MODULE 3:

WATER
ENVS 25
Prof. Adam Millard-Ball
Winter 2014
Source: Cartoon Church
Source: Harris & Roach 2013
WATER CONSUMPTION:
GLOBALLY
US one of the higher per-
capita consumers
40% of US water used for
agriculture
Globally, >750 million do
not have safe drinking water
But trends are positive
Millennium Development
Goal met
6000
5000
4000
3000
2000
1000
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97%
79%
40%
88% 63% 77%
90% 12% 20% 65% 1% 55% 4%
38%
Percentages show the portion of
total water consumption used for
agricultural purposes.
Figure 15.3: Water Consumption per Capita, Select
Countries
Source: Food and Agriculture Organization, Aquastat database. http://www.fao.org/nr/water/aquastat/main/index.stm.
Water Consumption Per Capita
1
2
3
Source: waterfootprint.org
WATER CONSUMPTION
AROUND THE WORLD
OUTLINE OF MODULE
Water rights and the development of the West
Water in a supply and demand framework
Water policy in Santa Cruz
Demand management: water conservation
228 Part II New Directions for a Changing Future
Creating and enforcing an approved (white) list for pet, aquaculture,
and bait organisms allowed for sale; permissible organisms would lack
characteristics of successful invaders (Moyle and Marchetti 2006); and
Creating an invasive species response team, with DFG as the lead
agency, to react quickly to new, potentially harmful invasions,
modeled on the oil spill response team; the team would require
regular funding and sufcient authority to rapidly act when needed
(California Department of Fish and Game 2008).
Reducing the Negative Eects of Dams
California has thousands of dams and diversion structures, each one contribut-
ing to loss of aquatic ecosystem function in some way. Te dams range from
small earthen dams on seasonal waterways, which create ponds for local use, to
large dams, such as Shasta and Oroville, which are central to Californias water
supply system. Dam construction on free-fowing streams began in California
in the 1850s, accelerated during the late 19th century in response to demands
of hydraulic mining and logging, and peaked from 1900 to 1982 as irrigated
agriculture and urban areas developed (Yoshiyama, Fisher, and Moyle 1998)
(Figure 5.4).
Figure 5.4
Dam construction increased rapidly during Californias Hydraulic Era
SOURCE: Authors calculations using data fromthe California Department of Water Resources Division of DamSafety.
NOTES: The gure shows damconstruction and storage capacity from1870 to 2000. Of dams built between 1850 and 1869, only
17 exist today, with a total storage capacity of 0.034 maf.
Storage capacity
Number of dams
35
W
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r
s
t
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a
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c
a
p
a
c
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y
(
m
a
f
)
1940 1910 1900 1890 1870 1990 1980 1970 1960 1880 1930 1950 1920 2000
40
30
25
20
15
10
5
45
0
1,000
N
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b
e
r
o
f
d
a
m
s
1,200
800
600
400
200
1,400
0
CITIES IN THE DESERT
Global examples:
Phoenix, Dubai,
Lima, Cairo
Depend on dams,
aqueducts, groundwater
or desalination
Cities can capture precipitation
from an enormous area
Early 20th century era of
large-scale dams
Source: PPIC 2011
4
5
6
Source: Jay Lund
CALIFORNIAS
POPULATION: WATER MISMATCH
Source: LA Dept. Water & Power
LARGE-SCALE WATER
PROJECTS IN CALIFORNIA
Los Angeles growth due to the
Los Angeles Aqueduct
Took water from Owens
Valley (and later, beyond)
Major state and federal dams
and aqueducts
Colorado River dams
Central Valley Project
State Water Project
CENTRAL VALLEY PROJECT
Began in 1930s
Initiated by state; taken over
by US Bureau of Reclamation
Moves water from north to
south through the Delta
Illustrates many issues
Desire to conquer nature
Pork-barrel politics
