Water Foresight Podcast
Water Foresight Podcast
Water as a "Liquid Asset"
Step into a world where every drop of water counts as Professor Buzz Thompson, author of "Liquid Asset," unravels the complex role of the private sector in water management. Together, we navigate the intricate dance of business and government alliances as they supply life's most vital resource, dissecting the tug-of-war between public service and commodification. Discover how companies like Xylem are revolutionizing water systems with cutting-edge technologies, and delve into the ethical and economic repercussions that ripple through our taps and irrigation lines.
Unlock the future of water markets with us; it's a landscape where conservation breeds innovation and agriculture meets ingenuity. Through Professor Thompson's lens, we scrutinize water rights, trading systems, and the ever-growing debate over water as a human right versus a commercial product. Picture a California farmer redirecting floodwater to replenish groundwater or Montana's Tung River Valley, where tiered pricing spurs stewardship - these are the narratives reshaping our water economy and igniting a fresh wave of corporate responsibility.
Concluding our journey, we wade into the waters of regulation, where small utilities grapple with innovation and America wrestles with the recognition of water as a fundamental human right. Professor Thompson's insights shed light on the regulatory frameworks shaping our water's destiny, urging collaboration between public needs and private ambitions. As we wrap up, we invite listeners to continue the conversation, fostering partnerships that can turn the tide on water scarcity and secure a sustainable future for all.
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Aqualars. This is the Water Foresight podcast powered by the Aqualars group, where we anticipate, frame and shape the future of water through strategic foresight. Today's guest is Professor Buzz Thompson, who is the Robert E Paradise Professor of Natural Resources Law with the Stanford Law School. Professor Thompson also has affiliations with the Stanford Door School of Sustainability and the Stanford Woods Institute for the Environment. Professor Thompson has written a new book called Liquid Asset how Business and Government Can Partner to Solve the Fresh Water Crisis. Professor Thompson, welcome to the Water Foresight podcast, Matt. It's my pleasure. Now, professor Thompson, you are quite popular and, as a result, you have written a book called Liquid Asset, a very interesting book, a very timely book. Tell us what is Liquid Asset all about?
Speaker 2:Liquid Asset is about the growing role of the private sector in the management of water, focuses primarily on the United States, although it has world implications. If you look at the water sector, historically it has been predominantly public, but the private sector does have a role and what this book looks at is how that's been developing and what the possible opportunities are for businesses to get in and help us with our water prices.
Speaker 1:You know that's interesting. There is often. We could use a lot of different words, but there are people who don't really like the word business and water together. They may be specifically opposed to private water utilities or how just regular commercial industrial businesses have a very poor relationship with water. How do you respond to some critics that might say well, gosh, professor Thompson, this business and government partnership stuff yeah, we've heard it before. We don't like it. Do you have evidence that these partnerships are meaningful and have been successful? That gives you some and gives all of us confidence that it can be successful going forward.
Speaker 2:Matt, you're absolutely right that there are a lot of people who, when you start mentioning private businesses in the context of water management, get nervous. And I understand that. Water is not a typical commodity and in fact, for many people water shouldn't be a commodity at all. Water is invested with a variety of public interest. It is a public trust. We have to worry about the environment when we're worried about or thinking about management of water resources. In addition to that, there's also a human right to water, so we also have to make sure that all members of our society receive an adequate supply of water. And all of those things would point you to the public sector.
Speaker 2:But the private sector has actually always played a role in the water field and I think you have to separate out different types of rules. One in, as you suggested a moment ago, matt, you have privatization of water supplies, and that's probably the area where you have the most legitimate concern, because suppliers of water have significant control over where they're going to take that water from. That implicates the environment and who they give the water to and how much they charge for that water, and that implicates the human right to water. So privatization is, I would say, a sort of one end of the worry spectrum. At the other end, however, you have companies which are developing new technologies or improving existing technologies, companies that are supplying financing for public entities to go out and invest in the infrastructure that we need, and that's at sort of the other end of the spectrum, where there's far less reason for concern and far more reason to say, hey, the private sector is really necessary here.
Speaker 1:Well and even to the extent that some of those items you mentioned in that argument could be turned around where there are private businesses that rely upon abundant and safe supplies of water and their government run water or wastewater utility is maybe not well run and they have a concern over this issue, they may be champions of privatization, they may think that private water utilities can operate drinking water and wastewater systems more effectively, and there's all kinds of other relationships that we can get into investors, entrepreneurs and innovators and the like. In your book, you start with this idea of the freshwater crisis and tell us about that, and who are the people that are concerned about the freshwater crisis? Are there people that are going to be impacted adversely by this crisis, and are there people who are responding to this freshwater crisis, and how does that all work together in the world of government and private business?
Speaker 2:Matt, you're absolutely right. Start with this chapter on the freshwater crisis, and maybe what I should have entitled it is the freshwater crises, because the truth of the matter is that we are faced right now with a multiple set of crises in the water field. So, just really quickly, you start out with water quality. There are areas of the United States and the world that have already and always been short of water. California, for example, is a good example. But water shortage is going to become a more serious problem in the future with climate change. We also realize throughout the world, and including in the United States, we face major problems with groundwater depletion.
