Fascinating letter to Waukesha and state regulators about how to better use existing water supples rather than diverting a Great Lakes supply:
(414) 229-2860 fax
Bolton Hall 868D
P.O. Box 413
Milwaukee, WI 53201
(414) 229-6493 phone
(414) 229-2860 fax
Department of Economics
Eric Ebersberger, Water Use Section Chief
Wisconsin Department of Natural Resources
101 S. Webster Street
P.O. Box 7921
Madison, WI 53707-7921
I am writing to comment on the City of Waukesha’s proposed Water Diversion Application under the Great Lakes Compact. I offer these remarks to the Wisconsin Department of Natural Resources and other state officials and regional stakeholders to suggest how economics is an appropriate and important tool for evaluating some key elements of the diversion application. The views expressed here are my own and are independent of any held by the department of economics or the university.
I believe economic analysis should be central to this determination.
In particular, to determine whether residential and commercial demand for water will be as projected, we have to examine the potential impact of price as well as “command and control” measures on current and future water use such as lawn irrigation regulations and/or programs such as appliance buyouts. The quantity of water demanded is not fixed, but instead is significantly related to the price per unit as well as other non-price conservation measures.
The City of Waukesha’s early experience with pricing and non-price conservation measures indicates some real progress in using such measures to effect water use reductions. This positive result should prompt more rigorous analysis and research to determine how much additional reduction in water use could be expected from additional efforts to conserve. Such analysis and research would help determine whether the proposed water diversion from Lake Michigan is really needed now or in the foreseeable future.
We need further sound research on the best way to refine these early results, and to combine them to solve the problem in a manner that would be less expensive for the City and its taxpayers and to ensure that the provisions and requirements of the Great Lakes Compact are being effectively followed and implemented.
Examples of long-run responses to higher prices include investment in the latest in water conserving equipment, choosing smaller lot sizes, forgoing water-intensive features like hot tubs, planting less thirsty ground cover instead of grass, installing rain gardens, and building condominiums instead of single-family homes. Because longer time periods permit people to plan and implement more changes in the way they use water, long-run elasticity tends to be greater than short run elasticity.
In fact, the consensus average of long-run demand elasticity is measured at .6: buyers consume 6 percent less water in response to a 10 percent increase in expected price. As expected, short-run elasticity is less than long-run elasticity; the consensus is that short-run elasticity is .3.
To economists the reasonableness of any diversion amount cannot be determined without estimating the amount that will be
demanded at alternative prices per unit.
However, coupling pricing mechanisms with direct government action such as sprinkling bans is likely to achieve even greater water conservation.
The results are spread over numerous tables beginning on page 2 of the report, showing the results for various building sizes and types. For illustrative purposes, consider the charges imposed on single family houses. At first, during the period June 2007 to June 2009, the first block was very large, 30,000 gallons per month for a single family. The large size of that first block reduced the incentive effect of block pricing. That is, with the first block so large, the customer was so unlikely to get to block two (e.g. the higher pricing block) that there was little reason to try hard to avoid it.
But in 2009 the size of the first block was cut back to just 10,000 gallons/month and its price raised to $2.05 per thousand, the second block was the next 20,000 gallons and its price was $2.65, and quantities beyond 30,000 gallons were charged $3.40 per thousand. Once again, the first and second blocks together are so large that the third block is largely irrelevant for many users. Still, the incentive to avoid the second block was greatly strengthened since the first block was cut by two-thirds.
This would have the effect of increasing price more quickly on more optional uses while keeping the price lower for more essential uses of water.
Only three years are reported, so it would take a more complete statistical analysis to separate out all of the causes taking place at the same time. But, these participants reduced their total water usage by 15.37% (page 19) from this one conservation measure.
Given this experience, the City should significantly expand this program and provide even greater incentives/subsidies for the installation of these water conserving appliances and techniques. The cost saving with reduction in water treatment, less pumping, less infrastructure maintenance, could be reinvested to support these incentive programs.
In conclusion, the “Water Utility Conservation Report” shows promising results for reductions in water usage, and water usage is substantially down, not up (page 21).
It seems reasonable to expect that the way to optimize water conservation is to go beyond what has been started to an aggressive push forward to coordinate and integrate a combination of approaches including not only the usual command and control practices, such as limiting lawn sprinkling and appliance swaps and buyouts or assisting residents and businesses to switch to “native” grasses and rain gardens, but more use of pricing strategies.
The effect of doing so over time will not only save water, but save the City and its residents money for reduced pumping, treatment, distribution and maintenance.