Californians would be better off on average if all final users in the state paid the same price for water — adjusted for quality, place and time — even if, as a result, some food prices rose sharply and some farms failed.
Craig Newmark ("No, Farmers Don’t Use 80 Percent of California’s Water"):
Since I've seen the "80 percent" figure used in a number of places, this piece is timely and useful.
To be clear, whatever the figure, California farmers are using too much water, water whose costs exceed their benefits. But that is because of government subsidies and those subsidies are obtained partly through the farmers' political clout. It's another example of how government often actually works, as opposed to the Liberals' fantasy of how it always works.
David Zetland at Aguanomics is using the 80% number and I put more trust in Aguanomics than the National Review. But, I agree that the actual number doesn't really matter so I'm scratching my head at the title of that post.
Being a tie-dye wearing hippie I think I have the authority to comment on liberal fantasies. Yes, money corrupts politics and government. I don't think liberals, or anyone who suggests government intervention when there is a market failure, are naive about this corrupting force. Blaming liberals for California's water problems seems to be a knee-jerk reaction rooted in partisanship, not economics.
For the record, my liberal fantasy is that farmer subsidies should be removed (and I'm OK with paying the true cost of strawberries) and water should be priced more efficiently for every water using sector of the economy.
“The demand we’re placing on the aquifer and the deep bedrock drilling, which is going on at an alarmingly fast pace, is really scary,” said Tricia Blattler, executive director of the Tulare County Farm Bureau. “Folks are really concerned we’re not going to be able find water in the groundwater system much longer. We are tapping it way too quickly.”
The Tragedy of the Commons results from competition combined with an open access resource. Because a groundwater aquifer typically spans across multiple landholdings and has multiple entry points (in most cases if your land is over an aquifer, you can drill into the aquifer and extract water), there is an incentive to extract water faster than your neighbor...especially during a drought. Because recharge rates can;t keep up with extraction rates, you end up with a literal race to the bottom.
The optimal solution?
The next best alternative?
The nextest bestest alternative?
The last alternative?
Mad Max (yes, I know that was about running out of oil, but you get the idea).
My third "ask me anything" on Reddit was the most popular so far. There were 2,700+ comments (300+ from me) on a range of topics. Many were directed at silver bullet solutions ("reduce demand through vegetarianism!" or "increase supply with desalination!"), many were "what can I do?" or "how screwed are we?", and a good number came from people wanted to work on water issues. About 20-30 percent were about water issues in other countries (India, Saudi, Brazil, Mexico, et al.)
As usual, it was a fun but exhausting 6-7 hours of give and take.
These are only a few, but there are many more as well as the FAQ-type links I provided at the top of the AMA. (Luckily, it looks like people downloaded around 1,000 copies of Living with Water Scarcity. Free is a good price :)
The use of moral suasion to encourage conservation is not unique to California. Public appeals for reductions in energy and water use are ubiquitous. And it is easy to see why. For political and jurisdictional reasons, it is often easier to mount a conservation campaign than raise energy or water prices in times of scarcity. But what impact do these interventions actually have on energy and water consumption?
A new E2e working paper explores this question in the context of electricity. More than a year after the Fukishima earthquake, several of Japan’s nuclear power plants were still out of commission and electricity supply was tight. Policy makers were looking for ways to reduce electricity consumption during critical peak times.
Koichiro Ito and his co-authors set out to test the relative effectiveness of an increase in critical peak electricity prices versus “moral suasion”: a polite request for voluntary reductions in consumption. Customers who volunteered to be part of the study were randomly assigned to one of three groups:
A price treatment: Higher electricity prices during critical peak hours. Customers were charged prices ranging from $0.65/kWh – $1/kWh (up from a base rate of approximately $0.25/kWh).
A “moral suasion” treatment: Courteous day-ahead and same-day requests for electricity demand reductions during critical peak days.
Control group: No notification of/price increases during critical peak events.
The figure below summarizes the average impacts of the two treatments on household electricity consumption during critical peak hours (relative to the control group). Effects are summarized by treatment “cycles”. Each cycle consists of three non-consecutive critical peak event days, so the graph helps to illustrate how the effect of the treatments persist (or not) across repeated critical peak days throughout the season.
Average effect of treatment on peak electricity consumption
It probably will not shock you to learn that the price treatment had a much larger impact on consumption as compared to moral suasion. ...
These qualitative results are compelling – and pertinent to a crisis we are currently facing here in California.
We are in the midst of the most severe drought on record. ...
