Last week I testified in the Water and Power Subcommittee in the House of Representatives (hearing linked here). The concern was water availability and federal funding for for research and development in desalinating (de-salting) seawater and brackish water for human consumption or use in irrigation or industry. I argued against the funding and pointed out that water shortages are almost always rooted in poor pricing for water. Without market pricing, scarcities and havoc will rule. I call for the separation of water and state. My long-form written testimony is linked here, and my oral comment appears below.
I am Wayne Crews, VP for Policy at the Competitive Enterprise Institute and I thank the committee for the invitation to speak on federal desalination efforts that, while they won't break the fiscal bank, distract from the infrastructure and regulatory liberalization actually needed, and embrace principles at odds with an adaptable and lightly regulated water sector. Desalination does boast impressive working applications, but it is an energy-intensive, by-product-laden way to make expensive potable water. Happily, water is not getting more scarce overall; it’s an earthly constant. But pricing and allocation of that constant water supply do matter. We should avoid having Government Steer While the Market Merely Rows. When linking any research to human needs, private investors can test low-probability projects, counting on the rare success to offset multiple failures. We have to be good at killing bad projects. That requires market processes. Federal funding, further, fosters needless conflict: over the merits of basic vs. applied research, over government vs. industry science; over assignment of intellectual property, and here, even over coping with environmental harm associated with the sourcing and externalities of desalination itself. Politics has trouble with tradeoffs: Why brackish groundwater desalination instead of seawater, or smaller scale solar still-type projects, or why not countless alternative water investments and strategies? The dilemma affects all policy areas; Why not nanotech? Or biotech? Or methane hydrates? Or Robotics? Fortunately, taxpayer subsidies appear not to alter the ratio of GDP spent on R&D. So we should avoid fostering any “Declaration of Dependence” on federal dollars in any sector. Also, all innovations bring risks. Government funding can magnify risks and environmental problems by propelling technologies ahead of the free market’s ability to properly assimilate them. In genuine markets, disciplines like liability, insurance, waste stream recapture and environmental stewardship must evolve alongside frontier technologies. Rather than the National Research Council’s recommendations and the National Labs “roadmap,” I advocate the separation of water and state. Water resources and environmental amenities should be better integrated into the property-rights, wealth-creating sector, an evolution derailed in the progressive era. First, better pricing of existing supplies can make shortages vanish. Despite everything, gallons cost less than a penny, but they fill swimming pools and quench lush lawns in arid areas. Second, improving water infrastructure can reduce the waste that now depletes some 17 percent of the annual supply, as noted in a Competitive Enterprise Institute report by Bonner Cohen. Third, better transport, including pipelines and canals, trucking, and crude oil carriers can secure supply more cheaply than desaliniation. Fourth, improved trades between cities, farmers and private conservation campaigns can be essential to pricing and value. All these can supplement direct sourcing alternatives including gray and wastewater treatment and reclamation, stormwater harvesting and surface storage. And obviously, we should address onerous permitting regulations that inflate desalination’s costs and defy the good in the process. A couple quick general observations: First, as CEI’s founder Fred Smith puts it, instead of trying to improve speeds by picking the particular R&D horses to run on the economic racetrack, we should improve the business and regulatory track so everyone can go faster, and let jockeys keep more of their earnings. That means tax and regulatory reform. In my written testimony, I cover options to liberalize and enable a private sector flush with research cash. Second, this is the water and power subcommittee, and I think it’s vital to step back and explore dismantling regulatory silos that artificially separate our great network industries like water, rail, electricity, transportation and telecommunications. Investment in desalination while leaving antique 19th and 20th century infrastructure regulation intact is curious policy. As a free society becomes wealthier, cross-industry creation of infrastructure should become easier, not harder. The vastly poorer America of 100 years ago built overlapping, redundant tangled infrastructure; we might have had eyesores, but never a natural monopoly problem. Again our primary challenge is to integrate modern water resources further into the market process and the sophisticated property rights and capital market systems of the modern world. We need competitive markets to discover, not merely desalination's value relative to sourcing alternatives, but to discover the true value of water itself.