California

How to Slake California's Thirst

Following Australia's lead on water rights and water markets would solve the state's water shortage.

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Pray for Rain
Guardian

"Nature makes a drought, but Man makes a shortage." That's the trenchant slogan that the Leiden University College water resource economist David Zetland uses to sum up how bureaucratic mismanagement of supply and demand misallocates water pervasively. California's current water crisis—exacerbated by a three-year drought—is a perfect illustration of Zetland's observation.

"Scarcity and shortage are the same for water as they are for other goods—except that most other goods are traded in markets in which rising and falling prices balance supply and demand to prevent shortages," Zetland explains. The chief problem with water is that it mostly supplied by government agencies or government-sanctioned monopolies whose prices are deliberately held below the actual costs of supplying water. This predictable result of these price controls is a shortage. "Underpricing (or zero pricing in some cases) has sustained overuse: if markets delivered Porsche cars at give-away prices, they too would be in short supply," wryly observes the United Nations Development Program's 2006 report Beyond Scarcity: Power, Poverty and the Global Water Crisis.

The surface water rights situation in California is significantly complicated by the fact that existing water rights have been grossly overallocated. Surface freshwater flows average 70 million acre-feet. (An acre-foot is the amount that would cover an acre to the depth of one foot—about 326,000 gallons). But the state has allocated rights to 370 million acre-feet, over-allocating by more than 500 percent.

Obviously, not all of the state's water is used up. Water rights in California follow the rule of prior appropriation, which allocates water to the first person to claim the right to divert a set amount from a stream, giving him seniority. Later users can claim rights to water if there is enough left over for them to take, and so have junior rights. A seniority allocation system operates on a use-it-or-lose-it basis, requiring that the water be diverted and used beneficially or the user will relinquish his claim to the water. This means senior rights holders have little incentive to conserve.

Another big problem is that water rights in California are often controlled by irrigation districts. These districts were established a century ago with the goal of getting water to arable land. Districts generally don't oppose water trading within their boundaries, but they often resist transfers of water to outsiders, such as municipal or industrial customers. This is partly the result of an institutional defect in which irrigation district water rights are communally owned, making negotiations to transfer water to outsiders difficult. 

How could better-defined property rights and markets end water conflicts and shortages in the Golden State? Australia has already pioneered many policies could help. Supplying free and below-cost water encourages users to drain rivers, leaving fish and riparian species high and dry. So the first step is to decide how much water based on the best available science should be allocated to environmental flows. Obviously this process will be politically fraught, but after water rights are allocated they can be purchased to further enhance environmental flows. In Australia, the government has spent $2 billion to purchase private water rights to increase river flows. Currently in California, about 50 percent of freshwater flows are reserved for the environment, although that varies greatly by river basin.

In Australia, water rights were historically tied to specific pieces of land. The reform severed these ties and divided rights into water access entitlements and water allocations. For example, if there is a moderate drought, state agencies might set water allocations to 80 percent of each water entitlement. A person owning 10 acre-feet of water would be able to use eight acre-feet of water that year. Owners can sell their entitlement or their annual allocations. If an irrigator who is allocated 8 acre-feet adopts methods that cut his water use to 6 acre-feet, he can then sell the extra 2 acre-feet for whatever price the market will bear.

Fortuitously, Australia began the process of allocating private property rights in water before the 10-year "Millennium Drought" struck that country's southeastern states. The rights were allocated and put into a public register open to all, thus enabling potential sellers and buyers. The emerging water markets enabled farmers irrigating low-value crops like rice to sell their water allocations to high-value vineyards and orchards. The income earned from selling water kept the rice farmers in business and prevented the vineyards and orchards from dying. During the long drought, water prices reached about $500 per acre-foot, falling to around $25 per acre-foot after the drought broke and water was more abundant.

Robust water markets also reduce the risks to towns and cities during a drought or other supply shocks, because the municipalities can always purchase additional water. During the Millennium Drought, the city of Adelaide in South Australia bought water from irrigators to meet consumer demand. Today about 20 percent of water supply in southeastern Australia is bought and sold on the market.

