The Paradoxes of Water

In this essay by water experts James G. Workman and Montgomery F. Simus, they argue that, “in China, water scarcity limits growth and urbanization escalates a crisis.” The first paradox of water is that “the liquid matrix of all life is both figuratively and literally ‘priceless’.” They go on to explain that “in 1776 this paradox stumped Adam Smith, whose book The Wealth of Nations noted how diamonds are utterly worthless in use yet invaluable in exchange, while the converse was true for water. Without water, humans can’t exist, yet our species devalues nature’s precious liquid asset into a vague liability.” Workman and Simus add:

This paradox troubles water whether rural farm or urban factory, firm and family. Annual shareholder reports discount water as a negligible “cost” to be “managed”. Accountants consider it a line item to absorb into spreadsheets. Chief financial officers regard water as a material risk to avoid. Any country can quickly provide its exact mineral wealth, human resources, arable land, energy potential, gross domestic product and federal monetary budget; none can tell you the annual water reserves that keep its economy alive. No official knows the full cost of providing water because no individual can know it; water’s value is subjective, varying by time, place, conditions and seven billion water users, half of whom live in cities.

The First Paradox of Water ensures that what individuals each intuitively grasp as a priceless asset we must collectively debase into a liability that is inherently worthless.

Why does this paradox of value arise, and how can we resolve it?

The brilliant conservationist Aldo Leopold famously warned urban readers about “two spiritual dangers in not owning a farm. One is the danger of supposing that breakfast comes from the grocery, and the other that heat comes from the furnace.” As self-interested stewards, we value only natural assets we own. We ignore what we can’t.

Since our food and energy trace their existence to water, our compound danger lies in not owning a well or creek. Instead, we suppose water comes from a faucet, toilet tank or pipe. We lose interest in water throughout the urban supply chain. Unable to own or trade our share, we produce an urban, deeply tragic, commons.

A few “exchanges” of water occur between neighbours sharing a river or well, but these are rare, rural, informal (perhaps even illegal) and inequitable. For exceptions to become the rule, China’s city dwellers must formally have an equal opportunity to own and trade water. It may seem a logistical nightmare for our urban world to literally “own” a real well and distribute the vital wet stuff. But thanks to the Internet and ubiquitous cell phones, such barriers don’t prevent ownership.

Frequent-flier miles let us virtually “own” physical airline seats. Likewise, each of us can now transparently “own” a defined virtual share of water, distributed automatically, daily, digitally and equally to all by the water monopoly that unites us. We may call this virtual share a right, credit or a privilege, but it now is ours to earn and accumulate, to use and exchange however we choose.

Urban “H2Ownership” leads to investment and care. As we buy and sell our unused shares, water accrues real worth and allows a slum dweller or Nestlé executive to negotiate its relative local price. Thus together we can at last resolve this paradox of water, as its value in exchange can rise to the level of its value in use.

In the second part of their essay, Workman and Simus observe that “as long as people merely ‘rent’ the resource, efficiency devices increase overall consumption.” They explain the paradox:

There is scant evidence that conservation technology drives overall reduction of water use, consumption and demand. In fact, empirical studies at the municipal, industrial, agricultural, state and federal level suggest that, as with energy, water-efficient technologies may extend supply, lower costs and increase demand and opportunities to divert, pump and use even more water.

Saving water in your dual-flush toilet means your children can take longer showers. Uprooting your front lawn encourages your neighbour to install a pool in his back yard. A water-efficient neighborhood lets the city divert savings into a sprawling new development or beautiful fountains in the park. Multinational corporations use efficiency technology to reduce the amounts of water per unit throughout the supply chain, but that can help them to sell more overall products containing water.

Likewise, river-basin authorities in arid lands encourage their farmers to adopt drip irrigation, for “more crop per drop”. But efficiency gains do not return water to streams and aquifers. Rather, from Beijing to Shanghai to the sources of the Yangtze, Yellow and Mekong rivers, efficiencies spread irrigation deeper and farther into ever more marginal lands, letting current farmers grow more water-intense crops on more land at the exclusion of other natural and human communities competing for that water.

As interest groups grasp this dynamic, we find the odd situation of social advocates and environmentalists fighting attempts at water efficiency.

Such a perverse and undesired outcome defines the Second Paradox of Water: as long as people merely “rent” our natural liquid resource – water – efficiency devices increase overall consumption. Water that you and I frugally conserve is lost through new and collective augmented demand by the system as a whole.

One way to resolve this paradox is through a new (yet timeless) system of what might be called “H2Ownership”. If all stakeholders have clear dominion over an equal amount of water, then whatever we save from our share we can take out of the equation, to be later sold at a premium, donated to charity, or restored directly to nature.

From the Kalahari to Oman and Bali, this system has enabled traditional systems where people compete to conserve. Under a scaled-up digital version of this virtuous cycle, urban efficiency gains could be locked in and improved on, helping China to transform its escalating water scarcity into natural and equitably shared abundance.

