Video - Fracking chat with David Zetland

I had a long video chat with David Zetland yesterday, where we discussed fracking, water pollution, property rights and a bunch of related issues. David's take on our talk is here.

Like many people, I find it very difficult to watch/listen to videos of myself. (Where did all those mannerisms come from??) Still, if you've ever wondered what a real South African accent sounds like, you're in for a treat!

In related news, the below video will act as supporting evidence for my submission as "the palest man in economics".

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.

At least our benevolent Google overlords care

about their water footprint.

Like thermal-based power plants, data centers are thirsty bastards when it comes to cooling water. The above video comes via Forbes, who also inform us:

Google did not reveal exactly how much water the Douglas County data center consumes but in an e-mail company spokeswoman Kate Hurowitz said, “It varies from day to day, but a typical data center of this size can use hundreds of thousands of gallons a day.” 

I can barely say Chattahoochee River, let alone spell it, but they look like good, salt o' the earth folk to me. I'm happy if they're happy.

Peter Frost, executive director of the Douglasville-Douglas County Water and Sewer Authority, said Google is saving taxpayer money as the local government now does not have to treat as much wastewater. 

“That saves capacity for future homeowners as well as businesses,” he said in the video. [Thanks Pete, we saw the video! - Ed.]

Low-cost lighting from used plastic bottles

As a general rule, bottled water is not particularly good for the environment. If I were the judgmental type, I might even chime in that buying bottled water is pretty dumb -- at least in the circles that I move in -- given that it is typically of no better quality than tap water. But each to their own.[*]

Regardless, this is very cool:

(via WIMP)

UPDATE: The GF points out that I perhaps shouldn't emphasise the bottled water angle so much, since any beverage bottle would do (fizzy drinks, etc).

[*] Okay, I'm being a bit facetious here. I actually agree with David Zetland that bottled water is probably best viewed as a consumer product much like any other.

First journal submission

In other news...

I finally submitted my (co-authored) paper to a journal yesterday.

Title: 

Electricity Prices, River Temperatures and Cooling Water Scarcity

Abstract: 

Thermal-based power stations rely on water for cooling purposes. These water sources may be subject to incidents of scarcity, environmental regulations and competing economic concerns. This paper analyses the impacts of water scarcity and increased river temperatures on German electricity prices from 2002 to 2009. Having controlled for demand effects, the results indicate that the electricity price is significantly impacted by both a change in river temperatures and the relative abundance of river water. An implication is that future climate change will affect electricity prices not only through changes in demand, but also via increased water temperatures and scarcity.

All told, I'm pretty happy with it. We'll see what the reviewers think, though... As I understand it, these things take their time and I'm only expecting hear back at the start of next year. Still, a big relief to get it out the door.

Quick links - History Repeats Itself edition

Some things that I've been meaning to write about, but short on time[*]...

1) A heavily fancied South Africa bombs out during the knock-out stages of the Cricket World Cup. As I wrote on facebook: "Wait. I've seen this movie before." Or, in the endearing words of Yogi Berra: "It's déjà vu all over again!" (In related news, the ever reliable Zapiro brokes little sympathy for the apologists.)

2) Speaking of déjà vu... South Africa's favourite electricity monopoly, Eishkom Eskom, has covered itself in glory yet again. This time, serving up "a comedy of errors" that ultimately resulted in a massive explosion at a key power plant. The end result: Expenses of R3bn ($440m) for the company - thanks tax payer! - and a "severely compromised" national electricity supply. Seriously, is there anyone left who believes that we can delay the move to a competitive power market any longer?

3) More promising news is that South Africa is finally set to hike water rates in a bid to secure desperately needed investment for ageing infrastructure. A.F.T, as far as I am concerned. If you don't charge people rates commensurable to the cost of supplying water, sooner or later you won't be able to supply anyone at all. Or, as I commented: "To speak some 'economese', we need to charge water rates equivalent to the long-run marginal costs of providing it." You can see some of my (brief) previous thoughts on water pricing here and here.

4) I'm less optimistic about the Chinese command-and-control approach to water management, as officials announced plans to reduce water use per unit of GDP by 7%. I share the sentiments of many in thinking that water will ultimately prove the defining barrier for China's continued growth explosion, which has thus far come at a very large environmental and health cost. That the government has pledged a 30% reduction in water consumption (per unit of GDP) over the next five years is a start. Like any good economist, however, I maintain that they'll have to get prices involved if they want to make real improvements in water conservation over the long-term. (Having said that, and while I much prefer the market mechanism, the Chinese have been successful in their stated aims of reducing energy intensity thus far... moderate as these may be in reality.)

