Gov. Arnold Schwarzenegger wants to use the money to help close California’s $24.3 billion budget gap. Under Prop. 1A, passed in 2004, the state can borrow 8 percent from all agencies and must repay the funds, with interest, within three years.

But the state’s legislative analyst has suggested taking more than 25 percent from water and wastewater districts because they can raise rates to recoup the money.

This is a classic case of the badly-managed central office getting subsidized by the profitable branch office.

If I was god, I’d fire Arnie and replace him with a water manager who would know ONE thing — how to balance a budget!

Bottom Line: Those who balance their budgets by stealing from others are not leaders — they are thieves!

Growing up on a dryland corn, sorghum and wheat farm in Lawrence, Neb., my family realized the importance of water to our livelihood. Our area, in south-central Nebraska, receives 25 inches of rain annually, just enough for our sorghum and wheat, but a bit shy for the amount needed for corn on our clay soils. Timely rains made for happy harvests, while stretches of dryness and even drought felt like we were kicked in the gut. Thousands of farmers in Nebraska—and millions around the world—experience those emotions yearly.

Recently, I’ve accepted a new responsibility in Monsanto that will try to help farmers stay on the happier side of the spectrum: I’m the site lead for Monsanto’s Water Utilization Learning Center in Gothenburg, Neb., which opened on June 16. The facility studies cropping systems comprised of world-class seed genetics, agronomic practices and biotech traits, including water-use efficiency technologies such as drought-tolerant cropping systems. At Gothenburg, Monsanto hopes to provide some insight on how crops can utilize water more efficiently.

Gothenburg provides a prime location for water research on crop production because it is near the transition zone between dryland and irrigated cropland. The area receives roughly 22 inches of precipitation each year. For every 25 miles east that you travel from the town to the eastern Nebraska border, rainfall increases one inch; for every 25 miles west to the western Nebraska border, rainfall decreases one inch. In fact, Nebraska alone has more biomes than the area from eastern Nebraska to the Atlantic Ocean. With a wide range of annual rainfall (a 20-inch difference from east to west) and two different agronomic systems (dryland and irrigated), there are plenty of options to simulate different crop production and water use in Nebraska.

At Gothenburg, Monsanto is taking a “systems approach” to telling the story of water use in crops. On the 155-acre farm, we have broken down each part of the farming system (genetics, biotechnology and agronomic practices, such as weed control, irrigation management and tillage) into 80 demonstration plots that help to inform farmers and visitors how each part plays an integral role in producing more while using fewer inputs. For example, we have plots to simulate residue cover for conversation tillage at no corn residue coverage, 40 percent coverage and 100 percent coverage. At each of those plots, we are controlling for water use, either letting the plot receive a natural rainfall or irrigation to supplement rainfall. Also in those plots, we have various corn hybrids to showcase which seeds may work best under the various conditions.

The side-by-side comparisons and test plots provide an educational experience and represent real life challenges for the farmer and empower him to make the best decisions for his farm.

But the key factor that we’re looking at in all of this is water’s role in crop development and growth. At some point during the growing season, millions of acres of cropland undergo some drought stress. According to the University of Nebraska-Lincoln, annual losses from drought have been estimated at $6-8 billion in the United States. In addition, there are many farmers who are overwatering their crops in irrigated operations. At Gothenburg, we have the ability to control water use in various cropping systems—whether it’s simulating drought conditions or overwatering a plot to simulate a high-than-average annual rainfall. These capabilities enable Monsanto to provide an opportunity for growers to find the best water management practices for their farm and, ultimately, increase yields using fewer key inputs.

Bottom Line: Agriculture accounts for more than 70 percent of global freshwater use. If the industry reduces its water footprint by 1 percent, we save as much freshwater as five-and-a-half Lake Superiors. With centers like Gothenburg, we may be able to do that faster than imagined and help farmers make adjustments to their farming operation to grow higher yields with fewer inputs.

First, the elephant in the room: the plan says nothing about water “used” in agriculture. As many of you know, agriculture diverts 80 percent of California’s “developed” (controlled) water supply. The rest goes to municipal and industrial use. (Read this post on how much farmers really use.)