A 2012 Public Policy Institute of California report estimated that the "water market now accounts for roughly 5 percent of all water used annually by California's businesses and residents (about 2 million acre-feet of water trades are committed annually, with around 1.4 million acre-feet in actual flows exchanging hands)." The report also noted that agricultural production in California in 2007 amounted to $22.4 billion, which is 1.2 percent of the state's $1.85 trillion gross domestic product.

The current drought is spurring sales even in California's less developed water markets. For example, water that earlier sold for $60 per acre-foot has been auctioned off this summer for as much $1,750 per acre-foot to high-value almond orchards in California's San Joaquin Valley. Since farmers are willing to pay that much, this suggests that regulated prices for water are far too low. The Public Policy Institute of California has calculated that the revenue generated per acre-foot of water applied to field crops such as alfalfa, rice, and corn amounts to $200 to $600. Irrigating fruits, nuts, and vegetables on truck farms generates $2,000 to $5,000 per acre-foot of water. Meanwhile, towns and cities are paying an average of nearly $1,000 for each acre-foot they use.

Freeing up water from irrigation district controls and other restrictions and making it available to a broader state-wide market would likely moderate the high prices incurred for today's limited supplies. The goal is to establish a price for water that approximates the marginal cost of supplying it to potential users. A 2001 analysis in Natural Resources Journal found that, due to irrigation district restrictions, "the marginal value of water in municipal and industrial uses is typically three to four times greater than the marginal value in agriculture." Water that is not going to its highest economic use is water wasted. Unable to buy cheap water from farmers has forced towns and cities to pay for expensive infrastructure projects like desalination plants to meet their needs.

The drought, combined with limited water markets, is encouraging municipalities and farmers to drill for and pump more groundwater. Currently about 60 percent of California's water supplies are coming from underground. Historically, farmers and other property owners have had the right to pump as much water as they can from aquifers beneath their property. But aquifers are common pool resources, giving landowners a strong incentive to drill and drain before their neighbors beat them to it. This dynamic unsustainably depletes groundwater.

Oil and gas companies have developed "unitization" as a way to manage underground common-pool resources. Under unitization, a reservoir is run as a single unit with the goal of maximizing its economic value for all of the rights holders. A similar scheme could be applied to groundwater rights; however, organizing thousands of landowners is difficult, to say the least. Draining groundwater leads to undesirable outcomes, including land subsidence, saltwater intrusion, and compaction that prevents the aquifer from being refilled. Last month the California legislature passed a bill that would require some 500 different groundwater basins in the state to formulate sustainable use plans for pumping groundwater. Depending on how such plans evolve, this could be a step toward preventing water waste and making more supplies available to a growing water market. 

Finally, Zetland has an even more radical proposal, all-in-all auctions. Once water rights are securely assigned, all owners must offer their water in an annual auction. Owners can bid for their own water—say, $1,000 per acre-foot. If someone else offers $1,200, the farmer can decide to sell at that price or raise his own bid, in which case no cash changes hands. Such an auction would inform everyone of the real value of water.

In any case, moving in the direction of the Australian water market reforms would mean that while California must endure a drought, there is no reason its residents must suffer from water shortages.

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  1. Other than the Diamond Valley reservoir and the feeder tubes, nothing has been done in my lifetime to improve the water situation here.

    They have been adding surcharges to water bills for 30 years. I’m curious where that money went.

    1. 90% population reduction. Clearly it’s the only answer. California uber alles!

    2. MWDSC spent $2-3 billion on DVL, which allows it to store water closer to SoCal (and away from Lake Mead). DVL has BIG evaporation issues (i.e., it reduces supply).

      Most surcharge spending goes to new treatment plants and/or infrastructure to support growth in SoCal.

  2. PM: Consultants and studies?

    1. I assume that Diamond Valley was pretty expensive. I’m very glad that there is ample storage on my side of the San Andreas Fault now.

    2. Hey Ron, you’re the tech guy – you know we have threaded comments now, right?

      1. Hey, if he wants to adopt a Brooksian attitude toward comments, who are we to criticize?

        1. who are we to criticize?

          Uh, did you forget where you were?

  3. Oh, and if the government was really interested in solving this problem, they would damn up the entire San Joaquin river system and wait for the next 100 year flood/pineapple express. That would provide enough water for CA to last through several decades of drought.