Speaker 2:The New York Times has been doing actually an excellent job of covering that crisis in the past couple of months. But we not only have a crisis with how much water we have. We also have a crisis on the water quality side Also. Take, for example, safe drinking water. We know that 30 million Americans today receive water from systems that do not meet at least one of the primary standards of the Safe Drinking Water Act. And then, if you look at our rivers and streams, we know that 60% of them don't meet Clean Water Act standards, even though we assured the American public back in 1983 that we were going to eliminate water pollution entirely.
Speaker 2:So that's the water quality crisis. Then you have a crisis of the freshwater environment as a result of trying to get more water stored when it's available for use. Later. We've constructed dams, we've moved water hundreds of miles in order to make sure that cities in dry areas receive enough water. All of that has decimated our freshwater environment so that over the last 50 years we have seen significant declines in freshwater fish species. And then, finally, the other crisis I always focus on, because I think it's very serious, is our infrastructure crisis, where, when the American Society of Civil Engineers most recently rated water infrastructure in the United States, the highest grade was a C-minus, but for most things like dams, drinking water infrastructure and the like, the grades were D. So there you have it you have a water quality crisis, a water quality crisis, a freshwater environment crisis and an infrastructure crisis.
Speaker 1:Is it feasible to include in a creative way to the term freshwater crisis or crises the notion of a leadership and management crisis as well as a financial crisis? Are those two elements that we could perhaps, in another podcast, unpack those elements? Are those issues? I'm adjunct to a lot of the what I call maybe technical issues, environmental issues that you've listed correctly so, but could you say that Is that? Am I in the ballpark?
Speaker 2:Yeah, I think you're definitely in the ballpark with that, matt. I'm not sure we have a crisis in water leadership, in the sense that I know hundreds of managers of water supply systems, heads of state water departments, members of public utility commissions. You know all of them are really effective leaders. You know they are really good, experienced experts in their field. But having said that, I think we do have number one a crisis in innovation, and I don't think that's necessarily the fault of the people who are in the various jobs, but particularly in the public sector, we frequently do not reward innovation.
Speaker 2:I was involved in a survey of water public water suppliers about 10 years ago and one of the things that we asked people was how much time do you spend looking at sort of new innovative technologies that might make your water supply system better and how much time do you think you should be spending on it?
Speaker 2:And virtually everyone reported that they thought they should be spending far more time than they actually were spending. We also have tried to measure how much innovation occurs in the water field, and that's a hard thing to do, but one of the things that we've tried is to take a look at new patents, because you would think that maybe the rate of patenting of technologies is one way of looking at the amount of new technological innovation in the water field. And if you take the number of new water patents and you compare it with the number of new energy patents and they're not exactly the same fields but they resemble each other in many ways One of the things that you find is you go back 20, 30 years and new energy patents were always a little bit more than new water patents, suggesting that for one reason or another, energy was always a little bit more innovative. But things really change, beginning in the middle of the 2000s, about 2007 and 2008. And at that point the number of new energy technologies that are being patented.
Speaker 2:Just shoot up, right, they just take off.
Speaker 2:And the number of new water technologies that are being patented just flatlock. It just doesn't go anywhere. And I think there are multiple reasons for that, but again, I don't think it's necessarily the people. I think it's that we don't reward new innovation, and there are another number of other factors, including the fact that water is relatively inexpensive as a resource. That means that we don't get as many patents in, and that just really quickly brings me to your second point, which is sort of the financing side, and I think the fact that you don't have adequate financing for new technologies. That's another drag on new technological innovation, because frequently a lot of water suppliers simply don't have the money to go out there and invest in the new technologies and is, again, I think, a reflection of our pricing of water. So maybe that's a bit of a long answer, but again, I think the people are really good, but we don't reward innovation and, yeah, we definitely have a financing crisis.
Speaker 1:Well, you gave some really good, thought provoking responses there, and I want to connect that later when I ask you about the four policy recommendations that you have in your book, because I think you've teed those up at least one of them very nicely. So we'll come back to that and unpack those issues you just raised. But a few minutes ago you used a term that may make some people very uncomfortable, and that's the word commodity. You talk about the commodification of water and I think that can mean a lot of things to a lot of people. But how do you think this commodification of water will evolve over the next 10 to 20 years? And it could be impacting private water utilities, public systems, even this dirty notion of bottled water right, A lot of people in the world of water. They don't like bottled water, right. And then even over in your neck of the woods in America, where we have this thing called water rights, tell us about commodification and where you think it's headed.