Water rights and pricing
Source: Scott-Goforth 2013
7
8
9
WHO HAS THE RIGHT TO
WATER?
Water is fundamentally a common-pool resource
Open-access
Overuse imposes costs on others (and the environment)
Regulation seeks to avoid the tragedy of the commons
Water rights is the main framework in the U.S.
Similar to Hardins privatization option
A way of dividing up a limited resource
Some sources (e.g. groundwater in most of CA) unregulated
WATER RIGHTS
Prior appropriation rights
(most of Western US)
Based on when a
benecial use rst occurs
Use it or lose it
Riparian water (Eastern US)
Based on who owns the
adjacent land
California is a mix of the two
Source: CA Legislative Analyst
Source: CA Legislative Analyst
IMPLICATIONS OF WATER
RIGHTS
Rights often exceed supply
Senior holders get priority
Wet water: delivered
Paper water: right to
water that does not exist
Senior rights holder tend
to be agricultural, cities
usually have junior rights
Complicated by federal/state projects
10
11
12
California Water Today 77
Water Sources: Local, Imported, Mined, and Reused
California supplements water supplies available from in-state precipitation
with imports from other states, groundwater mining, and some recovery of
wastewater and brackish water following intensive treatment. In addition,
available water supplies exceed the amounts fowing into the state because of
natural reuse, as excess irrigation water (the amount not consumed by crops)
and treated urban wastewater become available for use by others afer being
returned to streams (Box 2.1).
Figure 2.4 shows the relative importance of these sources in total usable sup-
plies for agricultural, environmental, and urban uses. Overall, more than 80 per-
cent of the initial total (before reuse) is derived from local and out-of-state streams:
Tree-quarters of these surface fows are from local projects and diversions
and roughly one-quarter are from the state and federal projects. About 18 per-
cent of the initial total is supplied by groundwater. Natural reuse constitutes
roughly one-quarter of gross supplies (almost half of all groundwater pumping
Figure 2.4
California employs a diverse portfolio of water sources for agricultural,
environmental, and urban water uses
SOURCE: California Department of Water Resources (2009).
NOTES: The gure shows sources of gross water supplies, 19982005 average. Total water supply is
83 maf per year. Total does not sumto 100 percent because of rounding. SWP = State Water Project.
CVP = Central Valley Project.
Local surface
water deliveries
(45%)
Local imported
deliveries
(1%)
CVP
deliveries
(9%)
Other
federal
deliveries
(1%)
SWP deliveries
(3%)
Reused
surface water
(17%)
Net groundwater
withdrawal
(10%)
Groundwater recharge
(8%)
Recycled water
(0.3%)
Colorado
River
deliveries
(6%)
WATER: SUPPLY SIDE
Groundwater (fossil or
recharged)
Surface ows
Recycled water
Desalination
What is the supply problem?
Overall amount of water?
Storage capacity?
Supply of cheap water? Source: PPIC 2011
Source: Fish and Wildlife Service
BACK TO THE ENDANGERED
SPECIES ACT
Endangered Species Act has
forced reduction in water
deliveries through Delta
Takes precedence over water rights
Court rulings on water deliveries
Bay Delta Conservation Plan HCP
Key species: Delta smelt, Chinook
salmon
Still controversial
OUTLINE OF MODULE
Water rights and the development of the West
Water in a supply and demand framework
Water policy in Santa Cruz
Demand management: water conservation
13
14
15
SUPPLY AND DEMAND FOR
WATER
Different users have different
marginal willingness to pay
Demand curve slopes down
Residential and urban uses
usually have higher WTP
Quantity
(million gallons)
P
r
i
c
e
Demand
High
willingness to
pay (mostly
residential)
Low WTP
(mostly
agriculture)
92 Part I California Water
Table 2.3
Water use, revenues, and value of water by major crop categories, 2005
