Slicing Water Planning With Okham's Razor

Samuel Staley's picture
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I first learned of Okham's Razor in an undergraduate economics class. Also called the Law of Parsimony, the idea states that the simplest of two competing ideas or theories is preferable to the more complicated one.

I was reminded of this principle while reading an otherwise excellent paper on water use and the urban heat island effect in the summer 2007 issue of the Journal of the American Planning Association. Researchers Subhrajit Guhathakurta and Patricia Gober asked an important question: does an urbanized area increase heat, which then puts increased demand on water consumption? The answer is a convincing "yes", at least in their test case of the desert city of Phoenix. Overall, a 1 degree (F) increase in the mean low temperature increased water consumption by 1.7 percent (290 gallons per month). Other variables were also important. Residential areas with larger lots and higher incomes, for example, tended to have higher water consumption. So did the presence and size of pools (although the effect was much smaller).

 While these results are important in and of themselves, what caught my eye was their conclusion:  Planning research and practice should address ways to combat waste heat in dense urban areas and consider the feedbacks between climate, water use, and the built environment. The strategies for mitigating heat island effects have been known for many years, but are little used, since air is a common resource, subject to "the tragedy of the commons" (Hardin, 1968). If heat were a regulated pollutant, as advised by some scholars, including Stone (2004), it would be within the jurisdiction of air quality management districts. [emphasis added] As we have shown, this would help conserve water, which is extremely important in arid regions such as the Phoenix metropolitan area.

Do we really need to start regulating "heat" like a pollutant? Is this really the most efficient and effective way to conserve water? I don't think so, and this is where the Okham's Razor comes in.

Irrespective of the problems inherent in determining what "waste heat" is, heat is not a "pollutant", at least in the sense that heat has an inherently negative impact on the quality of the environment. To the extent heat is a byproduct of human action, and is not fully accounted for in our transactions, it is an externality-an unanticipated or unaccounted for side effect, or spillover effect. But, it is not a pollutant. It is an unintended side effect of human activity.

More importantly, the policy goal is to more effectively regulate the use of water. Broadening the definition of pollution to include heat is, at best, an indirect strategy for regulating water use. It also runs the danger of creating yet another layer of bureaucracy within agencies that already struggle with enforcing cumbersome laws and regulations.

The real issue is regulating water use that reflects its scarcity. Other policy instruments are far more direct and less cumbersome. A more parsimonious way to address how we regulate water use is to apply market-based pricing. Rather than charge a flat fee, the rate should change with the level of demand. All we need to do is monitor water use and set rate schedules that reflect higher use rates. This can be done through block pricing, but we have the technology to price this is real time (evening sending a signal to the user about the current unit price).

Allowing the price to increase as demand goes up means consumers have more accurate signals about the true costs of using the resource and promotes conservation through the automatic and self-reinforcing feedback loops of market pricing. Pricing also encourages the adoption of alternative, more less water intensive uses (e.g., desert landscaping) as consumers seek ways to achieve the same quality of life goals through other means.

Sam Staley is Associate Director of the DeVoe L. Moore Center at Florida State University in Tallahassee.

Comments

Comments

Pollutant Vs. Externality

"To the extent heat is a byproduct of human action, and is not fully accounted for in our transactions, it is an externality—an unanticipated or unaccounted for side effect, or spillover effect. But, it is not a pollutant."

I don't think this is a valid distinction. A pollutant can be defined as a negative externality.

"A more parsimonious way to address how we regulate water use is to apply market-based pricing. Rather than charge a flat fee, the rate should change with the level of demand. All we need to do is monitor water use and set rate schedules that reflect higher use rates."

I agree completely that we should charge more to people who use more water. But elementary economics tells us that this will not deal with the externality.

If I design my house in a way that increases the heat-island effect, that will increase water use by everyone in the city very slightly. The increase won't be enough to raise my water bill significantly and give me an incentive to reduce the heat island effect. But if everyone in the city does the same thing, it will raise total water use in the city significantly.

Eg, if everyone used reflective roofing, that might decrease the heat island effect significantly at very low cost, but no one has the incentive to pay this very low cost, because most of the benefit is to others in the city. As elementary economics tells us, the market does not take account of this externatility.

Okham's Razor says we should adopt the most parsimonious theory that accounts for the phenomena observed. Here, you are being so parsimonious that you do not account for all the phenomena observed.