In the third part of their essay, Workman and Simus discuss the paradox of water monopolies. They write:

In theory, a monopoly should be able to increase revenues to match increased operating costs by selling ever-less water at ever-higher rates. In reality, that’s highly unpopular with users. Utilities are watched carefully by officials and customers alike, and people rarely demand the right to pay more for less of something they depend on in every aspect of their lives — especially something many believe they should receive for free.

Hence the fine monopolistic line our friend must walk and, in recent years, the tightrope beneath her has begun to fray. The current recession makes families and firms consume less water. That’s wonderful for nature, but horrible for her utility’s bottom line. She is simultaneously pleased and tormented. Her job is to lock in more efficiency, but her boss offers veiled threats if she does. Unless our friend backs off on conservation, her position, team and budget risk being eliminated first in austerity measures. If she saves more water, her position in her organisation falls in proportion, if not at an even faster rate. Then her skills become worthless in the marketplace. Who hires someone good at eroding the bottom line?

This is the Third Paradox of Water: conserving water destroys revenues; a thriving utility must reward waste.

Frugal utilities have less room to negotiate. Those that encourage water saving today must punish their customers tomorrow with higher rates. These incongruities remain true at the household level, the building level, the neighborhood, the municipal district and the river. Perversely, the existence of a water monopoly means that all people involved in it – from the person flushing the toilet to the government Water Board setting targets for water allocations – are left with no choice, no competition and no incentives to conserve.

Indeed, the Third Paradox ensures that the most frugal, responsive and equitable users and managers in a vertically integrated water monopoly can only succeed through subterfuge or martyrdom. As this paradox undercuts performance and customer relations, it is known throughout the water industry as “the death spiral”.  We must destroy a monopoly’s water in order to save the utility.

The converse is that we unlock the monopoly in order to save both water and the utility. That resolution to the Three Paradoxes of Water comes in our next and final contribution.

And in that final part of their essay, Workman and Simus propose a way to resolve the three water paradoxes. “Virtual urban-water markets within natural monopolies can be unlocked, rewarding frugality, efficiency and innovation,” they suggest. “‘Greed makes green’ and a sustainable path lies beyond virtue.”

They conclude:

Here’s how some say it could work to encourage real, meaningful conservation:

• First, encourage monopoly utilities to convert messy physical water or energy into cleanly defined virtual credits.

• Next, allocate equal quantities of these online metered assets – say, 200 gallons (nearly 760 litres) or 20 kilowatt-hours per day — to every residential, commercial and industrial account.

• Then let us trade whatever we don’t consume to those who want more.

These online platforms could unlock virtual urban-water markets within natural monopolies, working to reward voluntary frugality, efficiency and innovation.

The trick is not trying to improve on human nature, or make everyone extra-virtuous, but to leverage innate “sin”. If one person consumed less, he or she could sell unused shares to another, to businesses or to the utility for a cash profit.

Greed makes green. Pride in higher wealth and status would compel us to use even less just to keep up – a benevolent consequence of envy.

This approach unlocks a sustainable path, and does so by going beyond virtue.

Indeed, to unlock a robust water-conservation policy, China’s cities – like cities everywhere – need only tap our inner vice.

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6 Comments

  1. Nadine

     /  27/02/2012

    I like this proposal. But unless it is implemented everywhere around the world and in conjunction with a carbon “fee and dividend” system, I fear it may cause manufacturers to simply outsource the production of water-intensive products? Not only would this cost local jobs, the environment is no better off given the fuel expended on import/export.

    Reply
  2. I think it is very clever of the authors to come up with the solution to water scarcity that makes use of the human instinct, greed, as it serves a better motivation than virtue for people to conserve water. However, “H2Ownership” may have some limitations which make the system hard to implement. For example, the quantity of water credits to be allocated to the accounts should be determined using various criteria, like the availability of local water resources, and it needs to be agreed on by every single water user to ensure fairness. This means that the credit calculation process may be too complicated and consensus is not easily attained, then the system may not be doable. In addition, the quantity has to be a reasonable one, that is, not too high and not too low, so that water can gain its actual value in the system, people are interested in trading the credits and the system can work.

    Reply
  3. Alexander

     /  28/02/2012

    After having spoken about this topic in class yesterday, Has clarified a few things, but also shown some of the shortcomings of this system. While I completely agree with its aims and with the general approach of assigning an ownership to water, I fear that it might be a little bit too idealistic to ever work in reality. It seems to focus more on individual water consumption instead of industrial water consumption. If one looks at the consumption though, only 10% of the fresh water in developed countries is used by private households, the rest is used by industry and agriculture.