Speaker 2:Yeah Well, so, man, I'm a professor, right? So I'm going to actually sort of start with just sort of a foundational point here and then I'll answer your question, right. But the foundational point is that, as I mentioned earlier, water is not a typical commodity. Many people don't think it's commodity at all, but water is a sort of interesting resource that what it is really sort of varies depending upon how that water is being utilized. So, as I mentioned earlier, we care about water's use in the environment. There is not a commodity, and you wouldn't want to commoditize I'll come back and I can talk about it, but you wouldn't want to sort of commodify water in the environment and it's also a human right and in that sense it's not a commodity. But certainly in the Western United States a lot of the use of water looks an awful lot like other commodities. So 80% of the water in the Western United States is used by agriculture, and all water in the Eastern United States is used by agriculture, and there water really is a commodity. It is something that farmers need, just the same way that they need seeds, they need their various types of farming equipment. I frequently said that water is a public commodity. It is a commodity in many ways, but it is also a public resource and it's sort of that really odd combination which is one of the things that makes the appropriate role of the private sector in the water field really unique, really challenging and really interesting. So I'll just start with that as background and now let me answer your questions.
Speaker 2:As to the future of water as a commodity, I think the area where we are going to probably see the most growth in treating water as a commodity is in water markets.
Speaker 2:As you know, in the Western United States people have water rights. In the Western United States those are known as prior-appropriative rights and frequently the people who have those private rights to water have it because if they still own, for example, the same farm as their great-grandfather your great-grandfather was the first one out there and the first one to the river to get the water. That means that water is not necessarily allocated today in a way which best benefits the economy and again, 85% 90% of water is used in a way that is advancing the economy. And what water markets permit is that if there is somebody who needs more water, they can go to somebody who can conserve water or is growing relatively marginal value crops and say, hey, I would love to buy some of your water in order to move it over here and do something even more economically valuable with that water and water markets have grown over the last 25 to 35 years in the Western United States and I expect that they will grow and become more sophisticated going forward.
Speaker 1:Do you think it will follow the way of the carbon trading type of situation or markets that we might have, where you can reduce your CO2 or other emissions, obtain credits and maybe trade them in a market-based framework?
Speaker 2:So it is another foreign market and I don't think that the analogy to carbon markets is a bad one, but at the same time, every market is a little bit different. Water markets are one of the more challenging markets because of the way in which we actually define water rights. If you take carbon, carbon emissions are pretty much the same everywhere because it all goes into the atmosphere and it doesn't matter whether it's a carbon molecule in Northern California or a carbon molecule in Southern California. With water, however, it all depends on location. So water markets become a little bit more challenging, but I do think that, as I said, they are likely to grow, moving forward.
Speaker 1:Maybe a better analogy would be if I am a agricultural organization that has the rights to say 10 million gallons a day of water from the Colorado River and I engage in innovation to repair my irrigation infrastructure, which saves me 1 million gallons a day of water, so I could monetize that and sell it to my local water utility who may be struggling to find water resources to provide to customers. Is that a better example?
Speaker 2:Yeah, I think it is a better example. I think that throughout the West you find a variety of farmers who are looking for ways of conserving water in order to be able to sell that water or lease that water for a period of time to a city or municipality that is short of water, and there are more and more that are fearing that future shortage because of climate change impacts. One of the things I really like about the example that you just gave is that one of the real advantages of water markets is that they encourage conservation. If you just have a right to use a certain quality of water and you can get by with less, but if you get by with less, you're not going to get any benefit out of it. Water is just going to go back into the river stream. Then there are a lot of farmers that just aren't going to take the effort or invest the money necessary to conserve that water. It might be some who will say, hey, I really want to put that water back in the river, but a lot of them just won't do anything.
Speaker 2:What water markets do is they say to that farmer okay, if you conserve that water, then you're going to get paid for it, and that then gives an economic incentive to farmers to conserve water, and there have always been regulations designed to try to get people to conserve water, to try to design to get people to use less water, but they've never been very effective, and so one of the things I like about water markets is that they are an effective way of encouraging conservation.
Speaker 2:So that's one of the things I really like about that example Go ahead, go ahead. Oh, I'm sorry, I was just going to say. That example that you gave, though, also shows one of the challenges of water markets, and that is that there are a lot of farmers who really worry that one of the things that water markets might do is to dry up agricultural areas at the benefit of those large urban areas, and those farmers are frequently suspicious of those urban areas to begin with, might not even like those urban areas, and so their notion is no, we shouldn't let water move, water should stay in a particular area. So that again shows one of the complications of water markets.
Speaker 1:Yeah, I've read articles that suggest that type of mindset, that sort of lack of trust. Or what's the future going to be like for me if I sell or lease a portion of my water rights to some other sector of the world? What's going to happen, especially when it's a family farm? I was going to add and you can correct me if I'm wrong but I think not only does this idea of commodification inspire conservation, but also innovation. I think perhaps the monetization of a portion of the water rights might inspire entrepreneurs to develop innovations to help drive advanced conservation methods or technologies that, when acquired by different organizations, could be an agricultural, could be a farm, could be a municipality with a water system, but these things will help drive water conservation.
Speaker 1:Now we get into a conversation about that term you mentioned called water rates. What's the price of water? Is it free or is it? It doesn't cost too much, right? So it's tough to do these innovations when it's just cheaper to let the water leak out of the pipe sometimes. But I would add the word innovation, and you can tell me I'm wrong, but it seems to me that with conservation comes that innovation opportunity.