So the State wants to reduce overall water use by 20 percent, but it’s only dealing with the first 4 percent, i.e., a 20 percent reduction in the sector using 20 percent. I think that this plan will be DOA with the public (they will not care to cooperate) unless the public sees at least a plan for reducing agricultural use. I think such a plan is possible, particularly if farmers are allowed to make better use of markets.

With that said, here are some notes on what I saw:

• They are making the same mistake that we have seen elsewhere — requiring cuts against baseline use, which does not recognize earlier conservation successes. The obviously better way to make cuts is to measure aggregate use, reduce that by 20 percent, and then allocate that reduced quantity to cities based on their population. That would mean that cities with low use (e.g., San Francisco) would not have to reduce by as much as cities with high use (e.g., Sacramento). It’s both fair and efficient to base targets on PEOPLE, not historic use.
• The plan is FULL of command and control regulations and BMPs (Best Management Practices). That’s sad, since it ties people up with rules. Better to raise prices and let people decide how to conserve water. (OTOH, lots of planners and consultants will get jobs from the current emphasis, and I guess those are “green” — if wasteful — jobs.)
• Watch out for the “public good” charge. This tax comes from a good intention — water waste is bad for the public, so we should tax it to reduce waste — but it will attract a firestorm of criticism. The first critique will come from people who claim that water belongs to “the people” already, so you cannot tax them for using it. (That’s not true, since some people use more than others.) The second will come from those skeptical of how the State will spend the money. If revenue goes to the General Fund, there will be hell to pay. The third will involve monitoring. The tax will have to be collected on ALL water withdrawals — surface and ground — and the biggest current users, farmers, will fight this idea like crazy. If they are not axed, it will be worse; see “elephant,” above!
• 20×2020 only got 57 comment letters. For such an “important” topic, this is appalling.
• DWR has decided to monitor (and perhaps reduce use) for each of California’s ten hydrological regions. That’s troublesome for everyone who does not know them and for all the political bodies that do not share their borders. This decision seems to exemplify the importance of bureaucracy over performance.
• The plan calls for uniform data collection. I hope that they make that data available to the public in XML format so that we can use it for monitoring and decision-making.

I could make many more comments on what’s right (30%) and what’s wrong (70%) in the 20×2020 plan, but I will wait until someone from the government asked me. If history repeats itself, we will get an plan that’s neither effective nor efficient. Then we will get a new plan — 20×2050, perhaps.

Bottom Line: Bureaucracies are good at setting goals and bad at improving efficiency. People and markets are better at improving efficiency without needing goals. We could have 20×2012, but not if the bureaucrats are in the lead!

It now appears that humans are causing the same kind of “climate change,” but is it inevitable? On the one hand, we are causing it with our own actions, which implies that we could stop causing it if we wanted to. On the other hand, we appear to have no hope of coordinating a stop to the activities that are causing it. That’s mostly because everyone is waiting for everyone else to move first, to blink and reduce their own consumption so that others may follow.*

One reason that countries hesitate to make such a first mover action is that other countries may not move in the same direction, choosing instead to increase their own output. Another reason is that the first mover will face higher costs of adjustment; those who move later will be able to learn from the first mover’s mistakes when/if they move. Thus, we can see how the “first-mover disadvantage” has got everyone locked in paralysis.

What we need is a good alien invasion (as in the movies) — something that will unite all earthlings against a common cause and allow us drop all the strategic hesitation in our haste to work together to save humanity. What if there are no aliens (or no aliens interested in our increasingly-damaged earth)? Well, then, perhaps we need to invent them. Some people may claim that “global warming” is itself an invented bogeyman designed to move us to action. If so, it’s a pretty poor invention, since some people still dispute its existence and others think that its effects will be mild to non-existent.

Notice how aliens JUST APPEAR and then do harm IMMEDIATELY. If global warming dropped down (into Central Park, Tienanmen Square, etc.) and started conducting random anal probes of people, you could be sure that Will Smith would be there in no time, saving the earth. And we’d back him up, pitchforks in hand!

Bottom Line: We need an international rallying point if we — as humans — are going to reduce and adapt to global warming. The IPCC is trying to create such a rallying point, but their reports are hardly emotional. Does anyone have any better ideas/examples?