    For example: Mr. Workman pointed out yesterday, that the trade of water rights could only take place between households/firms who are attached to the same sewer system/water supply system. This of course makes sense, as otherwise the trading might not reflect the real cost/price of the water consumed. Assuming that there is an area, where all the participants can easily save water and do so once the system has bee implemented. Then everyone would have permits to sell, but no one would be willing to buy. In the next period everyone who had previously saved would realize that there is no market and hence no point in saving water. This means that the system only works if some people will consume more and others will consume less.
    From a business point of view it has another shortcoming. Assume at the point of implementation there is a large firm dominating a market for a good where the production requires a lot of water. This means that the producer of this good will, based on previous consumption, get a lot of water permits. New competitors will now find it difficult to enter the market, since they would have to buy water permits in order to produce the product. This added cost however, will make the product more expensive and thus the new entrant could not compete with the existing firm. Hence, this system will give a huge advantage to existing businesses and will decourage new businesses to enter existing markets.

    If “H2Ownership” can find a way around these issues, I think it has the potential to grow beyond the borders of Sonoma and Saudi Arabia and be implemented on a larger scale.

    Reply
  4. pernilla

     /  28/02/2012

    I would also agree that this is an innovative idea that could work in many places across the world. An additional benefit is the simple fact that it would give individuals a heightened knowledge of how much they use every time they shower, flush, etc. I am a bit concerned as to whether this could be implemented on a much larger scale, for example the Danube or the Mekong river basins that are home to ca. 80 million people. To have a system where water is earned, owned, saved and then negotiated in such vast geographical areas with varying political climates and population growths could become highly complex, and perhaps vulnerable to misinterpretation.
    In principle this could be a possible solution to power asymmetries in a river basin system, ensuring that upstream partners do not over-utilize the resources. The fact that the system involves direct users/ “real people” who identify the quantifiable trade-offs that will then be negotiated is key. But whether this could lead to trans-boundary cooperation as a tool for conflict prevention or if it could swing the other way and lead to disputes and tensions over water resources may be difficult to predict.

    Reply
  5. Alyssa Wang

     /  29/02/2012

    I think the issues that Alex brought up are really interesting. It’s too bad the smartmarket website doesn’t have an extensive FAQ section that addresses those issues.

    Like Pernilla, I was also wondering how the H2Ownership system could be applied to large river basins. Rather than serving as a tool for cooperation, I think the system would create more tension among countries sitting on the rivers. Building dams along the Mekong River has already created conflicts not only between governments approving the projects and the people originally living along the river, but also between governments of different countries as well. Already, those who are more upstream hold a lot more power over those who live downstream. The dams at the hearts of the problems involve local people and different levels of government, so I think it would be extremely hard to implement a working system of trading the conserved water in these kinds of areas where these water-based problems already exist.

    Regardless of whether this specific system would work, it would make sense for households to have smartmeters so people could keep track of their water usage. If I could see how much water I’m using every week or month, I would make a much more conscious effort to not waste it. I realize the article talks about individual conservation not really making a significant difference in overall water usage, but I think at least having the right mentality about it is where making a difference can begin. On a similar note, I really like the idea of knowing the water footprints of the food we eat, the activities we participate in, etc. If products had something like color-coded labels based on water footprints (kind of like the color-coded rating program of the sustainability of seafood items at Whole Foods), I think people would be more conscious of what they’re buying. Again, it might not have an instant significant impact, but at least it will bring attention to the issue.

    Reply
  6. There have been some valid points raised here but I think at least some of them can be resolved.
    Alexander makes the point about a business being granted water credits on the back of current production and becoming a ‘barrier to entry’ for new firms who will have to buy water credits. However surely this can be overcome if like with other resources such as oil a buffer zone is created by the government of the water resource. Thus the new business is simply allocated credits at the same rate as the established business. Obviously some will argue that this will hinder economic growth, but this will depend on government of the water supply’s ability to allocate water resources. I would also like to see the encouragement of peer to peer regulation amongst businesses in order to ensure that businesses are producing as many goods as they say they are producing with amount of water credits they have received.
    Also we need to emphasis the case by case nature of the approach: if too many credits have issued to an area this would need to be quickly rectified, however one would hope that adequate localised research would have been carried out to minimise the case of this happening.
    Pernilla is right to be sceptical about the implementation of such a scheme on river basins that are shared by so many different nations. This scheme will need many years of development and refinement based in areas where there is sole ownership over the water resource by one entity before it can be implemented on a transnational level. But I can foresee in the future as water scarcity becoming an increasing problem that national governments will be forced into summits whereby they can negotiate how much of a buffer supply each nation is allocated to distribute to its economy. This will certainly add another dimension to International Relations which hopefully will not cause too much anger and friction!
    I think just looking at the sheer level of questions fired at James Hardman is clear that a scheme as radical as this will experience teething problems, but as water shortages become more prominent solutions like AquaJust will look more attractive.

    Reply

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