasive -- not in Whig ideology or in declaring that moderate reform of laissez-faire leads inevitably down the road to totalitarian socialism but -- in arguing that experience suggests that only with heavy dependence on  market pricing mechanisms can there be realized quasi-efficient and quasi-progressive organization of societies involving humans as Darwinian history has bequeathed them[...]

My point is that the same thing applies to legal assignment of property rights. [...]We can contrive [in public utility economics] a variety of alternative property rights that would make for Pareto-Optimality. [...]But in the time it takes me to write this paragraph, exogenous change and dynamic endogenous change will cause the data of the problem to change in such a way as to entail a different set of property rights. If the Social Contract makes all earlier property rights capable of being abrogated to adjust to new Pareto-Optimal needs, we are in the old quagmire of moral hazard, inverse externalities, and so forth. No doubt wise Twenty-First-Century Hayeks or Lerners will come forward to give persuasive counsel on how a Mixed Economy will want to compromise among divergent instrumentalities so as to optimize various definitions of social and individual welfares.

 [snip]

To try to capture all that which contributes to deadweight loss under the verbal rubric of "transactions costs" weakens a useful concept without gaining understanding of incompleteness of markets, asymmetries of information, and insusceptibilities of various technologies to decentralized pricing algorithms.

Anyway, read the article to get a better understanding of the context. It's only six pages long and cuts to the core of some of the persistent scepticism surrounding the Coase Theorem. (Not that Ronald Coase himself wasn't aware of the practical limitations of his approach, as I have tried to explain previously.) And, when you're done with that, you can read a comment on Samuelson's article -- in partial defence of Coase -- by another esteemed economist, Oliver Willamson, here.

UPDATE: Continuing with my famous economist links fest, Deirdre McCloskey weighs in loquaciously on the matter here.
___

[*] Recall that the original formulation of Coase's argument held that zero transaction costs effectively meant perfect information among all parties.

Putting a price on nature (II)

Yesterday, I wrote a post in response to George Monbiot's recent column, "The true value of nature is not a number with a pound sign in front", which laments the UK Government's attempts to put an economic value on the environment. My aim there was to introduce the approaches used by economists for evaluating the environment: What are the tools and how much merit do they have? While imperfect, I think that so-called "non-market valuation" is still a worthy pursuit, which -- contrary to George's fears -- will bring more benefit to the environment than harm.

As a follow-up today, however, I want to put myself in closer agreement with a point that he touches on. It relates to something that I've been thinking about for a little while and George effectively hints at it too. I say "hints at", because he doesn't spell it out quite the same way that I'm going to, even though I still think it forms part of his most compelling argument. I refer to the last paragraph of the article that I quoted yesterday, which can be summarised: "The second problem is that it delivers the natural world into the hands of those who would destroy it.[...] Cost-benefit analysis is systematically rigged in favour of business."

Consider, if you will, a pristine piece of forest land for sale. Assume that there are two potential buyers: Eco Eric and Industrialist Ian. Assume further that Eric and Ian presently have the same store of saved-up cash available for purchase. Eco Eric wants to preserve the beautiful site as far as possible; he hopes to make some money by developing a guest house and generate some small-scale tourism, but not much beyond that. Ian, on the other hand, has entirely more ambitious plans. He wants to begin a mining operation to extract the valuable diamonds, which he believes lie beneath the surface. For this, he will have to dig up the trees (though this may be a profitable side venture in the short-run) and begin constructing an open-pit mine. More importantly, the possibility of large future cash flows, suddenly gives Ian an unassailable (financial) advantage: It now becomes profitable for him to borrow a lot more additional money, while still preserving the profitability of his venture. Consequently, he is able to up his bidding price to a level that Eric simply cannot match. Ergo, the sale goes to Ian and he builds his mine.

Okay, so you may be thinking that you could pretty much have skipped my little story if you saw Avatar. However, there are some important distinctions between the two (3-D cinematography notwithstanding). Not least of all, this isn't about one group of people forcibly taking land away from its current owners. It is about a peaceful, run-of-the-mill market transaction of property rights.