    1. Back in the 70s the Greens decided big water projects like that were evil. So we stopped building dams and reservoirs to store runoff. Unexpectedly, we are running out of water in places that are prone to drought. Who could have seen the failure to collect water during wet times would cause water to be short during dry times?

      If the Greens didn’t’ have bad luck, they wouldn’t have any luck at all.

      1. Here is a photo I took of the Coachella Canal in La Quinta back in 2009. Most of it isn’t even cement lined. They have no idea how much water leaks into the sand, or is otherwise lost to evaporation in the 100+ miles of desert.

        1. The Greens are going to lie and pretend this is some kind of unprecedented drought caused by global warming no doubt. But that is bullshit. It is as Obama’s BP shows below an entirely man made problem, and I don’t mean caused by the sinful CO2. These people are so profoundly stupid, they will literally put us back to living in caves and dying before we are 40.

      2. Yeah, you either need big water projects, or not to have lots of people living in the desert. I suspect that a lot of the West has been in a relatively wet period recently and we can expect to see a lot of this.
        If private property owners had been left to sort out water rights and infrastructure, we’d have either a lot fewer people living in places without enough water or much better water infrastructure.

        1. I agree. Though the big water projects are likely to be in the form of taking water from others who may not want to have it taken (q.v., Las Vegas’ plan to deal with Lake Meade levels dropping).

          I have reviewed and/or designed drinking water projects in four states and it never ceases to amaze me when I read about unsustainable use of the resource. Folks think that wet years should be the starting point. They really should take the worst case and never allow demand to exceed that.

        2. Good point. BurRec and USACE were called in to build uneconomic projects (see Cadillac Desert) that didn’t pay for locals. They DID pay when built with Other People’s Money.

      3. As, Calwatchdog has noted, California has only built five dams since the 1957/8 timeframe.

  4. California’s Man-Made Drought
    The green war against San Joaquin Valley farmers.

    California has a new endangered species on its hands in the San Joaquin Valley?farmers. Thanks to environmental regulations designed to protect the likes of the three-inch long delta smelt, one of America’s premier agricultural regions is suffering in a drought made worse by federal regulations.

    The state’s water emergency is unfolding thanks to the latest mishandling of the Endangered Species Act. Last December, the U.S. Fish and Wildlife Service issued what is known as a “biological opinion” imposing water reductions on the San Joaquin Valley and environs to safeguard the federally protected hypomesus transpacificus, a.k.a., the delta smelt. As a result, tens of billions of gallons of water from mountains east and north of Sacramento have been channelled away from farmers and into the ocean, leaving hundreds of thousands of acres of arable land fallow or scorched.

    1. From 2009, btw.

    2. Not California, but similar. Fuck the Feds.

      http://www.thenewamerican.com/…..king-water

    3. There’s no “war” against farmers. Farmers have WAY overextended their farms compared to water supplies. The ESA does nothing to fix that, i.e., farmers would STILL screw themselves if ALL California’s rivers were drained.

      Note that Cali farmers are HUGE recipients of irrigation subsidies (incl “stimulus money” to drill deeper wells), so the gov’t has given them the rope they are hanging themselves with.

  5. Water supplies are too important to be left to the government.

    1. I’ve said that about virtually everything since defecting from the Dems in 2009. If it’s important, government will damage it irreparably. If it’s unimportant, mission creep will ensure government inevitably damages something important.

  6. I said since I was about 12 or 13 – the apocalypse isn’t going to come down to oil – it’s going to come down to water. Absent a big increased in the efficiency/reduction in cost of de-salination, the Great Lakes region should be heaven at some point.

    Add in some Global Warming, and I’ll be sitting on a beach in mid-Michigan, drinking gin and enjoying all the fresh, fresh water, as hoards die on the coasts.

    Well a guy can dream, can’t he??!

    Fuck California.

    1. We are pretty close to developing cheap and efficient desalinization.

      http://www.technologyreview.co…..cts-water/

      Don’t worry though, I am sure the Greens will find a way to kill it before it does anyone anywhere any good.

      1. Cheap, efficient desalinization is almost as bad as cheap, efficient sources of natural gas or cheap, efficient sources of calories. Reducing the burden scarcity imposes on humanity is naturally a no-go for a mindset that views humanity as a plague.

