waterwater

a renewable resource: a renewable resource: the hydrological cyclethe hydrological cycle

the potential for water the potential for water scarcityscarcity

surface water (rivers lakes surface water (rivers lakes reservoirs)reservoirs)

ground water (aquifers)ground water (aquifers) 90% fresh water90% fresh water only 2.5% available on a renewable only 2.5% available on a renewable

basis basis the rest is finite / depletablethe rest is finite / depletable

accumulated through geologic time, once accumulated through geologic time, once used cannot rechargeused cannot recharge

other water issuesother water issues

quality further limits supply potable quality further limits supply potable waterwater

land subsidenceland subsidence settling / sinking of earth surface due to settling / sinking of earth surface due to

excessive withdrawals of gwexcessive withdrawals of gw

efficient allocations:efficient allocations:surface vs. groundwatersurface vs. groundwater

surface watersurface water how to allocate a renewable supply how to allocate a renewable supply

among competing usesamong competing uses intergenerational effects less important intergenerational effects less important

(future supplies depend on natural (future supplies depend on natural phenomenon, e.g. rain, rather than phenomenon, e.g. rain, rather than current allocation)current allocation)

groundwatergroundwater withdrawing now affects future supply withdrawing now affects future supply

efficient allocation: efficient allocation: surface watersurface water

1.1. balance btw usersbalance btw users• marginal net benefit equal across marginal net benefit equal across

usersusers

2.2. handle variabilityhandle variability• above-average and below-average above-average and below-average

flows must be accommodatedflows must be accommodated

efficient allocation: efficient allocation: groundwatergroundwater

if withdrawal > recharge, eventual if withdrawal > recharge, eventual exhaust resourceexhaust resource

MEC rises over time as water table fallsMEC rises over time as water table falls pumping would stop:pumping would stop:

no water leftno water left MC pumping > benefit of water or MC of MC pumping > benefit of water or MC of

backstop resource backstop resource (desalination) (desalination)

price rises over time until choke price or price rises over time until choke price or switch pointswitch point

the current allocation the current allocation systemsystem

riparian doctrineriparian doctrine early settlersearly settlers adjacent owner got rightadjacent owner got right as demand grew, less appropriateas demand grew, less appropriate diversion necessarydiversion necessary

prior-appropriation doctrine prior-appropriation doctrine gold rush / mininggold rush / mining first to arrive got rightfirst to arrive got right

usufructusufruct state ownership; right to usestate ownership; right to use federal govt took over; building dams, federal govt took over; building dams,

diverting waterdiverting water

are these efficient allocation are these efficient allocation systems?systems?

restrictions on transfersrestrictions on transfers hard to equalize marginal net benefitshard to equalize marginal net benefits

federal reclamation projectsfederal reclamation projects regional vs. national benefitsregional vs. national benefits

water pricingwater pricing both price and rate structureboth price and rate structure should account for storage, treatment, should account for storage, treatment,

distribution, and distribution, and value of watervalue of water (this often left (this often left out)out)

common property problemscommon property problems low incentives to conservelow incentives to conserve

efficient pricingefficient pricing

MC, not ACMC, not AC customer should be charged mc of customer should be charged mc of

supplying last unitsupplying last unit usually charged cost of running usually charged cost of running

operation (historical costs)operation (historical costs) no scarcity rentno scarcity rent

water inefficiently cheap; excessive water inefficiently cheap; excessive demand for waterdemand for water

potential remediespotential remedies

reduce restrictions on transfers reduce restrictions on transfers get rid of “use it or lose it” ethicget rid of “use it or lose it” ethic

water markets/ water banks to water markets/ water banks to transfer watertransfer water

getting the prices right!getting the prices right!

agricultural pricing agricultural pricing schemesschemes

agricultural pricing agricultural pricing schemesschemes

2 part: volume pricing + fixed fee2 part: volume pricing + fixed fee output pricing: linked to output not water output pricing: linked to output not water

useuse input pricing: assessed taxes on water-input pricing: assessed taxes on water-

related input (not on water itself)related input (not on water itself) block rate / tiered pricing: seasonal block rate / tiered pricing: seasonal

peaked demandpeaked demand area pricing: how much area, not how area pricing: how much area, not how

much water (mc using extra water is zero!) much water (mc using extra water is zero!)

utilities pricing: utilities pricing: uniform & declining block uniform & declining block

ratesrates(inefficient)(inefficient)

utilities pricing: utilities pricing: inverted block & seasonal inverted block & seasonal

ratesrates(potentially efficient)(potentially efficient)

US pricing structuresUS pricing structures