"OMG. Have you SEEN the market valuation on this place??"

"Totally. My NPVs are telling me: 'BUY'!"

It seems to me that the only thing stopping the land going to Ian, is if the owner suddenly weighs in with a clause that prevents him from developing the land in the way that he proposes. (Just to cover bases, we'll assume there are no negative externalities associated with neighbouring plots.) However, there are legitimate reasons to doubt that the seller would be. For instance, if the owner really doesn't want to see the land developed, why would he be putting it on the market in the first place? You could even say that he may, by no rights, have any idea what the relevant plans of Eric and Ian were. He'd certainly have to care a great deal to make it a central part of his selling decision (i.e. finding out what plans were afoot for the property after he sells). Again, however, I don't think that  characterises the selling habits of most people. We don't become overly sentimental about items that we sell, even those that we have invested significant emotional time into. Do people really care about what buyer of their old house plans to do with it? My anecdotal experience tells me that concerns over the extent to which renovations might turn people's family kitchens and living rooms into something unrecognisable, run secondary to the number of zeros at the bottom of the cheque. At the least then, I think that a "neutral" seller, is an entirely reasonable assumption to make.

In a sense, I'm saying that the problem with a lot of economic theorising is that it simply captures willingness-to-pay (WTP), but not ability-to-pay (ATP). As such, it disadvantages anyone who wishes to preserve the environment in something close to its natural form when it comes down to the possibility of purchasing property.

The reality is that the market and property regime is systematically gamed in favour of those who can make a plot of land the most profitable. In other words, if something is up for sale, it will inevitably favour people that can make the most money from it and, moreover, that can do so in a relatively short time.[*] That means exploitation and development. Another point is that increasing scarcity -- while it acts as a mechanism for innovation -- also prolongs the project life and viability of industrial enterprises. A rising oil price will mean more tar-sand operations and deep-sea drilling; not less.

There are, of course, some important exceptions to the pattern that I describe here, such as tourism. However, I suspect that there are sharp diminishing returns to these cases and, taken as a whole, the system inherently disadvantages people who find value in the in situ (i.e. natural) state of nature, or something close to it. Other reasons to be optimistic strike me as more plausible. For instance, the trend towards improved environmental quality in many industrialised nations -- the proverbial environmental Kuznets Curve, although the empirical record on this topic is not without controversy. It would also be remiss, in some sense, not to mention Julian Simon here. However, Simon's work is not directly relevant to the topic at hand, since he focused on countering Neo-Malthusian notions about resource shortages (etc) in the context of a developing society. In other words, his was a stance on nature meeting the material needs of society; not the fact that people ascribe an objective value to nature in of itself.

The best reason that I can come up with for not being too glum about this situation then, is probably the most arbitrary. The world that we have been bequeathed is surprisingly large and bountiful. Despite the undoubted impact that  human beings have had on the earth, there is still a swathe of unspoilt (and protected) nature out there. We may not get our wish to preserve as much of it as we would like, but I imagine that future generations will still get to enjoy a large portion of... especially given that we seem to care about preservation in the present day.

THOUGHT FOR THE DAY: Trying to summarise both yesterday and today's posts... It may be impossible to put a precise figure on value of nature, but there are still legitimate reasons to try. Unfortunately for those that derive intrinsic value just from the environment in its natural state, market transactions will still tend to favour development over preservation in most cases. Such is life in a world of opportunity costs and limited few free lunches.


[*] For one thing, the net-present values (NPVs) run on an entirely different scale... What is the lifetime of most capital projects? 10, 20 years? You can maybe get up to 30 or 50 in the case of huge undertakings like oil fields. In contrast, the "NPV" of nature runs over millennia. Unfortunately, our relative short-terminism only cuts one way.

Links - Market Design edition

Regular readers[*] will know that a favourite theme of this blog is thinking about how -- and where -- markets function "optimally", versus cases where some form of intervention/regulation might be preferable. In that tinkering spirit...

