In honor of Earth Day tomorrow, this post is focused on environmental sustainability, especially related to water resources. Much is made in the United States and world today of the concept of sustainability. This emphasis is not misplaced, and I would venture to say that almost everyone in the world is interested in assuring that our local, national and global environments, infrastructures and cultures are sustainable. Debates, therefore, normally concern what is meant by the term sustainability, rather than its being a worthy goal.
Unfortunately, one of the aspects of sustainability that is omitted by many in these debates is economic sustainability. Those who omit economics from the concept often have a purely or primarily physical (geological, hydrological, biological, zoological) understanding of the term. They either ignore or reject the role of money and human well-being in sustainability. In this post, I argue that such an approach is in error. In order for us to achieve physical sustainability, we must also at the same time reach economic sustainability. We cannot have one without the other.
The co-equality of physical and economic sustainability can be seen in water resource management, the particular domain of this blog. Humans interact with water in a number of ways, including navigation, flood control and diversion of water for use. In the diversion, use and disposal of water, we must pay attention to both water quantity and quality. Physical sustainability in quantity means that we must not withdraw more water than can be replenished to the source over the long term. For example, we must manage groundwater basins so that extractions, recharge and other actions maintain a sustainable yield. There are a number of methods we have devised to attempt sustainable groundwater management. We have systems of water rights to protect and encourage investments, institutions that regulate pumping, technical investigations to understand basin mechanics, including conceptual and numerical models, and physical infrastructures we build to achieve and enhance sustainable yield. For sustainable water quality, we build wastewater collection systems and treatment plants with varying technologies in order to meet legally defined effluent standards. All of these actions require funding, both initially and on a continuing basis.
In order to provide funding for the actions that create physical sustainability, there must be attention paid to revenue sources. Too often, we focus on physical actions or outcomes without an equal amount of thought being paid to how those actions will be accomplished financially. This can result in designing projects that cannot be constructed, or constructing projects that cannot be adequately operated, maintained, repaired and replaced.
Those professionals and environmental advocates who ignore or reject economics as an aspect of sustainability often believe that the best method of funding actions is through governmental funding that is not tied to the specific action being undertaken. These advocates call for the use of general tax revenues for water and wastewater projects, through programs like international development grants, the US Clean Water Act State Revolving Funds, general obligation bonds and the public goods charge that has been proposed in California (more on that in a future post). There are two fundamental problems with that approach.
First, that approach fails to value environmental and other resources. As has been demonstrated repeatedly across multiple disciplines and cultures, when individuals and businesses receive goods for free, they value them at exactly what they paid, i.e., zero. This leads to overconsumption and waste of the affected resources. A useful elaboration of this principle in the water context was put forth by Charles Fishman in his new book The Big Thirst: The Secret Life and Turbulent Future of Water.
Second, the dedication of general tax revenues to specific projects are never guaranteed. Governments do not fully fund projects upon initial approval, and meeting the continuing funding requirements of projects is contingent on the vagaries of government budgets. Such year-to-year budgets are an integral part of government responsiveness to the will of citizens, and current elected officials cannot be allowed to bind future citizens to pay for projects. Therefore, if we want to guarantee the economic sustainability of environmental actions and outcomes, we need dedicated funding sources that do not depend on government tax revenues.
The uncertainty of government largesse is perhaps most pronounced in the area of international aid. While the developed world does contribute funding for water and wastewater projects in poorer nations through both governments and non-governmental organizations, such funding is always insecure, especially on the level of particular projects. Maintaining the viability of water resource projects in the developing world requires long-term, guaranteed funding of a sort that can only come from the people who benefit from the project. In order for the beneficiaries to pay for sustainable water infrastructure, their national economies must grow. Currently, many nations in the developing world are mining their water resources, not because of a lack of ideas for projects to achieve physical sustainability, but because of a lack of funding.
The best way to ensure that projects will be fully funded is to impose user fees based on the amount of consumption. This provides a steady stream of revenue for economic sustainability at the project level, values the affected resources appropriately and complies with basic notions of fairness. In addition, we must provide growing economic opportunities for those water users, so that they have the ability to pay. Devising actions for economic sustainability is as important as ensuring that those actions are designed and implemented for physical sustainability. Only when those two aspects are conjoined will we achieve true sustainability.
Great post. I totally agree about the instability of subsidies to water costs.
I’ll add (re: “the best way to ensure that projects will be fully funded is to impose user fees based on the amount of consumption.”) that these fees — or price — should ALSO reflect scarcity. It’s common for prices that cover costs to be too low to restrain demand within supply.
David (author of The End of Abundance)
Thanks for the insight, Dave. I would think that if we were taking all actions needed to ensure physical sustainability of water, the cost of doing so would approximately reflect scarcity. It likely would not be perfect, but I would hope that we would be off by degrees rather than orders of magnitude as we are now. I’ll have to pick up a copy of your book to figure out exactly how to achieve scarcity pricing while making water available to all members of society. And how to implement scarcity pricing when all of our institutions (like the state utility regulators) are based on cost-based pricing!