Speaker 2:Oh yeah, no, you're absolutely right about that. I remember the first time I think that I really saw it in practice was in the Tung River Valley of Montana. I was appointed special master for the US Supreme Court in a case between Montana and Wyoming over the Yellowstone River system, the Tung River part of the Yellowstone River system. I was up there talking to one of the farmers who was involved. He was showing me around his farm and he was showing me all of these innovations that he had adopted, including and this was like 15 years ago now including linking up his iPhone with all of his irrigation systems. He had done all of this in order to conserve water.
Speaker 2:If you give farmers an incentive to conserve, or you give really anyone an incentive to conserve, and they will find innovative ways to do it. Let me actually just give you another totally personal example. It used to be 15, no, maybe 25 years ago that on the Stanford University campus, which is where I live, all water was provided to those of us who lived there at a separate, so no matter how much water I used, I would pay the same price.
Speaker 2:I think of myself as an environmentalist, and so I did a whole variety of the type of things that you do in order to conserve water, but then suddenly Stanford went to a new tier pricing system where I would not only pay for every gallon that I used, but as I started to use more and more gallons, the price per gallon went up, and again I thought I was pretty good at conservation but suddenly I found myself out there looking online for new technology that I might be able to use, and one of the things I found was a smart irrigation controller that I could buy, and that smart irrigation controller measured how much water I needed on all the parts of my property and made sure that the amount of water that was being delivered was a minimal amount needed to sort of maintain the upkeep if it rained, and automatically turned off the irrigation controller, and my water use plummeted like 50% as a result of that, and what it was was that economic incentive.
Speaker 2:And again, I don't want to say that I didn't try to conserve before it, because I did, but I think no matter how much you try, you get that economic incentive, and sometimes you can try even harder.
Speaker 1:Yeah, that's great. That is great. I'm going to defer my questions on commodification maybe when I from the standpoint of flipping the coin and talking about some of the unintended consequences or other scenarios. But we'll get into that when we talk about the policy recommendations I want to ask you about and you've sort of touched on this and unpacked a little bit but what will businesses is the way you've discussed it in your book but what will businesses offer to the future of water when it comes to innovation or innovative business models or technology, or even this notion that you talk about, you know, esg, environmental social governance or corporate social responsibility? What will businesses offer to the future of water on these items?
Speaker 2:So, I've tempted Matt, to tell your listeners that the easiest way to get the answer to that question is to read my book and the only reason.
Speaker 2:I've tempted to say that is because there are so many ways that private businesses are already and are likely to play a really significant role going forward. So start out with the technology song. I've frequently said. I've heard other people say that you know, water is one of those fields where we're dealing with 21st century problems, with 20th century technologies and 19th century laws, and there are a lot of companies out there that are trying to move us from those 20th century technologies into 21st century technologies. So, for example, xion, which is one of the larger water technology companies, has developed a whole variety of technologies designed to help water managers diagnose their systems right. So they might be, you know right swimming monitors that can swim through the pipe systems and detect where there are going to be pipe breaks. As a result of systems of that nature, we've been able to greatly reduce the amount of lost water in our municipal water systems over the last five to well to 10 years. We also don't have a lot of companies out there who are not necessarily working on a totally new technology but are working to improve and bring down the costs of those technologies. So, for example, there are a lot of companies out there working on water reclamation.
Speaker 2:On water recycling Historically for water recycling what we were really interested in was bringing, taking that wastewater and turning it into fresh water that could be utilized. But now you have technologies that to an increasing degree, can not only produce fresh water and increasingly pure fresh water. They can only do that, but they also can produce energy. And in fact there are technologies now non-commercial use, but new technologies that can actually produce more energy than have to be put into the recycling process. So that means energy that could be sold back out on the market and also get valuable substances like calcium or phosphates out of that water that could then be sold Right. So again, water recycling has been around for a while, but there's that opportunity to improve that particular technology. So that's on the technological side. But you also have companies that are trying to come up with new financing techniques for financing that infrastructure, which is getting old and needs to be replaced in the United States.
Speaker 2:You going back to your point about water markets, there are a lot of farmers or others out there who are constantly looking at some innovative new approach for saving water.
Speaker 2:In my book I talk about this farmer in the central valley of California, don Cameron.
Speaker 2:And Don was told hey, we are mining groundwater in the central valley of California and pulling down the groundwater levels, and he noticed one day, when there had been a lot of rain, that there was floodwater going by his property, and so he thought that's just water being wasted.
Speaker 2:And so what he did was he took that floodwater and he turned it onto his fields this was in the winter and he grows grapes and fruit trees and so he thought you know, I could probably put that water on my fields. It's not going to bother my crops, it might even improve the crop yield a bit, but I will basically pull that water over and let it sink down into the groundwater aquifer and replenish the groundwater aquifer. That, and I could go on at length. But it's that type of innovation, both by companies that are out there specifically focused on innovation, as well as those who they're not. They don't think of themselves as in the business of innovation, but if you tell them water is shorter, you tell them they can make a profit at it. They will come up with some innovative new approach.