1) The Boston Globe has a profile on Harvard's Alvin Roth, who specialises in optimising market design in a variety of sectors. Apart from his dedication to solving real-life problems, about the most interesting aspect of Roth's work is that he focuses on recreating market processes in precisely the industries where markets seem out of place, or even "repugnant" (e.g. organ donors). Much of this involves dealing with goods that are intrinsically hard to evaluate in monetary terms. [HT: Michael Giberson. I'd recommend a visit to Roth's Market Design blog as well.]

Reading the article, I was immediately reminded of the literature on "intrinsic motivation" and "moral crowding out", which highlight the pitfalls of trying to replace moral contracts with monetary incentives. The most famous example of this is probably the study of late parent arrivals at day-care centres in Haifa, which went up after monetary fines were introduced. In other words, the introduction of fines had the exact opposite effect of what was intended. Parents no longer felt bad about making a teacher stay late looking after their kids, since they were incurring a fine in return... A "fair" trade in their eyes.

2) Rob Stavins on the design options for cap-and-trade versus the alternatives. This is an older post, but one that is well worth revisiting for anyone interested in the options regarding climate policy and, as per usual, Stavins gives a really good breakdown of the key issues. To be honest, I've been meaning to write a brief summary on the differences between cap-and-trade and carbon taxes for a while (pros, cons, etc)... But this post (and others by Stavins) are a great place to start if you want to understand the basic arguments for and against the different climate policy instruments.

3) Daniel Kuehn is frustrated by the asymmetries in the public choice discourse. In particular, he takes issue with the assumption that being interested in market failure somehow makes you oblivious to government failure. I've trod a similar line here before and strongly agree that this is a false dichotomy.[**] However, and while I believe that Daniel is referring more to the armchair proponents of the public choice school than anything else, I would still note that the leading public choice figures themselves generally offer a far more nuanced and considered view of the market-vs-government debate. (E.g. See the paper by James Buchanan that I mention towards the bottom of this post. Some more thoughts on the matter here.)

Daniel quotes a segment from George Akerlof's seminal paper on information asymmetry, A Market For Lemons, which points to a careful arbitration between government intervention and private solutions:

It should be perceived that in these markets social and private returns differ, and therefore, in some cases, government intervention may increase the welfare of all parties. Or private institutions may arise to take advantage of the potential increase in welfare which can accrue to all parties. By nature, however, these institutions are nonatomistic, and therefore concentrations of power - with ill consequence of their own - can develop.

I replied in kind in the comments section by quoting the closing paragraph of Ronald Coase's 1960 essay, The Problem of Social Cost, in which he established the underpinnings for his eponymous theory on bargaining rights and (environmental) externalities:

It would clearly be desirable if the only actions performed were those in which what was gained was worth more than what was lost. But in choosing between social arrangements within the context of which individual decisions are made, we have to bear in mind that a change in the existing system which will lead to an improvement in some decisions may well lead to a worsening of others. Furthermore we have to take into account the costs involved in operating the various social arrangements (whether it be the working of a market or of a government department), as well as the costs involved in moving to a new system. In devising and choosing between social arrangements we should have regard for the total effect. This, above all, is the change in approach which I, am advocating.

So, ya... Call me crazy, but that's two Nobel Prize laureates -- whose respective theories can and have been twisted by completely opposing factions -- essentially coming down on the same side of the issue.

[*] Both of us... Hi Mom. Other readers might be interested in the "regulation" or "externalities" taglines.
[**] I imagine that some might think me slightly schizophrenic to strongly criticize overbearing government in some posts on this blog and then complain about a lack of decent regulatory frameworks in others. However, I'm very much a horses-for-courses man. My basic premise is that markets work fantastically well by themselves most of the time... But it's the exceptions that make life interesting. 

Hippie Baptists and Libertarian Bootleggers

Like, take it easy, Man.

Disclaimer: I've conflated a lot of libertarianism/Austrianism in post. This was partly for simplicity, but also because I'm recalling a personal exchange where the people involved were familiar with each other's ideological beliefs. My advice before continuing; if the shoe fits, wear it. If not, don't. 

