Saturday, August 11, 2012

Adapting to Increased Risk of Drought

This Sunday the NY Times will publish this piece  about drought in the American West. The piece makes a lot of sense until the very end.  Here is one of its last paragraphs.

"Many Western cities will have to fundamentally change how they acquire and use water. The sort of temporary emergency steps that we grudgingly adopt during periods of low rainfall — fewer showers, lawn-watering bans — will become permanent. Some regions will become impossible to farm because of lack of irrigation water. Thermoelectric energy production will compete for limited water resources."

Note that they do not discuss water  prices.  The authors advocate limits to individual freedom and government mandates attempting to reduced water use.  But an alternative to quantity restrictions is to allow prices to rise.   If water prices are allowed to rise in those areas facing increased scarcity, then there will be "no crisis".  Individuals and firms will adapt to the new pricing system.  There won't be any more green grass in the desert and outdoor water use by home owners will plummet.  Farmers will be nudged by higher water prices to substitute to more less water intensive crops and this will reduce aggregate water demand.  

To have an honest discussion about climate change adaptation , we need to talk about resource prices and allowing them to reflect scarcity.  The authors of this piece never mention the word "price" in their article yet prices are the key to climate adaptation. I should send these authors a copy of my Climatopolis.  I recognize that economists are not held in high esteem these days by the "serious people" but the laws of supply and demand still apply even when folks don't want to hear about them!


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