Cap And Trade For Water?
    By Hank Campbell | May 18th 2012 03:59 PM | 12 comments | Print | E-mail | Track Comments
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    A cap and trade system for carbon dioxide has been a terrific flop; even proponents are leery that it is just another layer of bureaucracy and the only economic benefits have been of the economic voodoo kind, similar to a federal stimulus package that went primarily to state and municipal union employees were called 'jobs saved' in a brilliant bit of marketing.

    Why would anyone want to export that fiasco to another environmental issue?  It's academic.  Sometimes academic is obviously a good thing; basic research, for example.  And sometimes 'academic' connotes 'out of touch with reality', like people in the humanities who try and argue that communism really works, it's just that no one has really tried it.

    Cap-and-trade for water is that second kind of academic. Lake Mead, on the 1,440-mile-long Colorado River, is America's largest water reservoir. As the population of the U.S. has grown, it sometimes happens that in drought years people and agriculture consume more water than flows down the river.  An undergraduate at Quest University Canada calculated the water in Lake Mead and wondered what might happen if the Colorado River ran short of water in the next 20 years. The solution he derived with postdoctoral researcher  Dr. Rich Wildman was to take a cap-and-trade concept that doesn't work with emissions and use it for water, where it is already controversial overseas.

    Lake Mead near Hoover Dam. You can't afford to live there.  Under a cap-and-trade plan, you won't even be able to afford to drink water from there.  Photo: Shutterstock

    A layer of expensive government bureaucracy to regulate which poor people can have water and which cannot?  They claim it "builds on the success" of a similar plan in Australia but it's an odd marketing pitch to Americans, who claim to be against bundling mortgages but are supposed to embrace bundling water contracts.  Some companies in Australia claim they will yield a 15% return on investments for the rich people buying their water funds.  How is that a good thing for poor people in the US?

    Activists always paint a rosy picture for the costs of cap and trade schemes (with emissions, supposedly gas $2 a week higher, energy $4 a week higher, etc.) but these are the same people who shrieked about how terrific biofuels were for all of the 1990s.  There was no science to biofuel claims then, just hope that the miracle of capitalism would make it work if the government would pick winners and losers in the private sector and slap on a bunch of regulations. $10 billion in subsidies and mandates later and all poor people got from biofuels was expensive corn and even higher environmental footprint for gasoline. It won't be any different for water - even worse, it isn't needed for water, it is hypothetical. 

    Their template was the Murray-Darling Basin interstate water trading system in Australia - what they call successful, and so do lots of people who don't live there.  Instead, the people who live there feel like they are being exploited for financial gain - and they are not buying that supposed efficiency improvements won't lead to compulsory cuts in water when fat contracts are not met.

    The U.S. Bureau of Reclamation is in the impact analysis business and their mission is to present policymakers with options, including should shortfalls in the Colorado river be persistent enough to be a concern - and that was the motivation for the new model. That's all well and good but cap and trade is only considered a success by Treehugger and their ilk - and then mostly because they don't care about the costs for poor people.
    Dr. James Hansen, who runs
    the NASA Goddard Institute for Space Studies in New York, is certainly the foremost climate scientist in the world, and he calls cap-and-trade a "path focused on corporate greed" because it is obviously a hidden tax that impacts the poor the most. It's certainly not going to be a better solution for water, which is vital to all life on the planet.

    Citation: Richard A. Wildman Jr., Noelani A. Forde, 'Management of Water Shortage in the Colorado River Basin: Evaluating Current Policy and the Viability of Interstate Water Trading', Journal of the American Water Resources Association, May 2012, DOI: 10.1111/j.1752-1688.2012.00665.x