Fresh on the heels of my discussion on the roll of tort law in controlling pollution, say nothing of the asteroid vs taxes showdown, here is another take on the moral implications of dogmatic libertarianism in the presence of negative externalities. In particular, David Sobel argues that strict/deontological libertarianism takes us to untenable places if applied to climate change (and other pollution problems affecting "the commons"):

Libertarianism and Pollution

One might try saying that we are better off because people polluted, or flew, or whatever. If previous generations had been forbidden from doing this, we would have much less material wealth. But again, I might be better off if someone straps me down and involuntarily gives me a root canal, but still, I would have thought, that does not show that doing so does not violate my Libertarian rights. The polluter seems to not leave as much and as good air, water, whatever, for the rest of us, thus seemingly violating the Lockian Proviso. One might try to compensate for the loss but I don’t see how to put a price on the loss. One might give the loss a market price but I might truthfully not have been willing to make the trade at that price. One could try asking me what price I want, but that will result in strategic issues and some rabid anti-pollution folks who will not sell at any price.

Sobel continues in a follow-up post (Property Rights and Moral Seriousness), in which he basically says that failure to distinguish various degrees of rights violations forces libertarians into ridiculous positions:

Now if [all] rights violation were treated as just as morally important as taking someone’s organs against her will, then, since there will be many such rights violations as a result of the pollution, surely such pollution would be impermissible. But this would shut down much of the economy of the world we are imagining and it would radically restrict the liberties of people in such a world. 

[HT: Bleeding Heart Libertarians]

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Without being too self-congratulatory, I've been trying to point out the same issues to dogmatic libertarian friends of mine for some time. Here is part of an email that I wrote to one such friend last year:

I actually think that the Austrian/Libertarian perspective is particularly weak in this area [i.e. dealing with climate change], given its slavish fixation on property rights. Consider the hypothetical case of some hippie refusing to bargain for any climate change impacts on his property... Let’s just imagine that his love for the environment is not for sale. As far as I understand, he would have the right to enjoin all activities threatening his property under a strict Libertarian framework. Is that correct? If so, couldn’t we literally see a complete shutdown of industry based on the preferences of a very small portion of the population?

My friend responded by saying that other people would hold vastly different subjective valuations of the hippie's property (e.g. $5 versus $5 trillion). Following this, he made the assertion that: "Whatever our subjective valuations are, there will be a market price for this against which the hippie's claim would be measured, to see whether it is reasonable or not." He went on to add that the courts would eventually decide who's claim is most reasonable. I replied:

You haven't answered the question... And it appears that you are abandoning your principles and embracing mine; which would make sense to me, as I can't see the Austrian property fixation holding up to broader logic and a sense of social justice or, (warning: bad word ahead) fairness.  

This is how I understand the "Austrian" position:  

If it is my property, then -- excluding murder and so forth -- I am the only person entitled to decide what happens there. Non-coercion and all that, right? Since we've just been discussing subjective value, isn't it also irrelevant what price you or any other person (including the court) would accept or deem fair for climate change impacts to the hippie's property? He owns this land and $5 trillion is his valuation. To be strictly consistent with your original theory, the court would have to accept that the hippie's subjective value as the only one that ultimately counts... whether everyone else regards it as ridiculous or not. 

A simple thought experiment: Let's imagine it as an extreme version of 'The Castle' [brilliant movie if you haven't seen it - Ed]. Except now substitute the Kerrigins with the hippie, and the Melbourne Airport Company with CO2-emitting industries around the world. The Kerrigins didn't want to move and, ultimately, the courts forbade the Airport company from expanding despite all their financial sweeteners as recompense. In this case, the hippie also doesn't care for generous financial compensation and won't move either. Industry has to stop activities or else find a way to emitting the carbon that impacts the hippie's property. Again: he would ostensibly have the right to enjoin ALL activities impacting his property. 

