Tag Archives: water transfers

Repost: Learn Liberty | Blame outdated rights for California’s water woes.

A good explanation of how regulation differs from litigation, and how California’s water rights differ from other systems.

Source: Learn Liberty | Blame outdated rights for California’s water woes.

Maven’s Notebook: Fishing groups win lawsuit to overturn Delta water delivery contracts

This could have far reaching implications about how CVP contracts are renewed.

From the law offices of Stephan C. Volker: On July 25, 2016 the Ninth Circuit Court of Appeals ruled in favor of the Pacific Coast Federation of Fishermen’s Associations (“PCFFA”) and the San Fra…

Source: MAVEN’S NOTEBOOK – Water news

Cataloging calls for “water markets”

It’s trendy now to propose water transfers between regions and agriculture to urban uses as the primary solution to California’s drought. While this may not be the “silver bullet” that the proponents believe, I’m starting to catalog the articles I find making these proposals. I’ll hold my commentary until later.

Here’s a San Diego Union-Tribune piece from Erik Telford at the Franklin Institute.

Here’s a Sacramento Bee article from Christopher Thornberg at Beacon Economics.

Here’s another Bee article by Jay Lund, Ellen Hanak and Buzz Thompson at PPIC. And another post by Jay Lund on the many uses.

More from the Bee by Lawrence J. McQuillan and Aaron L. White at the Independent Institute.

A proposal by EDF with five recommendations.

Let me know about others.

 

 

Why ag “savings” might not be the solution to urban water woes

Over the last couple of years, I’ve come across several examples of how increased agricultural irrigation efficiency hasn’t led to water savings. When interviewing a farmer in San Joaquin County about managing agricultural pumping loads, he described how he had invested $2,000/acre in a microdrip system for his tomato and melon fields. To avoid his subterranean systems, his farm has a GPS repeater that guides his tractors within a few inches. Another consultant described how they couldn’t find any flood irrigated tomato fields, a standard method in 2007, for a comparison survey for drip effectiveness. Fresno County tomato yields increased more than 25% from 2007 to 2012, and individual field yields have increased 50%.

The result is that growers are using the water they have to increase productivity. They also have moved into more permanent crops which deliver higher revenues per acre-foot. For example, almond acreage has more than doubled since 1995. And little additional water has been freed up for urban or environmental uses.

With the increased value of water to agriculture, urban agencies have lost much of their competitive edge in pursuing water transfers. In 2014, Westlands Water District paid Placer County Water Agency an unheard of $325/AF, and there were reports of some transfers costing several thousand dollars per AF to protect orchard investments. The urban agencies use to largely have this playing field to themselves, but that era looks to be ending.

The evolution of California’s water transfer market (albeit a bit dated)

Eric Cutter and I wrote a paper in 2002 that extended my dissertation chapter exploring how the state’s agricultural water management institutions, i.e., special districts like irrigation and California water districts, affected water transfer participation. We had built the first extensive transfer database in 2000 (On-Tap) for USBR and CDWR, using secondary sources, and used that analysis for the paper. Ellen Hanak of PPIC reconstructed a data set from primary sources a couple of years later, and updated it in 2012, so this data has been superseded. (Her 2012 coauthor Liz Stryjewski is now a consulting associate with M.Cubed.)

The paper discusses two important aspects not often touched upon: 1) the search and transaction settlement mechanisms are important to market success, and 2) the nature of the institutions managing agricultural water can affect willingness to participate. Another important aspect is that California already has about 10 MAF in long-term permanent water transfers embedded in the CVP and SWP contracts. The 2 MAF in short-term and more recent long-term transfers are on top of those already occurring. So California has already has a viable market contrary to ill-informed observations by others; the question is whether that market can and should be expanded further.

UCLA professor’s comments not helping California’s drought problem

An environmental horticulturalist for UC Cooperative Extension in Los Angeles, Don Hodel, has been getting a lot of press recently criticizing the State Water Board’s urban water restrictions. He advises that the Water Board should have advised targeting changes in watering practices rather than limiting supplies, and claims that urban restrictions were unneeded, implying that agriculture should bear the entire brunt. Unfortunately, he’s made at least two grievous errors in his assessment.

First, Hodel fails to understand that the actual implementation of the reductions is to be done by the local water utilities, not the Water Board. The Board only provided the targets, and the stick if the targets aren’t met. Hodel needs to complain to the utilities if he thinks they aren’t doing their job.

But of course, he’s equally naive about the huge problem of communicating about changing irrigation practices to millions of urban customers across hundreds (yes) of distinct water utilities. Of course, these utilities have been trying to get their customers to improve outdoor watering, but just getting their attention is a big enough problem.

Second, his real agenda is to imply that urban horticulture is more valuable the state’s agricultural industry. Urban agencies have only so much contractual and physical access to water supplies. To not cutback deliveries would require transferring water from farmers. But there’s at least two problems with that, the first being that agricultural water is much more valuable than Hodel imagines and second is that it’s not easy getting the water from northern to southern California.

It turns out that those farmers have been doing an exceptional job at improving their irrigation practices; the problem is that they’ve used that efficiency to increase output rather than to save water. The original proponents of agricultural water efficiency didn’t anticipate this response and the surplus didn’t materialize for urban users or the environment.

And even so, moving water from farm areas and treating it for domestic uses adds substantially to the cost of water. It’s the primary reason why urban water costs well in excess of $2,000 per acre-foot while agricultural water is much less than $500 per acre-foot. Water isn’t a particularly fungible good, and proponents of water transfers as the “solution” ignore this issue (along with the problems of market design and function.)

These types of moments are when I wished that journalists were better informed and able to filter out the uninformed “experts.”

Cap & trade and market design

Bob Sussman at Brookings writes favorably about the resurrection of cap and trade for GHG regulation as a viable policy option with the Chinese planning to implement a program and the US EPA Clean Power Plan encouraging market trading mechanisms in two forms of compliance. Yet as I read this (and also think about proposals to increase water trading to solve California’s ongoing drought), I can see an important missing element in these discussions–how can these markets be designed to gain success?

In 1996, I wrote “Environmental Commodities Markets: ‘Messy’ Versus ‘Ideal’ Worlds” that explored the issues of market design and political realities. As I’ve written recently, we are not always good at fully compensating the losers in environmental policy making, and these groups tend to oppose policies that are beneficial for society as a result. And market incentive proponents seem to always propose some variation on one of two market designs: 1) everyone for themselves in searching for and settling transactions or 2) a giant periodic auction.

In reality, carefully designing market institutions that work for participants is key to the success of those markets. Daniel Bromley wrote about how just “declaring markets” in Russia and Eastern Europe did not instantly transform those economies, much to our chagrin. The RECLAIM emissions market has woefully underperformed because SCAQMD didn’t think through how transactions could be facilitated (and that failure prompted my article.) Frank Wolak and Jonathan Kolstad confirmed my own FERC testimony that the disfunction of the RECLAIM market led to higher electricity prices in the California crisis of 2000-01.

For a presentation a few years ago, I prepared this typology of market structure that looks at the search and match mechanisms and the price revelation and settlement mechanisms. This presentation focused on water transfer markets in California, but it’s also applicable to emission markets. Markets range from brokered/negotiated real estate to dealer/posted-price groceries. Even the New York Stock Exchange, which is a dealer/auction probably works differently than how most people think. There are differences in efficiency and ease of use, often trading off. As we move forward, we need more discussion about these nuts and bolts issues if we want truly successful outcomes.

Market Typologies