    Bonny Bonobo alias Brat
    I don't understand the logistics of how 'cap and trade' is supposed to be applied to water supplies within a country? Wiki-answer to the question 'what is cap and trade' says :-
    Cap and trade is touted as a method of reducing greenhouse gas (GHG) emissions based on: 
    • capping the amount of GHGs that a plant can emit (in total tonnes/yr) with a declining permitted amount over the following years.
    • emissions in excess of the permitted amount cost the firm a fee (say $10/tonne)
    Assume the company can either pay the fine or put in pollution control equipment which would remove GHGs at a cost of more than $10/tonne. 
    What is supposed to happen next is that another firm which will be below its permitted emission rate will step up and sell the "hole" for $8/tonne, making money for themselves and saving the first company $2/tonne. Alternately if the first company can put in a GHG control system at the second company for less than one at their own plant site they will do that and claim the reduction for themselves.
     What I have seen happen is that, since this activity looks more like commodity trading than pollution control, the company's trading staff get involved instead of the environmentalists and engineers. You soon have a futures' market in GHGs - big bucks to be made by all. Except the purpose of the program is to reduce GHGs not play with them.
    Furthermore all nations need to "play" to make the system work. China and India for their own economic interests, especially in the current worldwide collapse, have indicated they will not participate. This directly increases their economic competitiveness relative to any nation that participates in this system and will cause migration of jobs and production to non cap-and-trade nations. In addition the costs of administrating and monitoring this international bureaucracy would have to be substantial and would be unwieldy.

    I followed the links in this article to the Australian Murray-Darling Basin website and also to the Australian Water Investments website selling water licenses, but they don't explain how this is a 'cap and trade' scheme or how it is supposed to work. Is it possible to give a simple explanation please? Surely capping and trading water doesn't just mean limiting water use to people or businesses with water licenses, which they then assume will keep increasing in value does it? If so then those water licenses might be losing value in Australia right now, as last month Australia was officially declared drought free for the first time in a decade. Floods and too much water are more of a problem these days, as even Australia's deserts are starting to turn green.
    My article about researchers identifying a potential blue green algae cause & L-Serine treatment for Lou Gehrig's ALS, MND, Parkinsons & Alzheimers is at
    I wish you hadn't wrote this because it will give our Australian government another brilliant idea. Tax water. Their top climate 'scientist" informed us a few years ago that it will never ever rain again on our east coast and building dams was a total waste of money. Instead he recommended desalination plants. Sadly [for him] we have a series of floods, dams overflowing, Now he is warning about sea-levels rising and one astute council fearing for the lives of some ratepayers have declared some streets to be off limits and people should move. Again given the street mostly affected pointed out that they were at least 8 metres above sea-level. On Carbon tax our government worried that our per capita use of carbon based fuels was the worst in the world decided to charge us a tax of $23 per tonne. Putting a price on carbon will make us all realise that we a destroying the planet however don't worry because we are only going to tax 500 organisations and from all this money we will give it to a lot of people, not everyone though because if you have too much income you can handle the extra cost. And talk about saving the planet this same government is so excited that we are selling billions of dollars worth of coal to China so they can use our cheap coal to make more stuff we can buy from them. Our industry is going broke due to cheap imports and now our local products are going to be more expensive dues to the cost of carbon being added but we don't have to worry because the government is adding another tax to the mining industry call supper-profits tax. These miners who employ thousands and a primarily responsible for keeping our economy in a good shape now have to fork out more of their profits. But don't worry the owners of these companies are rich billionaires and our government is taking them on in a class war. The rich versus the poor. What is that definition about communism; take from the rich and give it to the poor and when you run out of rich people take from the richest of the poor and give this to the poor and so on until everyone is poor? But don't worry our government which is borrowing $100 million per day has just announce in it recent budget the provision to borrow more but again don't worry because we will be giving everyone more money this month and next month because they know how we feel.....Australia is desperately waiting for the next election

    We have a nice experiment that can be formed into a truth table of sorts. One axis is Water and Electricity, the other is UK and US.

    In UK, both water and electricity were privatized and subjected to 'securitization'. Both are failing.

    In US, electricity was securitized but water has remained in control of LOCAL governments. Electricity is failing just as in UK, with the utility companies wasting billions on wind "power" nonsense. Water is still managed competently, with reservoirs mostly maintained and leaks mostly controlled.