Crops
Gross water
(%)
Net
water
(%)
Gross
revenues
(%)
Irrigated
acres
(%)
Gross
revenues/
gross water
($/af)
Gross
revenues/
net water
($/af)
Irrigated pasture 12 11 0.4 9 31 47
Rice 10 9 2 6 127 223
Corn 7 7 1 7 176 258
Alfalfa 18 18 4 12 200 287
Cotton 7 8 3 7 416 551
Other eld crops 8 8 3 13 375 573
Fruits and nuts 27 29 44 30 1,401 1,875
Truck farming and
horticulture 10 10 42 16 3,724 5,363
SOURCES: Authors calculations using data provided by DWR sta. Revenue information draws on California Agricultural Statistics
and county agricultural commissioner reports.
NOTES: Gross water use = 27.3 maf, net water use = 18.9 maf; crop revenues from irrigated agriculture = $23.9 billion (2005 $);
irrigated crop acres (including multiple cropping) = 9.2 million acres. In addition to eld corn, corn acreage and water use
includes some sweet corn, which is included in the value estimates for truck farming. Truck farming and horticulture includes
assorted vegetables, some fruits (e.g., melons), owers, and nursery products. Fruits and nuts includes all fruit and nut tree
crops plus berries.
of net water used, whereas fruits and nuts (mostly tree crops) average close to
$2,000/acre-foot. Within these aggregate categories, the values of some crops
are much higher (e.g., high-quality wine grapes sell for much more than table
grapes or nuts), and these values also vary with world market conditions (e.g.,
rice and wheat prices have been higher in recent years because of drought in
Australia and Russia, respectively). Also, some of the lowest-value crops (nota-
bly pasture and alfalfa) are inputs into the states meat and dairy production
activities, which generate about a quarter of total agricultural revenues. But
the general picture is one of striking contrasts, especially if one considers the
volumes of water allocated to diferent commodities; irrigated pasture and all
feld crops combined accounted for 61 percent of net water use and only 14 per-
cent of gross crop revenues.
Although such simple comparisons do not refect the complexities of needs
for crop rotations and the use of low-value crops for high-value livestock, there
still appears to be a considerable volume of low-value agricultural water use in
an increasingly parched California. As discussed below, these low-value activi-
ties potentially provide the state with some fexibility to cope with droughts
VALUE OF AGRICULTURAL IRRIGATION
VARIES CONSIDERABLY
Source: PPIC 2011
SUPPLY AND DEMAND FOR
WATER
Different users have different
marginal willingness to pay
Demand curve slopes down
Residential and urban uses
usually have higher WTP
Different sources of supply
have different costs
Supply curve slopes up
Supply curve can shift
Quantity
(million gallons)
P
r
i
c
e
Supply
(normal
year)
Low marginal
cost (e.g.
groundwater)
High
marginal
cost (e.g.
desal)
Supply
(dry
year)
16
17
18
IF WATER WERE A
COMPETITIVE MARKET....
Water would ow to users with
highest willingness to pay
Much lower-value agriculture
would cease
Price would ensure that market
clears (supply = demand)
Price would increase in dry
years reduces demand
No physical shortage!
But none of this happens in practice...
Quantity
(million gallons)
P
r
i
c
e
Demand
Supply
(normal
year)
Normal yr price
Users not
willing to pay
Supply
(dry
year)
Dry yr price
California Water Today 99
Table2.4
Household water and wastewater costs in the mid-2000s (2008 $)
Region
Average
yearly
gross water
use (af)
Average
water price
($/af)
Average
monthly
water
bill ($)
Average
monthly
wastewater
bill ($)
Water and
wastewater
bills as a
share of
median
income (%)
San Francisco Bay Area 0.37 1,190 36 31 1.07
Central Coast 0.38 1,857 59 28 1.68
South Coast 0.58 985 48 23 1.46
Inland Empire 0.59 748 36 18 1.28
Sacramento Metro Area 0.49 789 32 26 1.23
San Joaquin Valley 0.63 545 29 19 1.26