An executive order issued last week signals a move in this direction. The order imposes mandatory water restrictions designed to achieve a 25 percent reduction in potable water use by urban residents.
Hitting this conservation target will be difficult – if not impossible – to achieve with only public appeals and hard-to-enforce restrictions. So, to echo arguments that have been made again and again on this blog (we are a persistent bunch), the time is ripe for water prices that reflect the true cost of water use. ...
There has been a lot of discussion of the drought in California and the new regulations that the state is putting in place. But there has been little mention of the obvious (to an economist) solution: Raise the price of water.
This would do more than any set of regulations ever could. For example, the governor is not going to force people to replace their old toilets with newer, more water-efficient ones. But a higher price of water would encourage people to do that. A higher price would also give farmers the right incentive to grow the most water-efficient crops. It would induce entrepreneurs to come up with new water-saving technologies. And so on.
Some may worry about the distributional effects of a higher price of a necessity. But the revenue from a higher price could be rebated to consumers on a lump-sum basis, making the whole system progressive. We would end up with more efficiency and more equality.
Even far over here, amidst rainstorms, I am hearing about California's water shortage and the Governor's "order" to reduce use by 25 percent.
Sadly, his orders appear to mix up agricultural (80%) with urban (20%) use, i.e., he talks about lawns and urban prices (two worthy targets!) while "missing" the role of agriculture.
Let me help: farmers use 80 percent of "developed" water... and more if you consider groundwater. Therefore, I suggest that Brown shut down irrigation and pay off farmers [for surface water], so there's more water for cities people. Here are further, useful details.
In my haste to push for action yesterday, I forgot to elaborate on how to re-allocate water from farmers to cities.
The quickest move is to seize the water -- the property of the People of California -- under eminent domain, but that process would lead to lawsuits.
Given that almond crops produce a profit of $1,500/acre with the consumption of 4 acre feet of water,* it seems reasonable to pay $375/af of water, but let's be generous and say $1,000/af. I'm pretty sure that that offer would probably get so many volunteers that the Gov wouldn't even need to condemn the water.
How would this action undermine California agriculture ("one of the world's great food producers")? I don't know, but I bet that plenty of farmers -- the ones happy to export crops all over the world for profit -- would jump at the huge profits from "farming water."
It's been done before and it will work again.
Those excerpts are full of links so go to Aguanomics for more.
I was able to get away last week for a week of rest and relaxation (field research?). On the flight back, I sat next to a nice dude who had recently finished building a house on family land on Buckeye Lake in Ohio. Needless to say, he had some strong opinions on the Army Corp of Engineers' report that the Buckeye Lake Dam is in imminent danger of collapse and the subsequent decisions to leave the lake at winter pool levels (unboatable) until a solution is found (likely 3-5 years) and the Governor's decision to commit the state to build a new dam. Unsurprisingly, the story is receiving a lot of local coverage:
The story is so compelling because we can all relate to what these folks are going through — on both sides.
From the lake side, it’s about the economy, property values and recreation.
If your livelihood were invested in a marina or restaurant on the lake, your world would be upside down with the prospect of the water being permanently drained. If you worked at one of the lake-dependent businesses, you’d be worried sick about your financial future.
If you had a home on the lake and had invested your life savings in the place, this news would have you pulling your hair out (unless you have a hairline like mine, and nature’s already done it for you).
From below the dam, it’s about public safety: protecting life and property.
If your home were in harm’s way should the dam fail, you really wouldn’t care about someone else’s home value or whether some people wouldn’t get to use their Jet Skis over the summer. You’d want to know that your family was safe, that you could sleep at night without worrying about the dam giving way.
And if you’re the government official responsible for the dam, your obligation is to protect life, period.
“There aren’t hard-and-fast solutions yet, but from my early conversations with the director, there are really only two options: Drain it and leave a big hole, and that’s not really an option. Or spend hundreds of millions to replace it. I think that’s what will occur.”
[State Sen. Jay Hottinger] said he’s heard that a new dam would take 15 to 18 months to start, then three to five years to complete.
“I believe the [Ohio Department of Natural Resources] director is very committed to doing what’s necessary to create a healthier, stronger, better asset than we have today,” he said. “It’s going to be painful to get there. But at the end of the day, it will be a much nicer Buckeye Lake.”
“It’s the end of life as we know it at Buckeye Lake.”