    Lesson: Utilities should not be privatized, nor should they be nationalized. They should be primarily run by local or regional governments, which are close enough to the people to respond to needs.

    It's all about feedback and coupling. Securitization of anything removes the feedback loop between producer and customer, and nationalization forces everything to be rigidly linked together. With local regulation, feedback operates well, and its error-detection is localized.

    I think that energy, water and food are national security issues, just like the military. But as you note, the only thing worse than regulation is regulated deregulation - here in California the idiotic governor had blackouts so he signed a long term agreement at 10X the ordinary rate instead of doing the obvious; letting power companies sign long term contracts or own the power lines. No, energy companies were not allowed to deregulate, they were regulated like cable - which is why my cable bill is 200 bucks a month and energy costs remain high.

    Energy and water cannot be 'outsourced' to international competition, like iPhones are to make billions of dollars of untaxed profits so I think it would be okay to deregulate them. I support subsidies to keep farming in business, though, because we can't have our food dependent on China.  It is on some level now but people would not starve - gullible Whole Foods shoppers simply would not be able to buy 'organic' stickered produce in the winter.
    Trading on Thin Air - a must see documentary about carbon trading and where it is headed
    highly recommended - saw it on iTunes

    You might be interested in the following. Every year a out 50 first semester MIT students take a course called "Solving Complex Problems" also known as 12.000. In 2008 , the class of 2012 tackled fresh water supplies for the western US. What did they come up with? -- a modified version of cap and trade. To see how it works read their website. (Disclaimer: I was an evaluator of the student presentations).

    Thanks, Joe.  I may be writing a piece on this topic for a mainstream magazine's look at what will be important in 2013 and this will come in handy.
    There is a lot of information on their website -- and there are many more parts to their project than cap and trade. All in all, I was very impressed with the level of analysis -- remember that they had only one semester to come up with a solution! Also, they did consider equity in their analysis, if only briefly. Not that I think cap-and-trade is the answer for the Colorado River but as some people advocate moving toward market-like solutions for the river it is worth thinking through the implications.

    I never understood the cap and trade approach. In my world the only way to reduce emissions is to not emit! Not to buy permissions to continue to emit. I never found the logic in this approach.  In order to save "my life" I didn't talk about my ignorance. Then I heard James Hansen talk about cap and trade and now I am not afraid to apply my physicist perspectives on the issue any more. ;-)

    Cap and trade will not reduce CO2 emissions.
    Cap and trade will not give us more water.

    That simple.

    We have to find real solutions.
    Bente Lilja Bye is the author of Lilja - A bouquet of stories about the Earth
    Any new bureaucracy brings waste and corruption and, as I noted, cap and trade was tried in America (voluntary) and it flopped. Criminalizing emissions is, as you note, silly.  Alex and I did a piece for Forbes they did not use so we put it on the RealClearScience site discussing a simple carbon tax instead. Fairly applied, it might work - but it means both sides would have to go give a little. Anti-science hippies would have to embrace nuclear power and anti-tax oil barons would have to actually care about independence from foreign oil.
    In Norway we have a R&D instrument encouraging companies to invest more in R&D! called SKATTEFUNN (SKATT= tax) In stead of punishing those who do not invest in R&D, we reward those who does. You get tax refund.

    I mean, why not reward those who act wisely instead of punishing those who do wrong?

    Apart from that, I think we should focus more on developing new energy systems that can be implemented and gradually replace what is currently the less than good management of our natural resources. A better managementplan would do good in itself. Economy and all included, for all types of economies!

    Technically, it would be piece of cake....
    Bente Lilja Bye is the author of Lilja - A bouquet of stories about the Earth
    I mean, why not reward those who act wisely instead of punishing those who do wrong?
    We're pushed by militants on one side and ideologues on the other.  A practical Norwegian solution doesn't seem to be possible because rational people do not scream enough.