5) And now, for something completely different:



Alan! Alan! Alan!... Al! Alan!

I also enjoyed this:

"What was the answer?"
"Spatula. They're just making them up now."

[*] That, coupled with the fact that I was somewhat overzealous at both the gym and (later) the bar over the weekend. I can still barely straighten my arms. Walking around like a hungover T-Rex. 

What's wrong with this paragraph?

From The Economist:

Of the nuclear plants that provide about a third of Japan’s electricity (see chart), Fukushima Dai-ichi is not the first to be paralysed by an earthquake. But it is the first to be laid low by the technology’s dependence on a ready supply of water for cooling.

Well, of course, you have already read this post so you know.

UPDATE: Okay, I'm probably too quick on the draw here. Nuclear reactors and water issues isolated to Japan? Fine. (Although the thrust of the article is certainly to contextualise the role and vulnerabilities of nuclear power on a global scale. In that context, I maintain that including the above sentence without reference to the water-related problems experienced by nuclear plants in Europe the US, is misleading.)

Nuclear and Water

I've been drowning in work and other stuff lately, so no blog posts. Like everyone else though, I've been watching the unfolding tragedy in Japan and just hope that they manage to contain the radiation from reaching dangerous levels. From the latest news this morning, things don't look particularly good. (On a personal level, I have some friends in Tokyo that have managed to book a flight out so minor relief...)

Amidst all the articles and reports, I spotted this one, Japan's Nuclear Morality Tale, by Brahma Chellaney. I mention it not because it provides the most succinct account of the Fukushima plant accident, but rather because it touches on the specific area of research that forms the backdrop for my master's dissertation... the water-energy nexus. A snippet from Chellaney's article:

All energy generators, including coal- and gas-fired plants, make major demands on water resources. But nuclear power requires even more. Light-water reactors (LWRs) like those at Fukushima, which use water as a primary coolant, produce most of the world’s nuclear power. The huge quantities of local water that LWRs consume for their operations become hot-water outflows, which are pumped back into rivers, lakes, and oceans. 

Because reactors located inland put serious strain on local freshwater resources – including greater damage to plant life and fish – water-stressed countries that are not landlocked try to find suitable seashore sites. But, whether located inland or on a coast, nuclear power is vulnerable to the likely effects of climate change. 

As global warming brings about a rise in average temperatures and ocean levels, inland reactors will increasingly contribute to, and be affected by, water shortages. During the record-breaking 2003 heat wave in France, operations at 17 commercial nuclear reactors had to be scaled back or stopped because of rapidly rising temperatures in rivers and lake. Spain’s reactor at Santa María de Garoña was shut for a week in July 2006 after high temperatures were recorded in the Ebro River. 

Paradoxically, then, the very conditions that made it impossible for the nuclear industry to deliver full power in Europe in 2003 and 2006 created peak demand for electricity, owing to the increased use of air conditioning. 

Indeed, during the 2003 heat wave, Électricité de France, which operates 58 reactors – the majority on ecologically sensitive rivers like the Loire – was compelled to buy power from neighboring countries on the European spot market. The state-owned EDF, which normally exports power, ended up paying 10 times the price of domestic power, incurring a financial cost of €300 million. 

Similarly, although the 2006 European heat wave was less intense, water and heat problems forced Germany, Spain, and France to take some nuclear power plants offline and reduce operations at others. Highlighting the vulnerability of nuclear power to environmental change or extreme-weather patterns, in 2006 plant operators in Western Europe also secured exemptions from regulations that would have prevented them from discharging overheated water into natural ecosystems, affecting fisheries. 

France likes to showcase its nuclear power industry, which supplies 78% of the country’s electricity. But such is the nuclear industry’s water intensity that EDF withdraws up to 19 billion cubic meters of water per year from rivers and lakes, or roughly half of France’s total freshwater consumption. Freshwater scarcity is a growing international challenge, and the vast majority of countries are in no position to approve of such highly water-intensive inland-based energy systems. 

[snip]

The central dilemma of nuclear power in an increasingly water-stressed world is that it is a water guzzler, yet vulnerable to water.

