Letter to Editor CT 26th Jan

Letter to Editor CT 26th Jan
The Prime Minister’s water initiative will solve the overuse of rural water but it is more costly than it needs to be. The underlying problem with water in rural areas, as well as in cities, is that the price of water is lower than the cost of saving water. That is, it costs more to build pipelines and more efficient ways of using water than the water can be sold. The government is proposing to purchase water allocations from property holders and to fund water savings projects on properties where 50% of the savings go to reducing water allocations and 50% to the property holder. Neither of these schemes will give the most efficient allocation of money to saving water. Buying allocations does not put money into water savings infrastructure and funding water savings schemes where there is no cost to the property holder will not encourage them to use the money efficiently.

Another way is to allow farmers to sell their existing allocations of water but require that the money they receive from the sale of water allocations be invested in water efficiency measures. If farmers are unwilling to sell water allocations then the price of all water can be increased until they are willing to sell their rights. This is politically possible because it increases the value of water allocations. Using this approach will allow the market for water infrastructure projects to indirectly set the price for existing water. This ensures that all government funds are spent on water saving measures because all buyers of water allocations will want to get the best value for their allocations which is the most efficient way to spend money on saving water. Governments will only need to purchase water allocations for environmental flows.

Kevin Cox
22 Yirawala St
Ngunnawal ACT 2913

Water Rewards

Water Rewards

Water Rewards is a new concept that will encourage and support sustainable use of water by Australian households, urban industries and businesses. Its primary objectives are to use market-based mechanisms and incentives to encourage consumers, who are members of Water Rewards, to use less water by financing and rewarding efficient water use and reuse. It is, in practice, a community-owned and initiated urban water trading scheme.

When successfully implemented, Water Rewards will remove the need for governments to impose water restrictions, or for monopoly water retailers to impose statutory price increases in an attempt to control demand. It builds on experiences in the rural water industry, urban electricity retail market and the NSW carbon credits trading scheme (GGAS). It also draws on the latest Australian innovations in on-line transactions, security and privacy management.

Water Rewards regulates itself through pricing, ongoing consumer education and investment in water conservation measures. It does this by using pricing to discourage excessive use of water, providing rewards to encourage water conservation and by controlling funds from the sale of water so that they are invested on water conservation measures as well as water supply. At its heart, Water Rewards rewards the individual for changing his or her approach to water use.

The scheme does not mandate how water conservation is to be carried out. It allows members to invest their rewards in any of a wide range of accredited water savings projects and technologies. Consequently, it uses economic incentives in an equitable and politically acceptable manner. It requires no change to existing infrastructure systems and can be applied immediately to any community which has metering of water consumption.

Water Rewards will buy water in bulk from a water supply authority and sell water to its members. It does so in much the same way as an electricity retail company, a mobile phone services or ISP company. Water Rewards members are volunteer consumers from any jurisdiction that has a metered water supply and where the water authority agrees to bulk sell water. The scheme is commercially sustainable if it sells the same amount of water to more members at the same price. Its economic objectives are to reduce the per head consumption of water while still retaining members. It will achieve these objectives by:

  • Placing no water restrictions on consumption;
  • Charging a higher unit price to Water Rewards members who use more water than the ‘sustainable’ level on a per capita basis;
  • Rewarding consumers who use less water per head. The rewards are transferable but can only be spent on ways to reduce water consumption or redeemed on this basis. This will help develop the market for water saving and reuse systems and provide funds for community or regional projects;
  • Harnessing the goodwill generated through the knowledge that Water Rewards is a not for profit, organisation with a positive environmental mission.

Water Rewards has the potential to remove the need for government-imposed water restrictions; ensures that monopoly power is not abused by those in control of water funds; is fair, equitable, transparent and easily understood by the public and business community. People will join because of rewards, because they believe in sustainability and, most importantly, because they will not be subjected to water restrictions. In other words the Water Rewards scheme will succeed whether consumers join out of concerns for water sustainability or purely for reasons of self-interest.

While this proposal outlines a particular approach to allocation of rewards the approach is flexible and the reasons for giving rewards can be changed. Rewards are granted for actions that encourage sustainability but they can only be collected by a further action that encourages sustainability.


