I think there is a lot to be said for these suggestions. So often when environmentalists come up with schemes for conserving resources, the pro-growth gallery yells "socialism, they want to steal from those who have property." In this case, market forces are used to conserve and if you don't want to conserve, that is okay as long as you pay.

The difficulty is identified at the end when Dr. Cox says that monopolies often produce a "dividend" for the government that goes straight back to the government coffers to be used which ever way the government wants. That is certainly one of the biggest obstacles in sorting out Sydney's water issues. Breaking that cycle will be very difficult because the government will certainly say that they need the revenue for schools, hospitals, etc. In that case, services will decrease or taxes will increase. Neither of these are likely to get a strong vote in any election.

A hidden tax is almost like no tax because you don't really notice it. Taxes only hurt when you notice them. Politicians know that and that keeps the hidden taxes alive and thriving. I hope some day we can get the political will to adopt strategies like Dr. Cox's.

Let's suppose I'm one of the consumers who uses less than my allocation. So I receive rewards vouchers. What will I do with them?

Well, since I can use them to pay for water, one thing I could do is use them to pay for the water I am using. This means that they'll go straight to the existing mononpoly water provider.

But let's suppose a voucher for a kilolitre of unconsumed water has some face value - call it $voucher.

But my neighbour uses more than his allocation, and pays some amount for each marginal kilolitre. Call that amount $water. If $voucher is less than $water, then rather than not consuming a kilolitre of water, it makes more sense for me to consume it, and then sell it to my neighbour for some amount less than $water but greater than $voucher. In this scenario, it's not a capital scheme, but simply a transfer of wealth from high consumers to low consumers.

Now, if $voucher is greater than $water, then I should not use any water from my meter at all, and instead buy all my water from my neighbour for an amount greater than $water, but less than $voucher. Let that amount be $exchange. Then I sell my vouchers to people who use more than their allocation for an amount greater than $exchange, but less than $voucher. Those vouchers are then used to pay for the water consumed by those people, and again end up in the hands of the monopoly provider.

In this second scenario, anyone can choose to be a non-consumer who gets vouchers, by simply buying their water from other people. The limit is reached when all the water passes through one meter, and everyone else is buying their water from that consumer. The price they pay for the water is slightly higher than the mariginal price so that that consumer gets their share of the benefit of the vouchers.

In practice, of course there are physical limitations. Nevertheless, that fact that you get this outcome in principle makes me rather sceptical of the idea.

Sylvia.

One of the most effective ways to break the Telstra monopoly is by undergrounding of power. If power lines in areas where they are currently overhead are put underground, high capacity optic fibre cables can be installed at the same time at very low marginal cost. These can then leapfrog the obsolete copper technology in short order. The same thing happened to radio valves about fifty years ago; US electronics manufacturers didn't want to lose their investment in valve technology, and so the Japanese leapfrogged them with their move to transistors and the US manufacturers went out of business. Of course nothing like this will be allowed to happen until Telstra has been privatised; nothing must affect the price the government is to receive for Telstra.

Citizens of Sydney, I expect that the Battle of Sydney is about to begin.

Upon this battle depends the survival of civilized and decent social and community welfare. Upon it depends our own Democratic way of life, and the long continuity of our institutions, of our rights and our Freedoms. The whole fury and might of the Carr Labor Government and their plutocratic backers must very soon be turned on us.

Plutopulationists, those who build populations for power and profit just for the benefit of the elite, know that they will have to break us on a 5 year moratorium on further immigration into Sydney or lose the war. If we can stand up to them, all Sydney residents may be free and the life of the city may move forward into broad, adequately watered uplands and clean ocean shores and river banks. But if we fail, then the whole city, the wider NSW, including all that we have known and cared for, will sink into the abyss of a new Dark Age made more sinister, and perhaps more protracted, by our lack of rights in the lights of perverted science.

Let us therefore brace ourselves to someone like Clover Moore, who may provide us with a 5 year moratorium on immigration, a consensus on infrastructure vis a vis immigration levels, a fair and adequate taxation scheme and a windfall immigration development profit sharing scheme and so bear ourselves that if Sydney and its commonwealth last for a thousand years, men will still say, 'This was their finest hour'.

Sylvia has missed the point of the idea.

The vouchers ARE NOT used to buy water - only to spend on systems that either save water or capital projects to increase the supply of water. This is NOT water trading. It is a method of bringing competition to who gets the capital to build water supply and conservation systems.

However, she has still misunderstood even if we allowed the vouchers to be used to purchase water. The ONLY way you can get vouchers is to consume less than your allocation. Not everyone gets vouchers and so most of the scenarios she outlines cannot occur.

Fickle Pickle,

It does seem that I've misconstrued the sentence that discusses how vouchers can be used.

However, I have not assumed that everyone gets vouchers. That is clearly not the case.

The consumer who holds vouchers can sell them to someone constructing a water supply or recycling project. The price they get will be less than the amount that the project gets when it redeems the voucher. The difference is the capital available for the project.

If there is no other mechanism to limit the redeeming of the vouchers, then I can see no reason that the price paid to the consumer will be much less than the redemption price. Competition for vouchers would see to that.