At the risk of sounding dangerously hyperopic in the context of a much nearer humanitarian and economic crisis, I believe that the water-energy nexus will receive growing attention in the years to come. And, at risk of sounding spectacularly self-absorbed in the context of a much wider humanitarian and economic crisis, my own research is currently aimed at quantifying the value of water in generating (thermo)electric power. In particular, I've been looking at how electricity prices have been affected by incidences of water scarcity and high temperatures (such as during the European heat waves referred to above). As intimated in the article, the irony is that many low-carbon energy technologies - e.g. nuclear, hydro - become less efficient in a hotter and drier world.

This, in a nutshell, is a research question that I would like to investigate should I pursue a PhD. What are the strategic decisions facing countries in committing to certain energy technologies, given that they might be subject to inherent vulnerabilities as a result of climate change? (For instance, how economically viable is it for an east African country, or China, to invest in massive hydropower projects, when climate models indicate disruptions to future water supplies.) Of course, there are any number of factors affecting this... from a binding emissions agreements between nations, to regional climate specifics; e.g. some areas stand to get much more rainfall and not less. Still, I think that it is an intriguing strategic question that deserves further exploration...

THOUGHT FOR THE DAY: Opportunity costs. There are trade-offs involved in anything we do, and particularly when it comes to energy production and the environment. There are no free lunches... although there might be low-hanging fruit!

Solar thermal and water use in California

Having discussed some similar implications for the grandiose solar plans in South Africa, here's a snippet from an interview with Bright Source Energy CEO, John Woolard. Talking to Yale Environment 360, he discusses the company's experiences from building solar-thermal plants in California's parched Mojave Desert:

e360: BrightSource’s Ivanpah project is not only the first large-scale solar thermal project to break ground, it is the first to deploy a new power tower technology. Why is that significant?

Woolard: [snip] The big [problem] is water. What is the world going to look like over the next 20, 30, 40 years? Water in the desert is going to become a much more challenging proposition. So we’ve gotten water usage down to a minimum — the lowest of anybody in the world, basically.

[snip]

e360: It seems that one thing BrightSource did that avoided a lot of controversy was the water issue. You chose to use “dry” cooling, which uses substantially less water than “wet” cooling. 

Woolard: Best decision we ever made as a company. We were the only one that did it early. The fact that we’re doing it has forced others to do it. If you use 2,000 or 3,000 acre-feet of water [the equivalent of nearly 1 billion gallons] in the desert on an annual basis, that’s obscene. 

We’re providing power for 150,000 homes, and we’re using water for 300 homes. That’s as water-efficient as anything you can do. Fossil plants still use wet cooling and everybody ought to know that. That needs to change. It ought to be a level playing field. It shouldn’t just be renewables that do this. Energy and water are so inextricably linked.

More water issues in SA

(Semi) fresh on the heals of The Corral's coverage of an appeal to major water-using companies to fund "an extensive water monitoring project" in South Africa...

Concerns about SA Water quality:

Food retailer Woolworths says it is extremely concerned about the quality of the country’s water and the influence this has on food security. 

Noël van Zyl, buying manager at Interfruit, which supplies Woolworths with fresh produce, said on Friday it has become clear over the past 18 months that the country’s water quality is declining drastically.  

“We recently discovered traces of Escherichia coli on fresh produce,” he said.  

[snip] 

Thomas du Toit, representative of the non-governmental organisation Save the Vaal (Save), said government should be “shocked” to its senses, since they are the custodians of the country’s water resources and they are allowing the water quality to deteriorate at this rate.

Van Zyl said Woolworths doesn’t want empty shelves, but if the country’s water quality continues to deteriorate, this will be everyone’s fate.

[For our overseas readers, Woolworths is basically the direct equivalent of Marks and Spencer in the UK (not it's all-but-liquidated namesake). In other words, it is a high-end retailer selling premium food goods and apparel items.]

I swear, this whole South Africa water thing is starting to feel like watching a train wreck in slow motion. I'll avoid repeating myself, so you can have a wonder over to my previous posts to view some modest (brief) suggestions that I make on this issue. 

Beyond that, I'm strangely heartened that the article makes mention (further on) about the link between carbon, climate and water quality. My own research is currently given over to studying aspects of the water-energy nexus, which seems to me a much-ignored area. More on that later, but here's a nice little summary in the meantime.

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.]

---

[*]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."