Speaker 1:That's a very we could really talk about each one of those issues quite some length. I might add that the world of business can offer innovative governance, leadership or management paradigms, and we'll get to that when we talk about policy recommendations. I think that's interesting. It moves us from just simply water is all about technology to what about the softer issues of leadership, management and ethics. But let me turn the tables and say it sounds like business can offer a lot, but does that mean the government doesn't offer anything? I mean, is there anything the government can offer the future of water when it comes to these same issues technology, esg your thoughts?
Speaker 2:So government is essential in this area and government is well. I'll just start out by saying government is always important. Government is out there to ensure that society is a safe place for everyone to thrive. And if you don't have government, you can't even have a market right. Government is the one that creates and monitors markets. But, as I mentioned earlier, water is a human right, it's a public trust, and that means the government's role in water is even more important. And even if that weren't true, government has played the predominant role in the past of the water field and it's not suddenly going to turn everything over to the private sector. So government is essential and you can go through the various ways.
Speaker 2:We do have a significant sector of private water suppliers in the United States. It depends upon what state you live in, but you know nationwide, probably about 15, 16% of all the water supplied to homes commission private water suppliers. The government is crucial in overseeing those private water suppliers who. Those are natural monopolies, right. So you need a public utility commission to oversee those private water suppliers and ensure that they provide the services that they promise and that they do not charge excessively high prices. So you need public utility commissions in that particular area, and you also need government to, as I say, make sure that, as private companies are coming up with, what I think are frequently very exciting innovations that the profit motive does not lead them to do something which is potentially dangerous to the public.
Speaker 2:And let me give you another example there. So if you take the oil and gas field, the companies produce a lot of wastewater, what's known as produced water, and historically what oil and gas companies have done is they've taken that produced water which has a variety of contaminants in it, and they have generally just pumped that wastewater underground to get rid of it. That's just a waste of water. Well, as water has become more valuable, a number of oil and gas companies have started to think about well, what if we could recycle that water? Could we then sell that recycled water? And that's really exciting. I mean it's great to think you could take all of that produced water and turn it into something which is valuable. In California, oil and gas companies actually for several decades now, have been selling some of that water to local farmers, because frequently you find oil and gas fields in California, at least near farming communities.
Speaker 2:And again, that's great because those farmers need water. They don't have enough water, but you need to worry. Is it possible that that water might still have some contaminants in it that get into our food system? Another area which we have a strong public interest in In California. The California State Water Resource Control Board did an H-year study of whether or not there was an environmental health concern there, and they concluded that there was not. But that's the sort of thing that again, the government needs to be playing that important role of ensuring that the public interest is always protected.
Speaker 1:Yeah, I think you're right. I think it's not so much that the government is Google or Amazon or Apple in terms of an innovation culture, but they often can act both as an economic regulator and an environmental regulator to ensure, perhaps, a level playing field and to all the business communities as well as the other, for example, public treatment facilities, but that acts as kind of that cultural barometer to ensure fairness across this world of water. Is that fair?
Speaker 2:Yeah, I think that's definitely fair. I thought frequently when I was writing liquid asset that in the water field today, there's an imbalance. The private sector is not playing as large of a role as it can, as it should. As a result, we're losing a lot of the innovations that the private sector could provide. And so what liquid asset is about is really how do we write that balance?
Speaker 1:Well, how do we?
Speaker 2:write it in a way that does not create the opposite problem of a private sector run amok without government being there to ensure that the public interest is protected.
Speaker 1:Yeah, well, I want to turn to what I think is the most important part of your thoughtful text. It is your four policy recommendations. As you move through the book, there is a lot to consume, a lot to think about, and you conclude your thoughts with four policy recommendations, and I want to walk through each one and talk about each one from the perspective of if they are adopted. If the policy recommendations are adopted, what does that mean for the future of water In the next 10 to 20 years? Is this going to be a good policy recommendation or are there some unintended consequences that we may not be really thinking through? And I think you are wise to see that there could be some unintended consequences with every policy recommendation that we need to be mindful of. But real, quickly.
Speaker 1:Your four policy recommendations are we need some reforms in the public sector. Second, you title this Rethinking Regulations, which can be a good thing or a scary thing, depending on where you are in the world. And then, third, you have the ethical obligations of business. Now, some people may think that's an oxymoron, right, but we'll get there. And then, finally, you talk about the need for stronger public-private collaboration. So those are your four policy recommendations, at least the titles, and I want to ask for you to walk through each one and tell us what you mean and let's talk about that each scenario in the future. But first, reforms in the public sector. You started to unpack this at the beginning and you talked about fragmentation and full-cost rates. What is the price of water? And maybe we can reconnect that discussion. And how does that link to your first policy recommendation?