That was the cut-to-the-chase verdict that general manager Deb Sturm delivered to her boss, Tracy Higginbotham, owner of the Buckeye Lake Winery, after returning Wednesday night from a hastily called meeting with a handful of area civic leaders. They had gathered to discuss the sobering Army Corps of Engineers’ report on the 177-year-old Buckeye Lake dam that was released on Wednesday.
Because of the dam’s poor condition, compromised by more than 370 homes built directly into the 4.1-mile earthen structure, the “likelihood of dam failure is high,” said the report, and it “poses a significant risk to the public.”
Among the options to prevent “catastrophic failure,” as recommended by the Corps to the Ohio Department of Natural Resources, which owns the dam and lake and paid for the study: Build a new dam or turn the lake into a 3,000-acre mud puddle by emptying it.
“The safest solution for eliminating the risk of flooding due to dam failure is to drain the lake permanently,” the report says.
The risk of dam failure, however, is significantly higher when the lake is at summer’s depth. Should the dam fail, approximately 3,000 people live within the projected flood zone.
“The resulting flooding would most probably occur without sufficient warning or evacuation time,” the report said. It goes on to say that those homes and businesses, and people, within the flood zone would “face the potential of being hit by up to an 8-foot wave of water, mud and debris.”
“The economic impact to the area doesn’t outweigh the possible loss of life,” said [Ohio Department of Natural Resources spokeswoman Bethany McCorkle]. “Public safety is the top priority. It’s a very serious situation. The dam could go at any minute according to the report.”
When asked whether the current earthen dam is salvageable, Mike Spoor, engineer with the Huntington District of the Corps, which assessed Buckeye Lake, flatly said, “No.”
Ohio isn't know for its natural lakes (besides Lake Erie the largest natural lake in the state is 345 acres and it is called Aurora Pond). But, Ohio does have its share of unnatural lakes (reservoirs) of which Buckeye Lake is in the top 10 in size at 3100 acres. Because of its proximity to the second largest combined statistical area in the state, the Columbus CSA--yes the Columbus CSA is bigger than Cincinnati CSA--and 25th largest in the country, Buckeye Lake is a popular recreational and vacation home destination. For now.
But the state is faced with some difficult economic decisions. As the Army Corp of Engineers report summarizes:
Considering the immediate proximity of the downstream population, a catastrophic breach of Buckeye Lake Dam could pose unacceptable life loss and economic consequences. Therefore, immediate interim risk reduction measures are recommended to reduce risk of catastrophic dam failure as a result of breaching during normal pool retention. The District recommends that interim risk reduction measures be implemented immediately. The District further recommends that comprehensive risk reduction alternatives be evaluated, selected, and implemented by ODNR. Selection of remediation alternatives should be based on the potential for proposed actions to reduce risk to a tolerable level.
hmmm...time to call in the economists to assess the 'tolerable' level of risk? (our number is in the book)
The New York Times sure is making blogging difficult. Highlighting text and hitting the Typepad "Blog It" button doesn't work (in Chrome) or sends me to another NYTimes story (in Firefox) [or vice versa]. Yet, I persevere (save the webpage to desktop, printscreen for images, etc) when it is worth it.
Water is far too cheap across most American cities and towns. But what’s worse is the way the United States quenches the thirst of farmers, who account for 80 percent of the nation’s water consumption and for whom water costs virtually nothing.
Adding to the challenges are the obstacles placed in the way of water trading. “Markets are essential to ensuring that water, when it’s scarce, can go to the most valuable uses,” said Barton H. Thompson, an expert on environmental resources at Stanford Law School. Without them, “the allocation of water is certainly arbitrary.” ...
The price of water going into Americans’ homes often does not even cover the cost of delivering it, let alone the depreciation of utilities’ infrastructure or their R&D. It certainly doesn’t account for other costs imposed by water use — on, say, fisheries or the environment — caused by taking water out of rivers or lakes.
Consumers have little incentive to conserve. Despite California’s distress, about half of the homes in the capital, Sacramento, still don’t have water meters, paying a flat fee no matter how much water they consume.
Some utilities do worse: charging decreasing rates the more water is consumed. Utilities, of course, have little incentive to discourage consumption: The more they did that the more their revenues would decline.
Rates have little relation to water’s replacement cost. In Fresno, which gets less than 11 inches of rain a year, a family of four using 400 gallons a day faces a monthly water bill of $28.26. In Boston, where rainfall exceeds 40 inches, the same family would pay $77.73.
While this may seem a mess, it is nothing compared to the incentives facing American farms. ...
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Don't believe what they're saying
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