Rewards

The system of rewards is similar to that used by commercial organisations to encourage repeat business. In retail commerce this approach works by consumers earning a reward when they purchase some goods or services but not being able to claim the reward until they purchase more goods. Common examples are the 4 cents a litre for petrol reward, or buy six cups of coffee and get 50% off the sixth. With Water Rewards members are rewarded when they do something that encourages sustainability but they cannot redeem the reward until they do something to further sustainability. This is a positive feedback loop.

There is theoretical and practical evidence that incentives (rewards) based schemes are more effective in encouraging changes in consumer behaviour than disincentive (penalty) based approaches. This is as true in the area of sustainability as it is in normal retail commerce. For several case study examples see ‘Carrots not Sticks – the possibilities of sustainable consumption reward card for the UK’ a report produced by the UK National Consumer Council (Holdsworth and Boyle 2004; www.ncc.org.uk/responsibleconsumption/carrots.pdf).

Water rewards uses will range from household devices (eg. water tanks, garden irrigation systems and low-flow shower heads) to community or regional programs (eg. storm water recycling ponds and micro-irrigation schemes for local playing fields) and sustainability technologies and projects further reduce consumption which further supports sustainable consumption.



Evidence supporting a Market/Rewards Approach

A recent major study by the City Futures Research Centre at the University of NSW reports that it is going to be difficult to reduce Sydney consumption without changing people’s attitudes and assumptions surrounding the use of water inside their own homes. It is also stated that increasing prices without education was unlikely to be an effective method of managing water demand.

Professor John Quiggin of the University of Queensland in an article ‘Why water restrictions break down’ argues

“Restrictions on urban water use are an essential tool for managing droughts and other temporary disruptions to water supply. But they should be reserved for that purpose. In the long run, prices should be allowed to work.”

Peter Newman of Murdoch University in a report ‘Why is local scale best for sustainability’ argues that community based water sustainability measures built around local areas with direct involvement of the community is more likely to bring long term water sustainability. Water Rewards will explore mechanisms whereby local communities can both organise and fund their own water sustainability measures.

Verheyen ‘Can we save the environment: Research into the feasibility of using Bonus Cards to stimulate environment friendly consumption’ shows positive results from five European pilot projects involving a relatively complicated bonus rewards system associated with reducing landfill packaging. The chief lessons from the projects are that it must be simple and involve the consumer in few decisions. These are attributes of Water Rewards where a consumer signs up once and is then assisted in learning ways to save water.

Praveen, Kopalle and Neslin (2003) is one of many articles showing that delayed rewards programs are very effective in changing consumer behaviour. If implemented properly Water Rewards should have the same effect.

Evidence for the Efficacy of “Rewards”

Evidence for the Efficacy of “Rewards”

The theme of this blog is what happens when we give people control over their online information. A major impact appears to be the potential empowerment of individuals in their dealings with others. In practical terms this means that many of the complex systems we have established to facilitate cooperation between people may be achieved in different ways. One of these is the collection of taxes for use where we have market failures. These failures occur because of externalities or because the markets cannot work because of mismatches in information (such as health insurance where the person asking for insurance knows more than the insurer). Instead of trying to create traditional markets we modify the system so that we create markets but in narrowly defined areas and we give people control over expenditure. Giving people more control over expenditure related to them means that they are more careful with how their money is spent and make less expensive choices where ever they can. This can result in a dramatic reduction in total costs.

This has long been recognised and we know it will result in efficient allocation of resources. The reason is simple and was explained by Milton Friedman. http://time.blogs.com/daily_dish/2006/11/a_great_man.html. Friedman says that we get the best value for money when we spend our own money on ourselves and we get the worst value when we spend someone else’s money on other people. Money we control and that we spend on ourselves is more wisely spent than money given to governments for them to spend on us.