Rest of state 0.47 886 35 25 1.78
California 0.52 959 42 24 1.36
SOURCES: Authors calculations using data fromBlack and Veatch (2004, 2006) for water and wastewater rates and the U.S. Census
for household incomes.
NOTES: The table reports charges for single-family households. Water rates are for 2006; wastewater rates are for 2004; both are
converted to 2008 dollars using the consumer price index. The sample includes 443 water service areas and 560 wastewater
service areas. The considerable regional variation in water prices reects dierences in local infrastructure and water supply
costs. The regional breakdowns here are based on counties and dier slightly fromthe hydrologic regions in Tables 2.1 and 2.2.
Communities in the Inland Empire (Riverside and San Bernardino) are located in the South Coast, the South Lahontan, and the
Colorado River regions. San Joaquin Valley includes the San Joaquin River and Tulare Basin regions. Rest of state includes rural
counties in the Sacramento River region, the North Coast, and the North Lahontan regions.
Environmental water: an undervalued resource
Environmental fows, healthy watersheds, and the services they provideofen
known as ecosystem servicesadd economic value to California (Box 2.3).
However, these benefts are ofen not readily apparent because the market does
not generally put a price on them (National Research Council 2005; Brauman
et al. 2007; Daily et al. 2009). As a result, the value of ecosystem benefts is
overlooked in many cost-beneft analyses used to evaluate water investments.
Te failure to consider environmental values has contributed signifcantly to
the degradation of aquatic ecosystems (Introduction, Chapter 5).
Although new tools are emerging to estimate the economic values of
ecosystem services, such valuation is not without challenges (Boyd and
Banzhaf 2006). Te difculties stem, in part, from the diferent methods
of valuation that must be used to compare services (Freeman 2003). Some
commodities produced by freshwater ecosystems, such as produce and fsh,
have easily identifed market values. For instance, in 2007, fsheries and
BUT WATER MARKET IS
DIFFERENT...
No charge for water itself just
for storage, transport, treatment
Different users pay different prices
Av. $960/acre foot for urban users (treated)
$600-$800/acre ft for coastal SoCal farmers
$8-40/acre ft in Imperial Co.
Average-cost pricing is common
Prices do not vary with supply
Physical restrictions, not pricing
Source: PPIC 2011
Source: Emily Bookstein
DIFFERENT PRICES CREATE TRADING
POSSIBILITIES
19
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21
APPROACHES TO WATER
PRICING
Subsidized
Needs money from elsewhere
(e.g. federal government)
Quantity
P
r
i
c
e
Supply
Demand
Subsidized
price
Qsubsidized
APPROACHES TO WATER
PRICING
Subsidized
Average cost
AC = total cost quantity
Last units are loss-making
Total prot is zero
Often used by regulated
utilities and public agencies
Quantity
P
r
i
c
e
Supply
Loss
Demand
Average cost
price
QAC
Prot
APPROACHES TO WATER
PRICING
Subsidized
Average cost
Marginal private cost
MC = MB
Same as competitive market
The Invisible Hand
Efcient outcome (with no
externalities)
Rarely done (for water)
Quantity
P
r
i
c
e
Supply
Demand
Price MCprivate
QMCprivate
22
23
24
APPROACHES TO WATER
PRICING
Subsidized
Average cost
Marginal private cost
Marginal social cost
Accounts for externalities
costs that do not fall on buyer
or seller. E.g. sh extinctions
Achieves socially efcient
outcome
Even more rarely done
Quantity
P
r
i
c
e
Supply
(private
MC)
Demand
PriceMCsocial
QMCsocial
Social (= private
+ external) MC
Externality
APPROACHES TO WATER
PRICING
Subsidized
Average cost
Marginal private cost
Marginal social cost
Increasing block rate
Subsequent usage blocks are
charged at higher rate
Way to favor essential uses
Opposite: decreasing block rate
P
r
i
c
e