Charles Siegel

Samuel Staley's picture
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Pricing externalities

Nice rebuttal. Economics 101 tells us about externalities, but econ 201 discusses how the externalities can be addressed. The textbook application is a "tax" of some sort, but this can be applied in a more straightforward way by adjusting the per unit price to reflect the externality.

These technicalities aside, the key to the solution is to apply *marginal cost* pricing to water use. In other words, the price goes up for each additional uint of water consumed. So, it's not a flat rate, but the per unit price increases from say $1 per gallon at X level on of consumption to $1.1 per gallon at Y, etc. This has the effect of promoting conservation on the margin, which appears to be a particularly effective solution in Phoneix because 2/3 of residential water consumption is outside the home and largely discretionary. Lot's of evidence exists showing that people *do* react to small changes in price of goods and services on the margin.

So, I disagree that this isn't enough to change behavior. I think we would see shifts in behavior pretty quickly under marginal pricing toward desert landscaping, more efficient (less water intensive) home uses, etc.

I should also point out that the key issue the article was focused on was regulating water consumption to address the heat island effect. And the point I was making was that this was a case where market pricing would be more efficient and effective at achieving the goal that traditional plannning which tends to identify optimal uses and mixes and using regulatory approache to achieve those goals.

Pricing schemes.

And the point I was making was that this was a case where market pricing would be more efficient and effective at achieving the goal

Surely the experience of San Francisco near the great quake and of Bechtel more recently give us pause when considering such a scheme, as do experiences on the ground with trying to use economics to predict behavior.

Although IME agents do respond to price signals, surely the jury is still out on this as a sole source of behavior modification (paper connected to second link shows that household-level real time data acually increases use, as folks are more conservative in use with less information), as different types respond to different things.

Best,

D

Pricing Response

Those households were still responding to price, just not in the way that was intended. They were using the instantaneous information to buy the most water possible at the cheapest price...which actually supports Staley's thoughts on the efficiency of using price to reduce water usage. Though, importantly, it shows us that one has to get the pricing structure right to have the intended effect.

Pricing response II.

I agree. We've implemented block pricing and wait to see how our HHs respond to these signals.

Again, I think agents repond to pricing signals and advocate policies along these lines, but the Aurora study also shows regulation works as well. I also look at the ts and Rs on econ papers and I see that they don't explain all of the variance, so I try not to pretend that pricing signals are the be-all end-all.

Best,

D

"I also look at the ts and

"I also look at the ts and Rs on econ papers and I see that they don't explain all of the variance, so I try not to pretend that pricing signals are the be-all end-all."

Agreed.

Limits of Pricing Response

As I say above, raising the price of water will only make consumers purchase less water for themselves.

It will not make consumers take action to reduce the heat-island efffect, which would reduce regional water consumption but not their own water consumption.

If reducing the heat-island effect is a cost-effective way of reducing water consumption, than water pricing will not reduce water consumption in the most cost-effective way.

Staley completely misses this fundamental principal of economics.

Charles Siegel

Market Pricing Does Not Deal With Externalities

Your response misses my main point. Consider this thought experiment:

There is some way to reduce the heat island effect, such as reflective roofing, that is much cheaper and easier than directly cutting your water consumption. If I add reflective roofing, that lowers my water consumption by an insignificant amount, but it lowers my neighbors' water consumption by a significant amount (because it helps reduces the heat island effect in the entire region, not just on my property).

In this situation, I will not install reflective roofing in response to higher water prices. Everyone's installing reflective roofing is the cheapest, easiest, and most efficient way of reducing water consumption in the region. Nevertheless, no one will pay extra to install reflective roofing, because the benefits are external.

Pricing of water clearly does not address this sort of externality. To address it, we would need some tax and/or subsidy for roofing materials.

That is what they meant when they said we should treat heat as a pollutant.

Charles Siegel

It all depends on what you want to do

No where does it say that consuming less water will reduce the heat island effect. The argument was about the best way to reduce water consumption (which rises due to the heat island effect). The most efficient way to reduce water consumption is through marginal pricing (ok, only my opinion)...although as Dano points out below, the pricing has to be established and tweaked not to actually incent more water usage.

Treating heat as pollutant in order to create a roofing materials bueracracy to lower water consumption seems a lot harder than simply tweaking water pricing to achieve the same result (ie lower water consuption).

