Ch. 10 Replenishable but Depletable Ch. 10 Replenishable but Depletable Resources: WaterResources: Water

IntroductionIntroduction How do economic and political institutions How do economic and political institutions

influence efficient water use?influence efficient water use?– Politics plays a big role:Politics plays a big role:– ““Grapes of Wrath,” by John SteinbackGrapes of Wrath,” by John Steinback– ““Chinatown” – movieChinatown” – movie– ““Milagro Beanfield War” - movieMilagro Beanfield War” - movie

How do we determine the efficient How do we determine the efficient allocation of water among users?allocation of water among users?

Potential for Water ScarcityPotential for Water Scarcity Two sources of water:Two sources of water: 1) Groundwater- underground aquifers1) Groundwater- underground aquifers

– most groundwater cannot be recharged; formed over geologic most groundwater cannot be recharged; formed over geologic time; much is overpumpedtime; much is overpumped

» in Texas, the Edwards Aquifer (which is rechargeable) provides San in Texas, the Edwards Aquifer (which is rechargeable) provides San Antonio all of its waterAntonio all of its water

» in High Plains of Texas & U.S., the Ogallala aquifer (nonrechargeable) in High Plains of Texas & U.S., the Ogallala aquifer (nonrechargeable) supplies all of agriculture. Many are concerned about it depletion.supplies all of agriculture. Many are concerned about it depletion.

» 90% of world’s readily available freshwater is groundwater. Only 2.5% 90% of world’s readily available freshwater is groundwater. Only 2.5% is renewable.is renewable.

» 83 billion gallons/day groundwater withdrawals in U.S.83 billion gallons/day groundwater withdrawals in U.S.

Potential for Water ScarcityPotential for Water Scarcity 1) Groundwater- underground aquifers1) Groundwater- underground aquifers

– California, Texas, Nebraska, Arkansas, and Florida are California, Texas, Nebraska, Arkansas, and Florida are largest users of groundwaterlargest users of groundwater

– Surface water withdrawals have been relatively constant Surface water withdrawals have been relatively constant but groundwater withdrawals have increased 14% since but groundwater withdrawals have increased 14% since 1985 in U.S.1985 in U.S.

– 1.5 billion people in the world depend on groundwater for 1.5 billion people in the world depend on groundwater for drinking supplies.drinking supplies.

– Agriculture is the largest user : worldwide, agriculture Agriculture is the largest user : worldwide, agriculture accounts for 67% of groundwater withdrawalsaccounts for 67% of groundwater withdrawals

Potential for Water ScarcityPotential for Water Scarcity 2) Surface water- lakes and rivers2) Surface water- lakes and rivers Fresh surface water withdrawals in U.S. are 262 Fresh surface water withdrawals in U.S. are 262

billion gallons per day billion gallons per day ((ESTIMATED USE OF WATERESTIMATED USE OF WATER

IN THE UNITED STATES IN 2000 bIN THE UNITED STATES IN 2000 by Susan S. Hutson, Nancy L. Barber, Joan F. y Susan S. Hutson, Nancy L. Barber, Joan F. Kenny, Kristin S. Linsey, Deborah S. Lumia, and Molly A. Maupin U.S. Geological Kenny, Kristin S. Linsey, Deborah S. Lumia, and Molly A. Maupin U.S. Geological Survey Circular 1268, Survey Circular 1268, U.S. Department of the Interior, U.S. Geological Survey)U.S. Department of the Interior, U.S. Geological Survey)

See Figure 2 of reportSee Figure 2 of report

Efficient Allocation of Surface WaterEfficient Allocation of Surface Water Efficiency requires that marginal net benefits are Efficiency requires that marginal net benefits are

equalized among users.equalized among users. MNBMNB00 = MNB = MNB11

If MNBs are not equal, then a transfer from lower If MNBs are not equal, then a transfer from lower value (MNB) to the higher net benefit (MNB) will value (MNB) to the higher net benefit (MNB) will improve welfareimprove welfare

In Fig. 10.3, during a drought, the efficient allocation In Fig. 10.3, during a drought, the efficient allocation would be to not give any water to user 0 and give it all would be to not give any water to user 0 and give it all to user 1.to user 1.

Fig. 10.3 Efficient Allocation of Surface WaterPrice

Quantity of water

B

A

Aggregate Marginal Net Benefit

S0 (Wet year)

QT0

MNB0

QA0QB

0

Marginal Net Benefits are equal

S1 (Dry year)

QA1= QT

1

MNB1

Efficient Allocation of Ground WaterEfficient Allocation of Ground Water

In many cases, groundwater is a depletable In many cases, groundwater is a depletable resource. This is similar to rising extraction cost resource. This is similar to rising extraction cost problem in Chapter 7 (Fig. 7.5)problem in Chapter 7 (Fig. 7.5)

Pumping will stop when either:Pumping will stop when either:– 1)water table is exhausted, or1)water table is exhausted, or– 2)marginal cost of pumping was either greater than 2)marginal cost of pumping was either greater than

the marginal benefit of the water or greater than the the marginal benefit of the water or greater than the marginal cost of acquiring water from another sourcemarginal cost of acquiring water from another source

Current Allocation SystemCurrent Allocation System During the 1700s in the United States, most water was During the 1700s in the United States, most water was

allocated by “riparian rights” to the owner of the land allocated by “riparian rights” to the owner of the land adjacent to the water. This system was satisfactory with adjacent to the water. This system was satisfactory with small populationsmall population

But, as population grew and moved to the arid West, it But, as population grew and moved to the arid West, it did not work well. The system of “Prior Appropriation” did not work well. The system of “Prior Appropriation” was developed-- “first in time--first in right.”was developed-- “first in time--first in right.”

