Understanding and Connecting Smart Meters, Smart Grids, and Smart Markets.
- Lynne Kiesling
April 15th, 2015
Courtesy of the Wall Street Journal, an interesting OpEd on the power of pricing and how politics can preclude a rational solution to drought:
The California Aqueduct and Interstate 5 near Gustine, Calif.
California’s drought is frightful and a challenge for an 800-word column, since the problem can be solved in five words: charge realistic prices for water.
If homeowners paid two pennies a gallon instead of 0.5, they might take shorter showers and be more parsimonious with their lawns, but their lives wouldn’t change materially. If farmers found it remunerative to reduce by one gallon the 3.5 it takes to grow a lettuce, who doubts they’d make it work.
Yet for all the agonizing of the TV news and Gov. Jerry Brown, the appetite for a price solution is not only nil, it is undiscussed except by bloggers and op-ed writers. Movie fans know why: “Forget it Jake, it’s Chinatown”—California’s convoluted water politics. Imposing realistic prices on urban dwellers might be feasible, but up would go a cry, “What about farmers?” Then politicians would face a skein of favoritism and log-rolling practically beyond the power of democratic politics to unravel.
Let’s start with basics. The original market for water was the market for land—land with water was worth more. In California, two large state and federal projects, the State Water Project and the Central Valley Project, have long been in charge of aggregating water in the north and allocating it to various users in southern California, which makes water political.
A third system, the Colorado River system, is also part of the allocative scrum, involving California and six other states.
By virtue of these systems, government also decides how much water will continue to flow in natural channels, which turns the environment (aka the delta smelt) into an interest group too.
Right now, farmers receive their public water through occult combinations of hereditary rights, political lobbying, and an emerging market of transferable water rights that politicians keep threatening to kill. To Americans, Sens. Dianne Feinstein and Barbara Boxer are California liberals: to Californians they are unusually attentive to Central Valley farming interests. Making the desert bloom is a lovely sentiment but makes sense only if it makes economic sense: Using five gallons of California’s water to produce a walnut probably doesn’t make sense if water is realistically priced. But then neither does a forthcoming San Diego plant that would incur large energy costs to convert seawater into drinking water.
As the late economist and social thinker Mancur Olson taught, political bargains of the past are the burden of the future. The U.S., like California, is a country that has grown old thinking of itself as young. By now, we’re one of the world’s most aged experiments in representative government, and increasingly paralyzed by an accretion of calcified institutions like Social Security or California’s water politics.
One thing has flowed in abundance lately, and that’s obituaries for California’s golden dream, as if the state must now die of thirst. But California’s problems are far from insoluble. In some ways, its water crisis is a replay of its 2000 blackout crisis, when a botched “deregulation” created the illusion that California was running out of electric power, when all it was running out of was money to pay for absurdly overpriced power the state inflicted on itself through a harebrained reliance on spot markets.
When politicians could no longer pass the buck and belatedly let utilities return to long-term contracting, prices fell and the power came back on. By then, one of the state’s major utilities was in bankruptcy.
If America is not rushing down the tubes quite as energetically as Europe, it’s because in parts of our society (see Silicon Valley, see fracking) politics has not yet completely ruled out the possibility of innovation and surprise. One of these innovative surprisers isn’t Gov. Brown, whose emergency plan doubles down on political allocation of water, imposing mandatory cuts on population centers. The purpose, of course, is to agitate voters to agitate Washington to do something, meaning free up water from elsewhere and give it to California. Yet it is exceedingly doubtful that voters, and even farmers, would reject a policy of water pricing that would mean in the future they could get all the water they are willing to pay for.
A note on global warming: As even the New York Times acknowledges, evidence suggests that the 20th century was unusually wet in the American West and a drier spell would be a return to the long-term mean. But even if climate change plays a role, and even if man plays a role in climate change, and even if we had a meaningful climate policy (which we don’t), it would necessarily operate on a time-scale irrelevant to California’s troubles. Water supplies will fluctuate, like any commodity. The real problem is a non-price allocation system that guarantees waste, shortages and political fights over water.
This entry was posted on Wednesday, April 15th, 2015 at 2:09 pm and is filed under Uncategorized. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.
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Based on decades of experience and interest in conservation, Monty Simus believes that a truly “smart” grid must be a “transactive” grid, unshackled from its current status as a so-called “natural monopoly.”
In short, an unlocked grid must adopt and harness the power of markets to incentivize individual users, linked to each other on a large scale, who change consumptive behavior in creative ways that drive efficiency and bring equity to use of the planet's finite and increasingly scarce resources.