The New York Times reports that Phoenix is figuring out how to reduce the demand for water during a time when it isn’t raining. For economists who read the RBC, note that the words “water prices” are not mentioned in the article. Instead, conservation is achieved through rebates and on the supply side water is recycled. While Phoenix is often predicted to become a hell hole thanks to ongoing climate change, millions of people have chosen to live there. They have the right incentives to search for solutions to emerging challenges. I know that you are tired of hearing this but this is the optimistic message of my 2010 Climatopolis book. When Federal and global policy fails to deliver first best solutions (carbon taxes), people and local governments have the right incentives to step up to protect their day to day quality of life and to preserve home values. After all, if Phoenix’s quality of life deteriorates then the land owners in the city are the big losers. The renters can get up and go without suffering an asset loss. Green grass in Phoenix will vanish and this will sharply reduce the city’s aggregate water demand. Will the people of Phoenix suffer greatly from this single adaptation step? I don’t think so.
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