Speaker 2:Yeah, so let me talk about both of those. So the problem of fragmentation in the United States is that, although we have a lot of large water suppliers, the vast majority of water suppliers in the United States are small. My favorite statistic is there are more water suppliers in the United States than there are elementary schools, junior high schools, high schools and post-secondary educational institutions combined, and a lot of those water suppliers are just very small. They might be serving 500,000 customers, and that poses a variety of problems. The reason I bring it up in my book is that it poses a problem for companies coming up with new technological innovations, because it means that you have to go out and go to thousands of small suppliers, many of which will not be able to afford or effectively integrate those new technologies into their operations. So it's one of the barriers to technological innovation.
Speaker 2:The other problem is on the pricing side. We could spend an entire episode of your show, mat, talking about the problems of the pricing of water, but let me just start out with the most basic, which is that there are a lot of water supply systems in the United States that right now are not charging a rate for their water which is adequate even to replace their current aging infrastructure, let alone invest in new technologies which might improve their water performance moving forward. Furthermore, very few public water suppliers in the United States have anything in the way of an R&D budget, a budget to actually look out there to see what are the new technologies that they should be investing in, or where are the areas that they would like a company to help develop a technology for them. And so that failure to adequately I think I can use that term in this context adequately priced water is again undermining technological innovation, at the same time that it's posing a variety of other problems.
Speaker 1:Yeah, I think you're right on that count, that that could take a whole episode. The economics of water. I think you're right on fragmentation and I think the number is that 20% of America served by a public utility. That represents about 80% of the community water systems in America. 80% of those community water systems serve 20% of America, which goes to your comment about. You have all these small, fragmented systems all over America serving 300 people, 500 people, and what does that mean for the future of water, especially when they're trying to innovate? And can they afford that innovation that businesses are developing? And boy that. The rate making issue is really certainly one that could spend consumer or the rest of our day. The second policy recommendation is rethinking regulations and I know that has a good part and maybe a scary part, but unpack that for us and tell us what we need to do to rethink the regulations and what that might look like in the next 10 to 20 years.
Speaker 2:Yeah, the bottom line again this is a potentially huge topic is that we've really never thought as carefully as we should in the water field about how we can utilize our regulatory process in order to be able to get more out of the private sector. And let's just take as an example again an example of technological innovation in the water field. We can both use more regulation and less regulation in order to encourage new technological innovations. Start with the more regulation.
Speaker 2:If you look at the energy sector, I mentioned earlier that patents in the energy sector really took off in the mid 2000s, and I think there are two reasons why it took off. First of all, at the federal level, we were investing a lot of money in the development of new energy technologies, and that's another subject, but we invest virtually nothing in the United States in the development of new water innovations. But the second aspect of it was that we began adopting a variety of regulations encouraging energy suppliers to use new technology. So we in particular, have renewable portfolio standards that actually require in many states in the United States water I'm sorry energy suppliers to use solar or wind or any other type of a renewable energy source, and that regulation helps to stimulate the new technologies. We actually did this in the water field back in the 1970s with passage of the Clean Water Act. Passage of the Clean Water Act, which certainly required companies to be installing technologies to reduce their water pollution, really stimulated the water pollution technology.
Speaker 2:We don't have anything like that. I shouldn't say that we have very few examples of that type of regulation when it comes to technologies designed to encourage conservation, so that's an example of needing more technologies.
Speaker 1:At the other side of it.
Speaker 2:We have a lot of regulations that are in place that protect existing water technologies at the cost of new water technologies. Recycling is a good example of that. We frequently, when we're developing new regulations, develop them for the technologies that we know and then, when new technologies come along, frequently doesn't fit and that can be a drag on the development of new technologies. I'll just give you one again just personal example.
Speaker 2:At Stanford about 20 years ago we built a new building for environmental studies. It's called Y2E2. And when we built Y2E2, we were trying to build a building that minimized energy use and minimized water use, and one new technology at the time was waterless urinals and we thought, okay, we're going to put one of those in, or we're going to put those in all of the bathrooms in the building. And then we found out that no, it actually violated county regulations and we negotiated with the county and finally we're able to get the county to agree that we could put one waterless urinal in each bathroom. So to this day in Y2E2, you go into the men's bathroom and you'll find four regular urinals and one waterless urinal. Right, that's sort of regulatory barrier that we need to remove.
Speaker 1:The government says you shall use water and lots of it, boy. Lots of thoughts as you talk about that. Lots of thoughts, I think, even one potential regulation that's been kind of evolving. Let me ask about two issues. One is there is a movement I think it's only in two states now, but there is a law referred to as the Water Quality Accountability Act and, among other things, it requires water utilities drinking water utilities to adopt asset management planning techniques as well as providing for cybersecurity protections, and I'm being very broad here.
Speaker 1:But that is an example where perhaps government regulation, depending on where you stand, could be a bad thing.
Speaker 1:But it is driving innovation and perhaps even back to your first policy recommendation, it may be driving consolidation, where some of these smaller systems are probably saying, hey, I don't think we have the capacity to do this stuff, why don't we just take our system and merge with our neighbor or sell to a private system?
