AnnouncementsAnnouncements
Final Exam, Friday June 8, 8:30Final Exam, Friday June 8, 8:30--11:30 11:30 in Annenbergin Annenberg
Next lecture (Wednesday): Sustainability, Part INext lecture (Wednesday): Sustainability, Part I
Issue # 1: How Should the Issue # 1: How Should the Government Allocate Water?Government Allocate Water?
Water AllocationWater Allocation
What are the characteristics of a good What are the characteristics of a good water allocation system?water allocation system?
Riparian Rights SystemRiparian Rights System
Water must be:Water must be:
Used on land that boarders the water source Used on land that boarders the water source Used within the watershedUsed within the watershedPut to Put to ““reasonablereasonable”” useuse
Prior Appropriation SystemPrior Appropriation System
Water must be:Water must be:
UnappropriatedUnappropriated ((““First come, first servedFirst come, first served””))DivertedDivertedPut to Put to ““reasonable and beneficialreasonable and beneficial”” use use
(No waste)(No waste)
PermittedPermitted
A prior appropriation permit specifies:A prior appropriation permit specifies:
How muchHow much water will be divertedwater will be divertedWhereWhere it will be divertedit will be divertedWhatWhat water will be used forwater will be used forWhereWhere it will be usedit will be usedWhenWhen it will be usedit will be used
Prior Appropriation Doctrine:Prior Appropriation Doctrine:The Basic Western LawThe Basic Western Law
No FeeNo Fee
Does Not Matter Where UsedDoes Not Matter Where Used
““Reasonable and Beneficial UseReasonable and Beneficial Use””No wasteNo waste
First Come, First ServedFirst Come, First Served
No Quantitative LimitNo Quantitative Limit
Historically Difficult to TransferHistorically Difficult to Transfer
So What Do You Think of So What Do You Think of Prior Appropriation?Prior Appropriation?
Encourages early and large withdrawalsEncourages early and large withdrawalsLittle likelihood that water will go to the most Little likelihood that water will go to the most efficient useefficient useLittle incentive to conserveLittle incentive to conserveInefficient allocation of water during droughtsInefficient allocation of water during droughts
A & D keep all their waterA & D keep all their waterB loses all of its waterB loses all of its waterBut 1But 1stst units of water probably more valuable than lastunits of water probably more valuable than last
The Importance of The Importance of Water OrganizationsWater Organizations
Municipal SuppliersMunicipal SuppliersCity agenciesCity agencies
Public utilitiesPublic utilities
Agricultural SuppliersAgricultural SuppliersIrrigation districtsIrrigation districts
Water districtsWater districts
Typical Pricing StructureTypical Pricing Structure
Virtually always average costVirtually always average costNever marginal costNever marginal costE.g., if existing water costs $200 per E.g., if existing water costs $200 per afaf and and adding 25% more will cost $400 per adding 25% more will cost $400 per afaf ……
All will be charged $240 All will be charged $240 (.8 x $200) + (.2 x $400)(.8 x $200) + (.2 x $400)
Often flat rateOften flat rateNo meteringNo metering
Often subsidizedOften subsidizedE.g., property taxesE.g., property taxes
SusidiesSusidies::Federal Reclamation ProgramFederal Reclamation Program
50 year, zero50 year, zero--interest interest loanloan
Cross subsidizationCross subsidizationIrrigationIrrigation
Flood controlFlood control
RecreationRecreation
Total Cost: $100 million
$50 million$15 million
$35 million
SusidiesSusidies::Federal Reclamation ProgramFederal Reclamation Program
50 year, zero50 year, zero--interest interest loanloan
Cross subsidizationCross subsidizationIrrigationIrrigation
Flood controlFlood control
RecreationRecreation
Energy subsidiesEnergy subsidies
Final price < 20% real cost
Environmental Externalities: Environmental Externalities: Changing the Changing the HydroscapeHydroscape