p
e
r

U
n
i
t

Quantity of Water Used
Uniform Rate Structure
P
r
i
c
e

p
e
r

U
n
i
t

Quantity of Water Used
Increasing Block Rate Structure
P
r
i
c
e

p
e
r

U
n
i
t

Quantity of Water Used
Decreasing Block Rate Structure
Figure 15.7: Water Pricing Structures
Source: Harris and Roach 2013
WHY PRICES MATTER
Higher prices encourage less use
Residential water price elasticities:
-0.3 to -0.7
Price elasticity of demand =
% change in Q % change in price
E.g. 10% increase in price
-> 3-7% decrease in demand
Equity impacts
Low-income households
Rural vs urban interests
Quantity
P
r
i
c
e
Elastic
demand
Inelastic
demand
Supply
p0
p1
Q0
25
26
27
KEY ECONOMIC CONCEPTS
Competitive equilibrium
Optimal place to be (with no externalities)
Socially efcient outcome
Optimal place to be (considering externalities)
Externalities
Costs that do not fall on buyer or seller
Related to Tragedy of the Common
Drive a wedge between private and social costs
OUTLINE OF MODULE
Water rights and the development of the West
Water in a supply and demand framework
Water policy in Santa Cruz
Demand management: water conservation
Source: City of Denver/LBNL
MEGAGALLONS VS
NEGAGALLONS
Education/Voluntary measures
Rely on peoples goodwill
Social pressure
Regulation
Building standards (e.g. CalGreen)
Agricultural irrigation
Certication programs (e.g LEED)
Financial incentives
E.g. Landscaping, xtures
28
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30
California Water Today 97
Figure 2.12
Landscaping accounts for at least half of gross urban water use
SOURCE: California Department of Water Resources (2009).
NOTES: The total (8.3 million acre-feet) excludes conveyance losses and active groundwater recharge.
Water for landscaping uses include residential exterior, large landscapes (e.g., parks, golf courses,
cemeteries), and a portion of commercial and industrial water use.
value, because of high potential for revenue and job losses with cutbacks, but
it accounts for only about 6 percent of total urban use. Preventing shutdowns
of chip manufacturing and other water-intensive industries was an important
impetus of the emergency drought water bank that the state established during
the prolonged drought of the late 1980s and early 1990s (California Urban
Water Agencies 1991).
Te value of water and the costs of cutbacks, while substantial, is harder to
measure in most other urban uses. Water is important for businesses involved
with large landscape water uses, e.g., golf courses, as well as for businesses relying
on household water use, such as landscaping frms and swimming pool vendors.
Tese businesses ofen can use less water without losing revenues, although this
ofen requires some changes in the business (e.g., switching from lawn mainte-
nance to installing low-water-using gardens). Water shortages primarily generate
costs to end users, in terms of either new equipment (e.g., more water-efcient
plumbing, which provides similar service while using less water), or inconve-
nience (e.g., taking shorter showers, letting lawns go brown, or leaving pools
empty). Economists measure these noncommercial values of urban water in terms
Industrial
(6%)
Commercial
(13%)
Energy
(2%)
Residential,
interior
(32%)
Residential,
exterior
(37%)
Large landscape
(10%)

WHY DONT WE CONSERVE
MORE WATER?
Building stock takes time
to turn over
Diminishing marginal returns
Public acceptability
e.g. toilet to tap
Impact on water rates
Income and other constraints
Fundamentally, externalities are difcult
to overcome with voluntary programs
Source: PPIC 2011
Source: Cal-Adapt
THE FUTURE?
Unclear whether
precipitation will change
Snowpack will decrease
Dam-building era is over;
pressure to remove them
Triage of endangered
species?
Urban growth may trade off
water vs energy
KEY THEMES
Settling the arid West
Historical roots of desert
cities
Large-scale water projects
Water rights
Legal framework
Implications in a time of
shortage
Sources of water supply
The supply and demand
framework
Different approaches to
pricing water theory
and impacts
Gains from trade
Demand management
31
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