Speaker 1:So there's regulation driving some innovations in the marketplace that may lead to some utilities saying we just don't have the time and the money to do this, we're going to maybe consolidate, and so that's one example, but the other might be connected to the regulation concerning the human right to water, which has some surreptitious connections to, perhaps, environmental justice. But as this notion of the human right to water gets debated, discussed, it gets adopted in certain jurisdictions across America. That could be both a problem solver as well as, maybe, a problem creator, as we think about what in the world does this regulation mean, if it's more than just a policy? But could this create challenges where my new plant may not be able to be located in a particular area it has to go somewhere else which increase the costs of constructing and operating that system, which may be passed along to customers who are struggling to pay their water bills? To begin with, is that a fair, maybe unintended, consequence of at least this human right to water regulatory framework?
Speaker 2:So I think that any time that you need to worry about a new issue, it can make the traditional way in which you go about doing things, or even improvements designed to accomplish a different goal, more difficult. Right, so you know. I'll switch out of the water field for a moment to the climate field. You know there are a variety of climate policies which are made more challenging and more difficult by the need to consider environmental justice. Yeah, and then that goes with the issue, but it doesn't justify saying, well, okay, then we're not going to worry about environmental justice or we're not going to worry about the human right to water. Those are key issues that we just have to figure out how to accomplish, even if it comes at a cost to something else. Yes, yeah, and I think those can also lead to, sometimes to innovations. Yeah, yeah, the need to meet the human right to water can encourage an inclining block rate structure for water.
Speaker 2:Where, as I mentioned earlier, what Stanford does, where I get charged more per gallon as I use more and more water, yeah, that helps address the human right to water, because, for somebody who's not using very much water, south Africa has an inclining block rate structure in some locations where the first amount of water is free, but you still have that inclining block rate, so that people who are using a lot have a real incentive to conserve. Well, that's an innovative approach to structuring water rates that, again, the human right to water can help drive.
Speaker 1:In some scenarios, when you think about the private water sector, they may favor a regulation as opposed to a general policy recommendation because it will require them under civil penalties, threat of civil penalties, to adopt certain requirements, whether it be water quantity related or water quality related, cybersecurity related, and those costs then, either from an increasing rates in a municipality or increasing rates through a public utility commission for a private utility, those costs can be justified and then passed along to customers as opposed to simply adopting something that is not prescribed by law. So there's kind of that double-edged sword there, because eventually once you implement those innovations, there's a cost to that. They get put into the customer's bill and sometimes those environmental regulations etc take time to adopt and implement and customers sometimes forget about that, that they voted for those things, they wanted those things, and here it comes in the bill another $5 a month because you voted for this new water quality regulation or such and such. So I've kind of seen that and experienced that myself and sometimes be careful, what you wish for you may get it. Sometimes that can be both a good thing and a bad thing.
Speaker 1:So often it's tied to your kind of opening comment, I believe, on. Some people think water is free, and that may not always be the case, so the perception. But I think your comments, though, regarding the human right to water and its implications really ties to your third policy recommendation, which is what are these current or even emerging ethical obligations of businesses, and are they real? Or is this what's the term, greenwashing? How will these emerging ethical obligations or commitments by the business world help us in the next 10 to 20 years in the world of water? Will we see opportunities, benefits, or is this just a bunch of window dressing? Your thoughts.
Speaker 2:Yeah. So the third recommendation of my book, as you know, is to really encourage all the companies that have a significant role in water management to number one, adopt a set of policies designed to protect the public interest in water and not only to adopt those policies but then to implement those policies and the notion and maybe I'm naive here, but it's that the private sector does have a really important role to play in water management but that if you are a company or you're thinking about starting a new company in the water field and you want to be successful, you have to recognize that you are operating in a sector vested with significant public interest. And if you don't do that, that is going to make your business more challenging and you are much less likely to be successful.
Speaker 2:So to some degree it's a plea to all the business people reading the book to really take the public interest in water seriously Now I recognize that the profit motivation can sometimes lead companies to go astray, and I'm sure there's a variety of a number of your listeners who are thinking right now Lee and Slym will go astray a lot. But at least what I talked to the people in the private sector these are people who, yeah, they want to be able to make a living out of what they're doing, but in addition to that, they really want to make a difference in the water field, just like the public managers want to make a difference in the public field. There's a growing number of B-corp, so benefit corporations in the water field or water companies that are now qualifying themselves in as B-corp. So I think that the water sector can meet this need. But I recognize, yeah, it's sometimes difficult and that's why, going back to the regulatory point, we do need government to be in there regulating businesses.
Speaker 1:Yeah, I think you make a good point. When I think about ethical obligations first, I think it's probably one of the most significant policy recommendations you have. That's my opinion. But what happens when people say, well, who's ethics right? Or many in our culture might say, well, that's your truth. What are the ethical obligations of business?
Speaker 1:I think that it could be just public water utilities, private water utilities signing up for, say, the CEO water mandate, as you highlight in your book. What about the water entrepreneurs or the water investors? Are they going to be signatories or adopters of these and other future ethical frameworks? Will it become a situation where there really isn't much traction or the ethical precepts aren't really adopted by people because they don't really view some of these precepts as an ethical framework they share? And so now you're back to your other policy recommendation, which is more government regulation.