Public Policy Responses to the Public Policy Responses to the Environmental ExternalitiesEnvironmental Externalities
Judicial ResponsesJudicial ResponsesPublic trust doctrinePublic trust doctrine
Mono LakeMono Lake
Regulatory ResponsesRegulatory Responses““Public interestPublic interest”” test in test in issuing permitsissuing permits
““WithdrawalsWithdrawals””
Endangered Species ActEndangered Species Act
TaxesTaxes
Allocating Groundwater:Allocating Groundwater:A Renewable/A Renewable/DepletableDepletable ResourceResource
The Problems of The Problems of OverdraftingOverdrafting
Groundwater DepletionGroundwater Depletion
Salt Water IntrusionSalt Water Intrusion
The Problems of The Problems of OverdraftingOverdrafting
Groundwater DepletionGroundwater Depletion
Salt Water IntrusionSalt Water Intrusion
Lower Water TablesLower Water TablesIncreased energy costsIncreased energy costs
The Problems of The Problems of OverdraftingOverdrafting
Groundwater DepletionGroundwater Depletion
Salt Water IntrusionSalt Water Intrusion
Lower Water TablesLower Water TablesIncreased energy costsIncreased energy costs
Surface SubsidenceSurface Subsidence
The ProblemsThe Problemsof of OverdraftingOverdrafting
Groundwater DepletionGroundwater Depletion
Salt Water IntrusionSalt Water Intrusion
Lower Water TablesLower Water TablesIncreased energy costsIncreased energy costs
Surface SubsidenceSurface Subsidence
DesertificationDesertificationOasesOases
The ProblemsThe Problemsof of OverdraftingOverdrafting
Groundwater DepletionGroundwater Depletion
Salt Water IntrusionSalt Water Intrusion
Lower Water TablesLower Water TablesIncreased energy costsIncreased energy costs
Surface SubsidenceSurface Subsidence
DesertificationDesertificationOasesOases
Surface water lossSurface water loss
The ProblemsThe Problemsof of OverdraftingOverdrafting
Groundwater DepletionGroundwater DepletionSalt Water IntrusionSalt Water IntrusionLower Water TablesLower Water Tables
Increased energy costsIncreased energy costs
Surface SubsidenceSurface SubsidenceDesertificationDesertification
OasesOases
Surface water lossSurface water lossBiodiversity lossBiodiversity loss
Groundwater Allocation SystemsGroundwater Allocation Systems
Rules with No Limitations on OverdraftsRules with No Limitations on OverdraftsRule of Absolute OwnershipRule of Absolute Ownership
Rule of Reasonable UseRule of Reasonable Use
Rules with CapsRules with CapsPrior AppropriationPrior Appropriation
CaliforniaCalifornia
But No Effective EnforcementBut No Effective Enforcement
The Result:The Result:Groundwater DepletionGroundwater Depletion
National Groundwater ResourcesNational Groundwater ResourcesRecharge: 60 Recharge: 60 bgdbgd
Extraction: 75 Extraction: 75 bgdbgd
25% of Western Aquifers Being Mined25% of Western Aquifers Being Mined
Solving the Problem of Groundwater Solving the Problem of Groundwater OverdraftingOverdrafting
Import WaterImport WaterCaliforniaCalifornia’’s Central Valley Projects Central Valley Project
Directly Restrict Groundwater WithdrawalsDirectly Restrict Groundwater WithdrawalsEdwards Aquifer AuthorityEdwards Aquifer Authority
Endangered Species ActEndangered Species Act
Taxes and SubsidiesTaxes and Subsidies
Meeting the Water Needs of the Meeting the Water Needs of the NationNation’’s Growing Citiess Growing Cities
OptionsOptions
New SuppliesNew SuppliesTraditional sourcesTraditional sources
Surface streamsSurface streams
GroundwaterGroundwater
New sourcesNew sourcesDesalinationDesalination
Recycled waterRecycled water
Demand ManagementDemand Management
Water MarketingWater Marketing
Voluntary ConservationVoluntary Conservation
Can be quite effective in Can be quite effective in domesticdomestic settingssettingsButBut
Voluntary campaigns Voluntary campaigns often require significant often require significant efforteffortEffectiveness falls off Effectiveness falls off over timeover timeUnlikely to be enough for Unlikely to be enough for efficiencyefficiency