If vouchers can be redeemed only up to the capital value of the project, then the difference between the price to the consumer and the redemption price is a capital subsidy. Which is fine, but the rest of the capital has to come from somewhere else.

There are significant risks with a water project. A major one is that in future years, rainfall will increase, and the current monopoly supplier will be able to undercut the price of any other simply because their cost of water is so low.

I cannot see why any capital funding would be forthcoming for a project that is so inherently risky.

Sylvia.

Eric has pointed out the problems with the current way we allocate capital and why we need a "circuit breaker" in the allocation of capital.

Eric points out the monopoly profits from water (and the petrol tax, and other resource taxes, gambling taxes, cigarette taxes) are used as sources of revenue by governments of all persuasions and they are very addictive. A radical change to put control over capital directly in the hands of the population rather than leave it up to our bureaucrats to decide is going to be difficult to achieve and it will only come from politicians. Howevever there is some hope because there are some excellent ideological reasons for the politicians to go with it.

The economic rationalists should like it because it brings the "market" to natural monopolies albeit in an unconvential way of a market for capital rather than for goods. Those of all persuasions who want people to "save for our retirements" could see it as a way of bringing capital to consumers who behave in socially acceptable ways. Those who like the idea of an equitable society can see it as a way of distributing capital from those who want to consume to those who want to save.

The marketing sell for politicians is to work on the idea of distributing capital to those who behave in a socially responsible ways.

I will respond and agree with Sylvia but show why the scheme solves the issue she raises. Unfortunately I have used up my comments vouchers for today:)

Sylvia makes the excellent point that alternative infrastructure investment is inherently risky because the monopoly supplier can always undercut your prices. This is mainly because they have paid nothing or a very low price their capital.

The proposal eliminates this hidden advantage by making ALL groups who wish to provide infrastructure get access to capital on the same terms as the existing monopoly supplier. The rewards MUST be used for infrastructure. A person with a reward can sell it or – more likely - they can use it to get equity in the business.

This means the ownership of the infrastructure is distributed throughout the community and we get the population deciding the best way to invest money. The amount of capital available is NOT the difference in price between buying and selling but is the total amount of the reward.

The issue is the ownership of new assets purchased with monopoly profits.

People will put their rewards with the infrastructure supplier who gives them the best return. What this means is that if someone comes up with a better mousetrap they will get access to funds on the same basis as everyone else including the monopoly supplier. At the moment monopoly suppliers effectively stop all competition for alternative ways of doing things until they decide that it is in their interests to do so.

By using rewards we put the decision of what infrastructure to build in the hands of millions of participants which will result in the more efficient allocation of capital for infrastructure.

The other political issue is who gets rewards and by rewarding people who conserve and save we get a double benefit from the rewards. At the moment we reward the incumbent supplier and we reward them by encouraging the consumption of the resource be it petrol or water.

Try as I might, I still cannot see how this will work.

The original article said that the vouchers were transferable, and can be sold. In that scenario, as I've indicated, I cannot see how any benefit would accrue.

Let's assume instead that they cannot be transferred or sold, but that the only thing that can be done with them is to provide capital to some sort of water project.

There is no technology around that's capable of competing on price with the exiting monopoly provider when that provider has any water to sell. The only way the consumer is likely to get any return on their voucher is to give it to the monopoly provider in return for a right to a proportion of the future profits. It can't even be in return for equity in the provider, because that equity could be sold, thus converting the voucher into cash.

There is a more fundamental problem. There are two parts to Sydney's water infrastructure. There's Sydney Water, which distributes water to consumers, and there's the Sydney Catchment Authority. Sydney Water buys its water from the Sydney Catchment Authority.

Most of the cost of water to the consumer is the cost of delivering it through Sydney Water's pipes. Only about 20c per kilolitre is paid for the water itself.

Sydney Water is a natural monopoly, but The Sydney Catchment Authority isn't. The real problem is not the monopoly behaviour of Sydney Water, but simply that normal market functioning does not guarantee a continuing supply of any commodity whose major source fluctuates unpredictably.

To get such a guarantee, one has to look outside the market, and impose solutions that do not make finanicial sense in normal market terms.

Sylvia.

Whether it is dams or pipes the capital currently comes from money existing consumers pay and the existing suppliers of water get that money free.

If a council wants to put in a local area grey water recycling plant for watering ovals then they have to come up with the capital for the infrastructure. For such a scheme to get off the ground requires the existing monopoly suppliers to do it because they are the only ones who get free capital.

All we are doing is giving an opportunity for other bodies to compete for the money that is available. It brings competition to the use of capital. The existing monopoly suppliers could do different things but the evidence is that they don't and they go for the "big fix".

The fact that rewards can be transferrable is just an artefact to help make it all work. It does not change the idea.

The fact that people get rewards for saving water is just a way of deciding who gets the capital in a socially acceptable and equitable way.

Using the current approach Sydney will build more dams, or pump water from elsewhere or build a desalination plant and all are expensive. It IS more economic to build recycling systems or to use storm water. We just need to release the capital to make it happen.