The House voted for the Waxman-Markey bill on Friday. It calls for 17 percent reductions of GHG (against 2005 levels) by 2020 and 83 percent reductions by 2050. The agricultural lobby weakened the bill in several ways, and the Senate will weaken it by more. The Economist says that the bill may be worse than nothing at all if other countries see it as a non-commitment. OTOH, Billy Pizer (who represented the US Treasury on the negotiations) told me after his plenary talk yesterday that the bill was a step in the right direction and “wildly successful” in some ways. I’m not sure if this bill will be interpreted as a strike against the aliens or a strategic attempt to look busy while doing nothing.

On the electric side, smart grid is all the rage. Utilities are installing smart meters that can tell customers how much energy they are using in real time and what it will mean for their bill at the end of the month. I expect it will take the water industry a decade or so to catch up.

A decade may be right (I’ve said the same), but there are MANY people/companies coming up with smart water meter ideas. If the number talking to me is any indicator, those smart meters will be on market in the next few years.

Widespread adaption will take longer, of course, but the key driver will be the ease of installation for homeowners. If they can put in smart monitoring devices on their own, then the industry will be driven by early adopters (the 20 percent who “care”). If it’s only through (monopoly) utilities, then it will take longer — mostly because the utilities will believe the “ten years” conventional wisdom and plan accordingly

Bottom Line: Our water efficiency — like all efficiency — will improve with competition. Smart meters are one great way to bring more of that (and more information!) to a business that’s traditionally been very slow to innovate.

Now, I do not get emails from shoe stores, gas stations, advertising agencies — or pretty much any other industry on price changes. Why? Because price changes are normal in those industries.

From that simple observation you can gather what is NOT normal in the water business: price changes. Why? First, because price has never mattered very much. Price was set as a residual decision, after the more important decisions of where to build pipes and plants was made. Second, prices were often set by political processes, and — as most of you know — getting agreement in a political setting is quite the WIN.

So here’s my hope: The price of water rises and falls with scarcity abundance — signaling to people whether water supplies are trending below or above demand. That would be so… normal.

Bottom Line: Prices are the most powerful signal that we have in economics. It’s time to use them with water.

Now, I do not get emails from shoe stores, gas stations, advertising agencies — or pretty much any other industry on price changes. Why? Because price changes are normal in those industries.

From that simple observation you can gather what is NOT normal in the water business: price changes. Why? First, because price has never mattered very much. Price was set as a residual decision, after the more important decisions of where to build pipes and plants was made. Second, prices were often set by political processes, and — as most of you know — getting agreement in a political setting is quite the WIN.

So here’s my hope: The price of water rises and falls with scarcity abundance — signaling to people whether water supplies are trending below or above demand. That would be so… normal.

Bottom Line: Prices are the most powerful signal that we have in economics. It’s time to use them with water.

We tend to pursue self-interest, to the point where we feel it’s ok to harm others — even when that harm is far greater than the benefit we get for ourselves (breaking a car window to steal change in the cup holder). This problem will persist as long as men are less than angels. We try to control this behavior with incentives (punishment, social stigma, guilt) but these are imperfect AND costly. Will we ever be able to get along?

This problem (need to control self-interest) lies at the root of many problems:

• Some people think we can get there by “altering consciousness,” but that implies we can walk away from one of our deepest instincts (self-interest over group-interest). This is the role of religion…

  Religion can improve in-group survival/performance. It works in this way: We are told that it’s good (in God’s eyes) to take care of others — if we give now, we will be rewarded later. Others, being told the same thing AND seeing us act so cooperatively, cooperate in turn. Thus, a religious community tends to thrive in an atmosphere of “taking care of your brother and sisters in God.” Such a solution works quite well, until one religious group runs into another, and “kill the infidels” is invoked by political leaders more interested in their power (and their group’s power) than the interests of other humans (and their leaders). Thus, we see how politics/religion can turn from good to bad in the pursuit of selfish human needs.