Dispersing TechnologyDispersing Technology
Domestic distribution and Domestic distribution and subsidy programs are very subsidy programs are very effective at reducing useeffective at reducing use
Low flow toilets: 10Low flow toilets: 10--11%11%
Showerheads: 6Showerheads: 6--10%10%
Household irrigation Household irrigation technology: 11%technology: 11%
And also cost effectiveAnd also cost effective
But addresses only part of But addresses only part of the the ““wastewaste”” problemproblem
Government MandatesGovernment Mandates
Can be extremely effective Can be extremely effective during an emergencyduring an emergency
High rate of complianceHigh rate of complianceExamples:Examples:
Goleta, CaliforniaGoleta, CaliforniaMaximum allotmentsMaximum allotmentsReduced use 30%Reduced use 30%
Santa Barbara, CaliforniaSanta Barbara, CaliforniaLimited landscape Limited landscape irrigationirrigationReduced use 15%Reduced use 15%
Perceived as equitablePerceived as equitableBut often inefficientBut often inefficientAnd high administrative And high administrative costs in the long runcosts in the long run
Price ChangesPrice Changes
Prices do affect usePrices do affect useMeteringMetering
30% decline30% declinePrice increasesPrice increases
Southern California experience:Southern California experience:Santa Barbara: 10%Santa Barbara: 10%Goleta: 26%Goleta: 26%
Estimated elasticity:Estimated elasticity:--0.3 to 0.3 to --.05.05
Conservation is efficientConservation is efficientBut again means poor conserve But again means poor conserve more than richmore than rich
Low income: 5.3% declineLow income: 5.3% declineMiddle income: 2.2%Middle income: 2.2%High income: 1.1%High income: 1.1%
And politically very unpopularAnd politically very unpopular
Popularity of Alternative Popularity of Alternative Conservation ApproachesConservation Approaches
0
0.5
1
1.5
2
2.5
3
3.5
Voluntary Get More Restrict Use RaisesPrices
U.S.ColoradoCalifornia
Water MarketsWater Markets
Most Water Is in Agricultural Use Most Water Is in Agricultural Use TodayTodayWater Markets Encourage Water Markets Encourage ConservationConservation
Positive incentivePositive incentiveProvides needed capitalProvides needed capitalAdjusts automatically to changes Adjusts automatically to changes in consumptive value of waterin consumptive value of water
And Can Reallocate Water And Can Reallocate Water Voluntarily to Urban RegionsVoluntarily to Urban Regions
Also used to reallocate water Also used to reallocate water among farmersamong farmersAnd used by environmental And used by environmental groups to reallocate water to groups to reallocate water to riversrivers
0102030405060708090
100
Domestic Irrigation Mining Electric
% use
Water MarketsWater Markets
But significant political But significant political oppositionopposition
Markets benefit most Markets benefit most profligate usersprofligate users
Water users often Water users often ““hoardhoard””
Endowment effectEndowment effect
Fear of changes in rules Fear of changes in rules
The Legal Difficulties with The Legal Difficulties with Water Markets:Water Markets:
Imperial Irrigation District Imperial Irrigation District ––San Diego County Water Authority San Diego County Water Authority
Water TransferWater Transfer
Problem # 1: The Law Problem # 1: The Law ––Can IID Transfer Conserved Water?Can IID Transfer Conserved Water?
Poorly defined water rightsPoorly defined water rightsState water lawState water law
Federal contracts and Federal contracts and reclamation lawreclamation law
Special Colorado River lawSpecial Colorado River law
Junior claimsJunior claimsIID has been IID has been ““wastingwasting”” waterwater
Conflict between markets and Conflict between markets and regulationregulation
Problem # 2: Rent Seeking Problem # 2: Rent Seeking ----How How Should Revenues Be Allocated?Should Revenues Be Allocated?
