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RSMG back on air

February 21st, 2007

Things have been pretty frantic at the Risk and Sustainable Management Group (my research team at UQ, focusing on the Murray-Darling and related issues) as we raced to prepare five papers for the Australian Agricultural and Resource Economics Society meeting in Queenstown NZ last week. There’s lots of news about this at the RSMG blog.

We’ve also had a complete redesign of our website, which is now located here. We’ll be updating Working Papers and adding lots of publications in the near future.

I plan to write more about water and climate at this blog in future. Discussion much encouraged.

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  1. BilB
    February 21st, 2007 at 17:40 | #1

    For the sake of saying it

    One of the problems wiith the recycled drinking water thing down here (gridlock central [Sydney]) is that nobody went to any pains to describe how the process works, how many stages does it have, whether the process removes all of the heavy metals, whether the process removes all bacteria and viruses, etc. Showing someone drinking water out of a glass filled from the end of a pipe supposedly at the end of the process does nothing for me.

  2. February 23rd, 2007 at 06:16 | #2

    For Cities Water Sustainability can be achieved by investing enough money into infrastructure. For Rural Areas Water Sustainability requires strict adherence to allocations and a set of sustainable allocations.

    Not enough money has been invested in city water infrastructure over the past few years because many of the States have used Water as a method of taxation and have taken “the profits” and put into consolidated revenue. There is no little point in raising the price of urban water if the excess money collected is not spent on water sustainability. At present the monopoly supplier gets more profit from the existing water and has little incentive to increase the supply. Already Canberra’s average water cost at $1.61 per kiloliter should be more than enough to justify an increase in supply through investments. However, it is more profitable for the government to introduce permanent water restrictions, to impose on new homes mandatory water savings infrastructure and to get money from the Commonwealth because the supply of water is now a political liability for the Federal government.

    Similarly with rural allocations. Rural allocations of water are gifts to irrigators. Politically it is simpler to protect existing allocations and keep the price of water low so that there is not enough money collected to improve infrastructure. The price of rural water should increase. What we have is the price of rural allocations increasing and the money collected from the sale may or more probably may not go to increasing availability by better practices on rural properties.

    The problem is the same with carbon emissions trading. We may have mechanisms for increasing the price of energy through putting a cap on emissions trading but this is a very blunt instrument and in practice does not seem to be working. The EU experience is that the price of emission permits has fallen and emissions have increased. It is proving difficult to create a sensible market in permits. Even if permits worked we have no assurance that the money collected from the sale of permits would be spent on reducing carbon emissions.

    The response of economists seems to me to have been – “We know markets are a good thing. The important thing about markets is to make the price reflect the true cost and then other suppliers of alternatives or ways of meeting demand will naturally arise. All we have to do is to fix the problems with the market”.

    I don’t think we have enough time to wait for the markets to be fixed particularly as there is another solution.

    For Water there is another market that if it had enough buyers would solve the problem. For carbon there is a market that if it had enough buyers would solve the problem.

    The water market product is not water but is infrastructure investment in ways to reuse water.
    The carbon market product is not reduced emissions but is the infrastructure investment in ways to reduce carbon emissions.

    But you will say there are no buyers and funds will not go to these objectives because the money can be spent for a better return elsewhere.

    The solution to this problem is to create new currencies for the two markets and to only allow those currencies to be used for that problem. You supply money to buyers by taking excess funds collected for water or from a carbon tax and convert this into new money. You give the money to people who by their actions help solve the problem. Either they use less water than they are allocated or their lifestyle produces few carbon emissions.

    We have a proposal for Water which you can see at http://www.waterrewards.org and we are working on a similar proposal for carbon reduction that is called Energy Rewards.

    Water Rewards will work and will be efficient because we will create a market with buyers and sellers to provide Water Infrastructure and it will work with Energy Rewards because we will have a market in low carbon infrastructure and the money converted to the new currencies will have difficulty leaking to other uses because it is easy to “follow the money”. Compliance involves preserving the integrity of the currency and we have plenty of experience in this area with our regular currencies such as the A$ or Euro etc.

    New currencies for specific markets are likely to solve the problem. Mind games indicate that they will but the only proof will be to try them out. We would be most interested in hearing about likely problems.

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