Unfortunately the evidence is that our economies are increasingly dominated by government allocation of resources through taxes and by situations where we have a market failure due to government regulations. The problem is not just a tax problem but it is any situation where there is a market failure which can be caused by such things as a natural monopoly as in the supply of water or a failure due to the imbalance in knowledge between consumers and suppliers as with health insurance. In 1980 taxes in Australia were 25% of GDP. In 2003 it was 32%. The Telstra debacle with the inadequate provision of broadband is classic example of market failure due to inappropriate regulation of a natural monopoly. Although it is not as obvious, the inefficiencies caused by inappropriate regulation of other natural monopolies such as money, stock exchanges, water supply, electricity delivery, and legal services all cause massive inefficiencies in expenditure because choice is taken away from the people who benefit from the expenditure. What tends to happen is that the suppliers of existing services benefit from regulations and stifle the introduction of more efficient methods of delivery of services. The imposition of regulations coached as protection of consumers tend to protect suppliers to the disadvantage of consumers.

In many economies the approach can be applied to many and potentially most taxes. If we give individuals the power to decide on what happens to their taxes, within limits, then it means we can remove many taxes and the bureaucracies surrounding them and allow individuals to direct the use of the funds. This approach is used for Australian Superannuation and funding of the Singapore Health System. Both these systems are working well and are achieving their aims at low overall costs. The evidence is particularly strong for the Singapore Health System where the total cost of health care in Singapore per head is the same as the cost to administer Health Care per head in the USA.

The Australian compulsory superannuation system requires all Australian employers to put superannuation amounts into accounts that are owned by individuals but which cannot be accessed by the individuals until they retire or reach a certain age. The Singapore Health Funding is an extension of their compulsory superannuation where individuals must put a percentage of the income into special health accounts which can only be used for health care. The money goes into the account and accumulates until the person needs to use it – but it can only be used for health care. When a person dies any money remaining can be inherited. The Singapore Health system has an insurance component and a safety net component for catastrophic events but most funds are spent on less costly procedures and these expenses are controlled and paid for by the individual from their Health Savings account.

For these systems to work it is not simply a matter of giving money directly to people to spend on particular things. This has to be put into a wider context and total systems have to be built to manage and control but the principle is that most expenditure on an individual or family be directed by individuals or families themselves and that there be limits on what is available to people.

In effect we can build systems where most social expenditure (like unemployment benefits, superannuation, health care costs, education costs, public transport costs, public utilities like water supply, telecommunications supply, or energy infrastructure) can all be allocated to individuals and the individuals can spend their “quota” on these items as best they see fit. The system can be likened to a universal budgeting system where people’s income is allocated to different expenditures without leakage from one expenditure item to another. Fluctuations are dealt with by “savings” where the savings in one year can be used in a future year for the different expenditure types.

The system is regulated like all budgeting systems by varying the total amount to be spent on a particular activity or function. The political question becomes one of determining the overall expenditures – not the way the money is spent.

How to create an online identity with…

The relationships we have with organisations and other people almost all are recorded electronically in some way or other. Our doctor’s appointments. The license we obtained from the Motor Registry Department. Our Tax Submission.
AusRegistrations gives us a way to keep our own record of these relationships in such a way that

  1. We cannot change the content.
  2. We have sole access to the records.
  3. We can supply others with the records.
  4. The other party to the relationship verifies that to the best of their knowledge the content is correct.

The trick to get this working is to convince others that it is in their interests to allow us to collect the information and to convince individuals that it is in their interests to collect the information.
AusRegistrations is working on a system to do just that.
The first step is an arrangement we have with Telstra to develop systems to assist Call Centre Operators identify callers with voice verification.
This works as follows.

  1. A Call Centre signs up to use the system.
  2. The Call Centre has an existing relationship with individuals and knows them by some identifier (e.g. tax file number, bank account number, name, email)
  3. The first time a person calls a Call Centre the individual is given the option of recording their voice so that they can use their voice to verify themselves the next time they call he Centre.
  4. If they decide to accept the offer then they record their voice and the next time they call the Centre they supply their identifier and verify who they are with their voice.
  5. If another organisation decides to use the same system then the voice recording from the first registration can be used with the second system and the person does not have to record their voice again.

The accumulation of registrations where some of the registrations involve a photograph will soon supply enough information for an individual to be able to “prove” who they are.