A Modest Proposal to Solve Our Energy and Water Woes

James G. Workman, author of the much-lauded book “Heart of Dryness,” and Montgomery F. Simus, co-founder and chief executive of SmartMarkets LLC, have come up with a novel idea for addressing challenges at the water-energy nexus: create a water and energy, or “watergy” market that gives every citizen an equal share of water and energy and allows them to buy or sell their shares depending on how much “watergy” they want to consume. Although the idea might sound crazy to some, I think they’re onto something.

In the article titled Giving Our Choke Point the Heimlich Maneuver, Workman and Simus start out describing our current political climate, followed by a somewhat circuitous explanation of what they mean by “watergy,” a term originally coined a few years ago by the Alliance to Save Energy. Workman and Simus use “watergy” - and a reference to the board game Monopoly – to represent the inextricable connections between water and energy in context of the unique social, political and economic challenges we face when trying to sustainably and equitably manage these resources. For Workman and Simus, we have nobody to blame but ourselves for rapidly depleting our natural resources::

Natural resource depletion comes at the behest of our free, rational and informed electorate. We confront threats not from some corrupt regulator, incompetent bureaucrat or nefarious multinational corporation, but from the enemy in the mirror: ourselves. Yes, when it comes to water and energy, our democratic system is working all too well.

To grasp this paradox, recall Monopoly. Yes, the board game. Of all the pretty colored properties a player could land on, from Mediterranean Avenue to Boardwalk, two bland squares sat relatively worthless: “Electric Company” and “Water Works.” You couldn’t invest in these assets with houses and hotels, and rent was cheap. Too cheap.

In reality, undervalued utilities are our only remaining, centrally organized, all-encompassing, absolute monopolies. They control every aspect of our lives.

What’s more, the two are inextricably linked. In the U.S., a fifth of all energy may be consumed by water, and the biggest use of water – 42% by some estimates – is for energy. We might well consider the two utilities as one combined, vertically integrated ‘watergy’ monopoly.

As watergy flows decline and provision costs rise, utilities could – and in theory should – raise rates to balance out demand and supply. In practice, we voters ensure that they don’t. We only elect officials who keep rates – for residential, commercial, industrial and agricultural use – artificially low. It is hard to call them ‘cowards’ for declining to commit political suicide.

As a result, utilities muddle along, forced to make up cash shortfalls caused by low per-unit rates by selling a higher volume of our liquid assets. So cheap rates encourage us to waste both water-embedded energy and energy-embedded water. In the rare emergency situations during which a utility does increase rates to cover costs, a brief rate spike can trigger a vicious ‘death spiral’ which causes frugal consumers to use less watergy, which – as our basic economic training tells us – must then be offset by even higher rates, leading to even less use, causing higher rates etc. Thus, one alternative to choking is starving.

Given these seemingly insurmountable political and economic challenges associated with properly valuing, conserving and allocating water and energy resources, it is no wonder that we have so many challenges looming on the horizon. To address these challenges, Workman and Simus propose we follow a concept pionered nearly 30,000 years ago by Africa’s bushmen:

Information technology offers us a fast, fair and judicious way to stop choking ourselves through bottom-up incentives. The secret lies in owning and trading shares of watergy efficiency credits. Here’s how it could work:

First, encourage monopoly utilities to convert physical water or energy into cleanly defined virtual credits: one hundred gallons or one Kilowatt-hour could be deemed an EcoShare (for the formulaic among us: 100 Gal = 1 Kwh = 1 EcoShare)

Next, allocate equal quantities of these online metered assets – say five EcoShares per day — to every residential, commercial and industrial account.

Then let recipients trade whatever surplus they produce or choose not to consume to those who want more (“save and trade”).

In this scenario, there is no need to ‘correct’ human nature, but instead we leverage our innate greed or envy to address our watergy crisis. Any individual who consumed less than his/her share, could sell unused shares to others who wanted more, whether they be thirsty neighbors with a green lawn in the desert; water-intensive businesses; innovative conservation groups who wanted to “retire” them or return them to the watershed; or to the utility itself, all for a cash profit.

On the face of it, I really like this idea and believe that it is exactly the type of innovative thinking we need to address our water, energy and climate challenges. No doubt there are still a lot of details to flesh out but overall approach has some major strengths. For one, I love how it equips individuals – as opposed to buearucrats – with the tools they need to find effective solutions. I also believe this concept gets to the heart of the water-energy nexus by forcing people to view water and energy as one and the same. Because water and energy credits are interchangeable, the type of market that Workman and Simus envision would in effect spur a more or less complete integration of water and energy management. Furthermore, as the author’s suggest this approach should have strong appeal across the political spectrum:

Conservatives know that ‘owning’ virtual shares in watergy would unlock and engage the creative energies of a majority of private individuals working in their own long-term self-interest. Liberals could embrace their democratic impulse to give every American an equal-opportunity starting point each day and seize upon this approach’s ability to avoid punishing the poor or policing our neighbors over watergy use. Libertarians can rejoice that–instead of new laws, policies, taxes or police pushing reforms from the top down–an online community exchange platform would encourage a competitive yet voluntary culture of conspicuous conservation.

What are your thoughts on Workman and Simus’s proposed solution? Do you see this as “a bottom-up egalitarian approach to reverse America’s water crisis,” in the way that the authors suggest? Will this type of approach leave enough water for the environment? While questions no doubt abound, I think the author’s are onto something big and it will be exciting to see how this idea plays out.