Speaker 1:Well, if we can't all decide on what's true and what's ethical, well, we'll have the government establish those elements and require it, and I think that's what I heard you discuss a bit about this. I see that, perhaps with the Securities and Exchange Commission and other federal administrative agencies putting ethical frameworks into proposed regulations, and perhaps that might be a future of water, where we see more and more federal regulation, not just on a technical side but on some other more leadership and management, governance elements that maybe we're not considering today, but in 20 years they may become the talking points that we're really addressing. Is that fair?
Speaker 2:Yeah, I think that's all of that's fair. And again, I believe that we're going to see an evolution, a revolution in this area, where private companies are going to see that taking ethical obligations in the waterfield seriously is not only the right thing to do, but it's also the business thing to do.
Speaker 2:If you are a private water supplier and you want to. You want a particular city to enter into a contract with you where you're supplying water to that city. If you're not willing to show that you are going an extra mile to meet the human right to water, I think you're going to be a lot less likely in the future to get a contract with that city. And so I see all of these things coming together in a way which will motivate businesses to do what they should be doing.
Speaker 1:Yeah, comes down to trust and your brand and your reputation. Are you customer-centric? Final policy recommendation is the need for a stronger public private collaboration. And tell me what you mean by that and give me one idea that you have on what will be the most significant public private collaboration in the next 10 to 20 years.
Speaker 2:So what I've meant and it's sort of a global recommendation if you talk to the private businesses that are successful today in the water field, they will tell you that they are successful in significant part because they have worked actively with the public sector.
Speaker 2:And it's the ones that assume that a private business can take its innovation and its efficiency and go out there and be successful all by itself. Those are the ones that don't succeed. And so the last part of it is really that if you are a private company in the water field, you need to collaborate actively with the government to be successful, and that, looked at on the other side, if you are a public entity, you need to recognize all of the potential innovation and efficiencies that you can gain from the private sector and collaborate with the private sector, because if you are a public for example, water supplier and you don't work actively with the private companies, you are losing out on a lot of opportunities. So it's really just a straightforward statement to both the public sector and the private sector you folks do, and if you do, you can solve the crisis. If you don't work together, you are not going to solve the water crisis.
Speaker 1:And you're not just merely talking about private water utility working with the local community. You're talking about the entrepreneurs and innovators that are making the new widgets or the new software, even the investors who may offer unique products to communities in need. That's across the board. Is that fair?
Speaker 2:That's absolutely right. So there's a water recycling company in the San Francisco Bay Area, a great company called Epic Clean Tech, and what they do is they design water recycling for large buildings, large apartment complexes, large commercial complexes. And if you talk to them, they will say they've been successful because they've gone in and worked with the cities and talked to the cities about, okay, how do we work in this particular sector in New York City in order to be successful and what do you think we should be doing? And it's that type of collaboration where, if you're a technology company, you're asking for the advice of those public water suppliers, or you are going in and talking to the local planners, or you're talking to the state about its technological regulations. You need to have those types of connections in order to be successful.
Speaker 1:Yeah, it's not simply. Here's my solution. Let me push it down to you. It's let me get to know you, let me get to understand your particular needs and let's see if I have a solution that I can craft to help you reduce that pain.
Speaker 2:Fair enough, Absolutely, and you know the reason why I think I focused on that is not only is that probably the ultimate message of liquid asset, but if you look at what I think is one of the most successful examples of this type of collaboration out there, it's in Singapore, where Singapore, which has only a very small native water supply system, really actively embraced the private sector to help develop the technologies that Singapore needs in order to meet its water needs, and in the process, they've created a huge water sector which now, if I remember correctly, it supplies about $2 billion revenue to the city of Singapore, the nation of Singapore, and employs like 14,000 people. So there you had, this great public private partnership that helped Singapore meet its needs and created this vibrant technology sector, which not only helps Singapore but is now helping the rest of the world.
Speaker 1:Liquid asset. How business and government can partner to solve the freshwater crisis. Professor Thompson, your book is highly regarded. I encourage everyone to pick up a copy, review it carefully and engage meaningfully in not just each chapter, but also the four policy recommendations that you outline in your book. I think it will be good fodder for how we envision a better future of water over the next 10 to 20 years and certainly how the business world and the government can collaborate meaningfully concerning solutions that will provide adequate supplies of clean drinking water for our homes and our businesses. Professor Thompson, I want to thank you for being a guest today on the Water Foresight podcast, and how can folks reach you if they have questions or even they want to pick up a copy of your book? How can they do that?
Speaker 2:Now picking up the copy of the book is probably the easiest thing. It's sold everywhere and, in terms of getting in touch with me, I always welcome emails. My Stanford email is buzztvzzt at stanfordedu. And, matt, I just want to say it has been a pleasure being on your show.
Speaker 1:Well, it's a privilege to have the opportunity to talk to you, and your wisdom is something that everyone should consider as they think about the future of water. Thank you for listening to the Water Foresight podcast powered by the Aqualars Group. For more information, please visit us at aqualarascom or follow us on LinkedIn and Twitter.