Of course, I don't regard this is a reasonable position to support. That's why I don't subscribe to it. I think that, somewhere along the line, we have to try and incorporate broader social welfare calculations that transcend the unyielding veto of private property rights. However, as far as I can tell, my little scenario above encapsulates your position pretty well if taken to it's logical conclusion. Either you stick to your guns by accepting that the owner's subjective valuation of his own property right is sacrosanct, and that he has the final say on what happens on his land... Or, you override his subjective valuation through court decision, but betray your fundamental principles in the process. 

THOUGHT FOR THE DAY: Making compromises is part of life. Taking the dogmatic/ deontological libertarian position to its ultimate conclusion often leads - I believe - to untenable outcomes. The case of global warming is a prime example. Libertarians that slavishly hold personal property rights above all else would inadvertently open the way for eco-fundamentalists to enjoin virtually all industrial activity. In doing so, they would threaten to form an unholy coalition that makes it impossible for society to react to an immensely complex problem in any sensible way. They would, in effect, become Baptists and Bootleggers for the 21st century.

Sisters: Doing it for themselves

Water pricing in different sectors

My previous post linked to a new alarming/alarmist (potato, potahto) study of South Africa’s water pollution problems. I mentioned some economic elements that I feel need addressing if we’re ever going to provide the right set of incentives to ensure sustainable water use.

What I completely glossed over didn’t really discuss was the fact that water has a multitude of different uses, which can make valuation very hard. With regards to pricing structures, can you apply the same set of rules to all different users (residential vs agricultural vs industrial)? I can see more than a few practical problems, but there are certainly those who believe that we can and should do so. Prolific water blogger – and recent addition to the job market! – David Zetland has long advocated a system of “all-in auctions”. In other words, very low prices for water aimed at meeting basic human needs, after which all comers are subject to compete against each other on price bids.*

Having been raised in agricultural country, I can think of of a number of farmers that aren't going to be too happy with this type of proposal. However, that's a practical obstacle that can be overcome - largely through greater dialogue and explanation of the actual procedures. Further to the point, a large number of farmers already control their own water sources in the form of small dams and so forth; you've obviously no need to submit to an auction if you already own the resource. In a similar vein, in instances where a bunch of farms are located along a river, the bidding could first be among that group of farmers. In cases where rivers flow to cities or industrial areas, up stream farmers could potentially make money by auctioning off "usage rights" to urban and industrial consumers.

On the subject of water usage by different consumers and sectors, I posted some relevant comments a while ago on a blog run by some Austrian friends (ideologically speaking that is, not geographically). With minor edits for style and following a discussion on the urgent need for a hike in (residential) water prices in SA:

One of the better articles on environmental issues published on this site. (Some of your climate and pollution arguments have been rather lacking in my opinion…)

[Editor’s note: For instance http://www.humanaction.co.za/2010/03/propaganda-a-greater-pollutant-than-co2/] 

Anyway, I certainly agree that water will be a defining issue for South Africa long before other crises and our current pricing structure is woefully inadequate. (As with many countries, the focus is on recuperating short-run average/operating costs instead of the economically sensible long-run marginal costs. While SRAC could be considered as constant, LRMC are typically increasing over time, so prices lie below their optimal value…)

However, the article does skirt around perhaps the most tricky issue with regards to water: There are MANY different uses for water and thus many different marginal values. Residential water consumption is fairly minute in comparison to agriculture and, to a lesser degree, industry. Thus – and although it may not agree with your definition of inflation (i.e. an expansion of money supply) – correct marginal pricing of water will certainly bring about an increase in general prices. Why? Water is a crucial factor of production for virtually everything we consume. Thus, an increase in price will carry through to all final products.

Not easy for society, but that is simply the bitter pill we need to swallow in order to establish sustainable use of what is perhaps our most valuable commodity.

After a fairly odd reply regarding my understanding of inflation**, I ended an additional comment with:

[A]n increase in water prices will have much further implications than simply raised costs of showering or watering our gardens; it will affect prices for an entire host of economic goods.

---

* If you aren’t aware of it, I recommend David’s blog aguanomics.com to anyone interested in water and water economics.