Prior appropriation was developed by the miners and Prior appropriation was developed by the miners and farmers who wanted water diverted.farmers who wanted water diverted.

Current Allocation SystemCurrent Allocation System

Before 1860, very little government Before 1860, very little government involvement in water.involvement in water.

After 1860, government became more involved After 1860, government became more involved in restricting uses of water. Water “belonged” in restricting uses of water. Water “belonged” to state. Claimants only had usufructory rights.to state. Claimants only had usufructory rights.

Since 1902, the federal government has built Since 1902, the federal government has built almost 700 dams to provide water and power to almost 700 dams to provide water and power to help settle the West.help settle the West.

Sources of InefficiencySources of Inefficiency

1) Restrictions on transfers1) Restrictions on transfers– difficult to equalize marginal net benefits when difficult to equalize marginal net benefits when

transfers are restricted.transfers are restricted.– 1) Beneficial use restrictions: must use it or lose it. 1) Beneficial use restrictions: must use it or lose it.

If you conserved water this proved that you If you conserved water this proved that you “needed” less. “needed” less.

– 2) Preferential use restrictions: bureaucrat 2) Preferential use restrictions: bureaucrat determines who gets water, not market.determines who gets water, not market.

Sources of InefficiencySources of Inefficiency

2) Federal reclamation projects2) Federal reclamation projects– taxpayers pay for projects enjoyed by users, taxpayers pay for projects enjoyed by users,

primarily in the West.primarily in the West.– Natural Resources Defense Council study found that Natural Resources Defense Council study found that

Wetlands Water District in California’s San Joaquin Wetlands Water District in California’s San Joaquin Valley has paid about $10-$12 per acre foot, only a Valley has paid about $10-$12 per acre foot, only a fraction of the fully amortized cost, less than 10%. fraction of the fully amortized cost, less than 10%. (Acre foot is the amount of water to flood an acre of (Acre foot is the amount of water to flood an acre of level land to a depth of one foot = 325,851 gallons.)level land to a depth of one foot = 325,851 gallons.)

Sources of InefficiencySources of Inefficiency

3) Water Pricing: too low for 2 reasons:3) Water Pricing: too low for 2 reasons:– a) average costs are used instead of marginal costsa) average costs are used instead of marginal costs– b) marginal scarcity rent is not included. Studies of b) marginal scarcity rent is not included. Studies of

Tucson, Arizona and Honolulu, Hawaii found that Tucson, Arizona and Honolulu, Hawaii found that price did not include scarcity value of groundwater.price did not include scarcity value of groundwater.

4) Common Property Problem4) Common Property Problem– many aquifers can be overpumped by users who many aquifers can be overpumped by users who

face the “use it or lose it” dilemma.face the “use it or lose it” dilemma.

Potential RemediesPotential Remedies 1) Eliminate restrictions on transfers. Allow users to 1) Eliminate restrictions on transfers. Allow users to

reap the benefits of conserving water by allowing them reap the benefits of conserving water by allowing them to sell the water they save.to sell the water they save.

2) Allow instream uses of water to have secure property 2) Allow instream uses of water to have secure property rights such as fishing, rafting, protection of wildlife. rights such as fishing, rafting, protection of wildlife.

3) Use increasing block rates to encourage water 3) Use increasing block rates to encourage water conservation and to charge the true marginal cost of conservation and to charge the true marginal cost of water. See Fig. 10.4 for different types of variable water. See Fig. 10.4 for different types of variable pricing structures.pricing structures.

Water Use (ccf)

Price per ccf (Cents)

Fig. 10.4 Increasing block rate structure

10 20 30 40

70

80

90

Potential RemediesPotential Remedies 3 cont.) many cities have used decreasing 3 cont.) many cities have used decreasing

block rates in the past. But more are block rates in the past. But more are beginning to use increasing block rates, beginning to use increasing block rates, especially in the West.especially in the West.

4) Establish water deeds system4) Establish water deeds system Don’t forget the politics of water are powerful. Don’t forget the politics of water are powerful.

Watch “Chinatown” sometime. You might Watch “Chinatown” sometime. You might enjoy reading example 10.4 about Tucson’s enjoy reading example 10.4 about Tucson’s water problems (not in 8water problems (not in 8thth edition). edition).