• The police are there to “protect and serve” and they do so by enforcing the law. But what should they do when the “law” bans something that’s “socially beneficial”*
  1. Cops know that people should obey the law.
  2. The violator is not obedient.
  3. The violator is thus unworthy of respect/should be punished.
  4. Besides prison, is it ok to take a bribe to let the violator go away? It’s not like anyone cares. People care about murder but not about socially beneficial crimes like smoking marijuana.
  5. Thus are cops corrupted, and corruption — as a gateway drug — will lead to more abuses (extrajudicial murder, bank theft, violation of other civil rights, etc.)
  6. This gets MUCH worse when drug dealers/felons fire back/kill cops. Now druggies are deadly
• Many water management problems can be traced to collective action problems — the few trying to exploit the many (by free-riding, etc.)

Bottom Line: Although it seems that we are a long way from “just getting along,” we can structure institutions and incentives to make it easier to cooperate and harder to exploit. It just takes time.

* No person or group could collect enough money (votes) to oppose that action, e.g., a murder victim could pay more than the murderer (as % of income) but few are willing to outbid someone who wants to smoke marijuana…

Bottom Line: This simplistic reporting does not educate anyone.

“They (the legislators) are the ones who have been standing in the way of getting anything done. That dirty little secret is finally getting out to California residents, and many are becoming angry.”

Of course they are standing in the way of certain projects—we put them there to oppose and support bills, so the claim is obvious. It is neither dirty nor little nor a secret.

The writer says both sides must sit down and compromise (a new idea?),

“…but it also will take the cooperation of the federal government. The feds must help pay for new water projects…”

Bullshit. If legislators agree on more storage, then Californians ought to pay for it with higher water prices. If these higher prices choke off demand, then we shouldn’t be building.

“Water politics are complicated, but a solution can be found because everyone knows the issues, and what’s at stake.”

I disagree that there is a solution. In the few years I have been studying California water, I have learned that our state has argued about water projects, water rights, the delta, environmental flows, etc. for more than a hundred years. The worst thing is to act quickly and irrationally.

“California’s population has doubled since the last major water project was built in the state, and demand for water has gone up by an even greater factor.”

Total water demand was about 30 million acre feet in 1960, now it’s about 44 million acre feet, according to the Pacific Institute. (page 9 of the pdf) That is not a doubling. Furthermore, lots of storage has been built since the last “major project.” See Gleick’s blog.

They conclude

“The time couldn’t be better for a comprehensive water plan. Let’s step back from the finger-pointing and get this resolved for all Californians.”

Not even sure what that means. Do you mean build a new delta facility? There still will be water supply concerns, water quality concerns, water rights problems, environmental flow issues, etc. This water problem, which is less of a problem and more of a situation to be continually managed, will not go away by throwing money at it. In fact, doing so is incredibly wasteful.

We all know the impact of rainfall on crop production and we know, or think we know, the impact of rainfall on economic growth but how many even think about the impact of rainfall on entrepreneurship? Although sociologist Max Weber has long been famous for his theories on “The Protestant Ethic and the Spirit of Capitalism”, based on my observations in India, I believe that differential patterns of rainfall have often had far more impact on “the spirit of capitalism” than any differential religious persuasion.

First, by way of background, I want to give you a little information on the nation of India where I have worked as an environmental advisor for the past 5 years and have been visiting since the early 70s. Although in most respects India is a remarkably unified and stable country, for outsiders it is often useful to think of India as analogous to Europe with an even greater variety of languages, ethnic groups, customs, cultures and cuisines. There is as much difference (both geographically and culturally), for example, between Kashmir (in the North of India) and Tamil Nadu (In the South) as there is between Norway and Greece.

One of the most striking geographic variations within India is the difference in rainfall patterns. In the semi arid tropics of Andhra Pradesh (South Central India), where I live for example, serious droughts can be expected to occur about once in 7 to 10 years. By contrast, in more arid Rajasthan and parts of Gujarat droughts will occur every 3 to 4 years. And at the other extreme, in Kerala (blessed with two monsoons per year) droughts of any kind are extremely rare, no more frequent than once in 20 years.

The question we want to pursue is: What may have been the cultural impact of those variations in rainfall? Now, let’s think about what happens to people (or at least those who prosper) in the most drought prone re