** Like all proud Austrians, they love to focus on inflation as a definitional good...

"South Africa facing water pollution crisis"

Supplies, supplies.

(See what I did there?)

So back home, more and more people are cottoning on to the fact that the local water situation ain't looking too hot:

The Environment and Conservation Association said in a statement on Tuesday that it was estimated that in five years, almost 80% of the country's fresh water resources would be so badly polluted that no process of purification available in the country would be able to clean it sufficiently to make it fit for human or animal consumption.

[snip]

The impending disaster that would be created by acid mine drainage as well as sewerage and industrial pollution had on many occasions been brought to the attention of the government, with no positive results however, the association said.

[snip].

"We will need approximately R1m for [an extensive water monitoring project aimed at fully ascertaining the status of the country's freshwater reserves]. It is time that big businesses, especially those that rely on water for the production of their products like Coca Cola, SAB Miller, Windhoek Beer, all soft drink manufacturers and food producers, get involved and make a substantial contribution towards organisations like ours so we can save South Africa's water."

While I certainly appreciate efforts to create more awareness of SA's freshwater problem, the general stance as regards treatment still leaves much to be desired. I don't know much about The Environment and Conservation Association, but from their website it seems a pretty small outfit with no formal economics influence. (I'm also just a little dubious about the severity of their claim - 80% by 2015?? - but I'll leave those details aside for the moment.) Some brief thoughts:

1) Marginal Cost ≠ 0?, Marginal Benefit ≠ 0?

How about coming around to the fact that ascribing zero value to a resource inevitably leads to people treating it such (i.e. worthless)? We need to start charging water rates commensurate to the (marginal) costs of providing it. Before anyone complains that "water is a human right!"; yes, I agree.[*] That's why I want to make sure we manage it properly. There a number of available pricing structures to achieve this, while still protecting the poor and ensuring that everyone has access to some basic, "human rights" level of water. Two of my preferred candidates: (increasing) block-rate pricing and two-part tariffs (a la cellphones).

2) Property rights anyone?

If mines and industry are polluting your water, then call up your lawyer. Or, if you are worried about the protracted inefficiencies of the legal/tort system, you can try to minimise transaction costs by pressuring government into regulation. Okay, it's hardly that simple in the real world - the article makes this very clear - but don't shoot the messenger. I'm trying to make the point that there is more than one option available to prevent corporations from enjoying a free lunch at our expense. I also don't think that the public vs privatisation argument should be a barrier to agreeing about basic property rights in this context... I'm less concerned with who owns a water source, than the fact that they (Govt, business, whoever) are within their rights to prevent an external party from ruining it for the purpose for which it was intended.

3) I'm glad that the ECA is looking to get some of the big beverage companies on board in its campaign. However, you don't need to appeal to their sense of civic duty if you manage to get the first two points right (pricing and property rights). In other words, you're better off appealing to their own self interest. The same goes for residential consumers. Individuals aren't going to conserve water until it starts hurting their pocket, or runs them into trouble with the law.

THOUGHT FOR THE DAY: South Africa has vulnerable freshwater supplies that require careful management. Public awareness is the first step, but it's ultimately economic incentives that will ensure the sustainable use of the country's water resources. I'm happy to see steps in the right direction, but big problems require big actions. Until I stop seeing studies and articles like this, I'm going to remain of the opinion that there's a lot more that can and needs to be done.

[UPDATE: Apparently officials aren't particularly impressed by the report. I've seen this movie before... Although, in fairness, I've already mentioned my scepticism over the extent of the ECA's claims.]

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[*]Agree... up until a point, that is. As Peter Braebeck puts it: 

"I think that [the question of water as a human right] is a very, very crucial question and it is being brought forward by some NGOs in a very simplistic manner. They are saying water is a human right; therefore, it's not a commercial material.

My answer to this is, yes, you're right. Water is a human right.

The 25 liters of water that we need as a minimum, as a person, in order to live decently[...]. Yes, this is a human right. But I don't think it's a human right to fill up my swimming pool, to wash my cars, to water the golf course, or even to water the garden."