More On Externalities

In the thought experiment I give above, raising the price of water will make people reduce their own water consumption as effectively as possible, but it will not make people reduce the region's water consumption as effectively as possible.

We can see this if we carry the thought experiment further by plugging in some numbers. Imagine that the city must conserve x amount of water, and this can be done in two different ways: everyone can spend $1000 extra on reflective roofing, or everyone can spend $10,000 extra on a drip irrigation system.

To conserve this amount of water purely through water pricing, you must raise prices enough to make everyone pay the extra $10,000 on drip irrigation (which will lower your own water bill). This is much less efficient than taxing heat pollution enough to make people spend the extra $1,000 on reflective roofing (which will not lower your own water bill).

Of course, these are imaginary numbers, roofing is just one example of how people can reduce heat emissions, and drip irrigation is just one way of reducing water consumption. If we looked at the actual numbers, we might find that the cost of setting up a bureaucracy to create a heat-emissions tax is greater than the savings from taxing heat emissions.

But you also might find that the cost of the bureaucracy is much less then the savings: you cannot simply dismiss taxing heat emissions out of hand because of Okham's razor.

This is a fundamental point about externalities that should be clear to anyone who understands economics.

Charles Siegel

Incentives vs Regulation.

Do we really need to start regulating “heat” like a pollutant? Is this really the most efficient and effective way to conserve water? I don’t think so, and this is where the Okham’s Razor comes in.

I can't read the paper, but I see the abstract says "planners should consider effects on water demand as well as other environmental consequences when they evaluate growth strategies, and use incentives to encourage efficiency and sustainability", and that the refs include Oke, Akbari, Stone, and Romm's work, which includes lowering albedos with roofing material & semipervious reduction, driving efficiencies, and strategically planting trees to utilize shade in the summer and lower wind speeds in the winter.

So, I can imagine the ideological reasons why the knee-jerk fear of th' regalayshun occurred here. But the paper appears to prefer authors who like incentivization and thus offers numerous LU strategies for mitigating heat island effects, which also include drags on the electrical grid when people turn up the AC.

Best,

D

Heat is already a regulated pollutant

Under Total Maximum Daily Loads (TMDLs), heat and thermal inputs are recognized pollutants. Heat emerged as an official pollutant in the Pacific Northwest, but is spreading as higher water temperatures threaten not only salmon, but other species and even industries that rely on cool water. I imagine some of the TMDLs for pathogens have a temperature component as well.

The delivery system for heat is usually, though not always, stormwater runoff. There are emerging pricing systems for stormwater in the form of stormwater utilities that set the price on square footage of impervious surface. However, this price is paid not by the developer, who determines the extent of imperivous cover, but by the eventual owner or building manager.

The article raises some interesting questions that could be used to further investigate utility pricing (which tends to max out at a political threshold) vis a vis covering the full range impacts. At this point, utility pricing tends to look at extent of cover, with some innovation in crediting disconnection of runoff generating surfaces, on site infiltration and the like. It would be nice to find some way to incentivize prevention through pricing, such as reuse of existing impervious surface (aka redevelopment) as well.

Atmospheric heat is not regulated.

Under Total Maximum Daily Loads (TMDLs), heat and thermal inputs are recognized pollutants. Heat emerged as an official pollutant in the Pacific Northwest, but is spreading as higher water temperatures threaten not only salmon, but other species and even industries that rely on cool water.

That's an interesting point, Lisa, about heat. The issue in this post, however, is atmospheric (ambient) air temps being higher.

Increased stream temperatures are a function of higher temps [both in and out of Urban Heat Islands]: a result of decreasing tree canopy cover, increased impervious surfaces and albedo changes due to landcover changes. So it's not too much of a stretch to think about using water temps as a proxy for landcover changes, or as a metric for a particular range of impacts, or as a management tool for limiting impervious in a basin/subbasin.

I can't speak to how much ambient temperatures alone contribute to surface water increases across scales, although I suspect Seattle has some numbers on that wrt Lake Washington/Sammammish.

Best,

D

Samuel Staley's picture
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New paper on water markets and climate change

For those interested in reading more about how water markets can address climate change, Case Western University's Jonathan Adler has just written a paper titles "Water Marketing as an Adaptive Response to the Threat of Climate Change" and it can be found here: http://papers.ssrn.com/sol3/papers.cfm?abstract_id=1097594

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