FarmersFarmersTraditionally Traditionally ““allocation allocation on demandon demand””
Other voters within the Other voters within the IIDIID
Other residents of Other residents of Imperial CountyImperial County
Problem # 3: Potential Community Problem # 3: Potential Community ConcernsConcerns
Conservation versus Conservation versus FallowingFallowingEconomic StudiesEconomic Studies
ShortShort--term transfers term transfers generally have small generally have small impactimpactTransfers of <20% Transfers of <20% water supplies generally water supplies generally have small impacthave small impact
Problem #4: Is Any Water Really Being Problem #4: Is Any Water Really Being ““ConservedConserved””??
Problem #5: Problem #5: The Transportation MonopolyThe Transportation Monopoly
How Do You Get the How Do You Get the Water to San Diego?Water to San Diego?
Colorado River Colorado River AqueductAqueduct
Owned by MWDOwned by MWD
Worried about losing Worried about losing customers in customers in Southern CaliforniaSouthern California
Approaches to Water PolicyApproaches to Water Policy
1.1. New SuppliesNew SuppliesTraditional Sources (surface streams, groundwater)Traditional Sources (surface streams, groundwater)New SourcesNew Sources
DesalinationDesalinationRecycled waterRecycled water
2.2. Decrease Use (Demand Management)Decrease Use (Demand Management)Urge voluntary conservationUrge voluntary conservationGovernment mandatesGovernment mandates
RationingRationingRequired conservation equipmentRequired conservation equipment
3.3. Improve Allocation of Existing SupplyImprove Allocation of Existing SupplyWater MarketsWater Markets
Overall Use Problem
AllocationProblem
$800-1400 / af
$600-1000 / af
Currently 75 bgd flows from CA rivers. Of this, 25 bgd is withdrawn
Water Subsidies and the Overall Water Subsidies and the Overall Use ProblemUse Problem
Dpag
MCsoc
MC
qi* qi
mec
Ag District i
Water Subsidies and the Overall Water Subsidies and the Overall Use ProblemUse Problem
Dpag
MCsoc
MC
qi* qi
mec
Ag District i
Private Sector ParticipationPrivate Sector Participation
Different balances of:Different balances of:
Asset ownershipAsset ownershipResponsibility for capital investmentResponsibility for capital investmentBurden of commercial riskBurden of commercial risk
Types of PSP arrangementsTypes of PSP arrangements
Service/management contractService/management contractLeaseLeaseConcessionConcessionBuildBuild--operateoperate--transfertransferIndependent services providersIndependent services providers
Differences in Differences in Water PrivatizationWater Privatization
Country/RegionCountry/Region
Western EuropeWestern EuropeUnited StatesUnited StatesCentral/East EuropeCentral/East EuropeLatin AmericaLatin AmericaAfricaAfricaAsiaAsia
Percent Privatized (1997)Percent Privatized (1997)2020141455443311
Davis, J. Annual Reviews 2005
To Privatize or NotTo Privatize or Not
Market failure vs. Government Market failure vs. Government failurefailure
ConclusionsConclusions
1.1. Overall, water markets will help some.Overall, water markets will help some.
but political/physical limits to these markets imply that but political/physical limits to these markets imply that allocation problemallocation problem will remain significant.will remain significant.and they donand they don’’t address the t address the overall use problemoverall use problem
2.2. Some trends:Some trends:Gradual increase in metering.Gradual increase in metering.Slow trend to move from AC pricing to MC pricing.Slow trend to move from AC pricing to MC pricing.A few new water markets.A few new water markets.More invoking/establishment of laws to support More invoking/establishment of laws to support governmentgovernment’’s role in protecting s role in protecting instreaminstream needs for water needs for water (biodiversity, ecosystem function, recreation.(biodiversity, ecosystem function, recreation.