      2. I was going to suggest building a series of nuclear power plants with adjacent desalinization plants down the CA coast. It would solve the water crisis and give them a clean source of electricity for their beloved electric cars.

        1. But that might make things cheap and cause all sorts of nasty consumption.

        2. I’m all for more nuclear power, but earthquake prone coasts might not be the best places to put the plants.

      3. “Don’t worry though, I am sure the Greens will find a way to kill it before it does anyone anywhere any good.”

        They already have:

        “Thousands of industrial facilities use large volumes of cooling water from lakes, rivers, estuaries or oceans to cool their plants. Cooling water intake structures cause adverse environmental impact by…

        Final Rule for Existing Electric Generating Plants and Factories ? 2014

        http://water.epa.gov/lawsregs/…../cwa/316b/

        1. Just for the record the rule includes desalination plants. Because in crazy Federal land, it doesn’t really matter what’s written down, just what the bureaucrats claim was intended.

          “Attention to seawater intake impingement and entrainment issues is partially prompted by the Section 316(b) of the 1972 Clean Water Act that regulates cooling water intake of the steam electric industry by the environmental scrutiny associated with the public review process of desalination projects in California. ”

          http://www.watereuse.org/sites….._Paper.pdf

    2. Maybe, maybe not

      Where I live, there’s plenty of water, it’s just a question of keeping it drinkable.

      1. Interesting. This would be super cool if doable.

    3. You better boil that water first. I believe it was a writer for Cracked who, talking about how filthy the Great Lakes are, said that “there is more feces in one cup of Great Lakes water than in five cups of feces.”

      1. I find this suspect. In the 70’s there was still a large chunk of Lake Superior that was potable and if anything, pollution in the lake has diminished.

      2. He must have been talking about Lake Erie.

        1. Which is clean as clean thanks to the zebra mussel.

          Yeah, not worried about the purity. You don’t drink right from the “lake” – you drink from the well in your back yard that’s been filtered through all that wonderful Ice Age sand….and delivers clean, pure, unfluoridated water to your home.

          All my homes had wells. No filter system at all – we drink water right from the ground. mmmmmm!!

          /Gen’l Ripper

          1. Oh, I know. I also live in an area with abundant surface and ground water. I pump water out of the ground, then send it right back through the septic tank and in a month or two or whatever it takes it’s back in the well, good as new.

            1. You got it!

              1. Which is why low flow faucets just piss me off. I could run my water 24/7 and it won’t impact anyone’s water supply.

  7. Is the guy trying to unseat Jerry Brown an alien? Look at the shape of his head.

    Alien Head

    1. Look at him destroy Brown in their debate.
      http://www.truthrevolt.org/new…..ors-debate

  8. Have farmers now replaced Republicans as the mustache-twirling villains in California?

    1. There have been real shooting wars in CA over water, and yes, farmers and ranchers have been the villains in the Green Kabuki theater for a long time now.

    2. California farmers == Republicans

  9. So the first step is to decide how much water based on the best available science should be allocated to environmental flows.

    When the first step in your market-based plan is giving the government the power to control the supply,

    well, maybe its not such a market-based plan after all.

    1. MM: Too long to argue here, but aspects of nature are more or less open access commons that need to be protected. Once that is decided, then allocate property and let the market sort it out.

      1. I know, Ron. Water is a unique resource in some ways.

        But a large chunk of CA’s current water problems aren’t because there just is no water, its because the state has determined that so much of it has to run into the ocean rather than be used.

        As long as we have hair-trigger “environmental” trump cards, this problem cannot be solved. Not only the demand that needed water run into the ocean, but also the environmental trump cards that prevent the construction of new projects.

        1. I am thinking when people start to get thirsty, those environmental trump cards won’t be trump anymore.

          1. People won’t get thirsty, though. There is plenty of water to drink and people will just pay market prices for drinking water if it comes down to it. The issue is really about agriculture. Hard to say if some farm failures will be enough pressure to change things.

            1. So price increases for watermelon, citruses, and we’re back to “no vegetables in the winter in midwest states”. Cali is the nation’s fruit and vegetable basket.

              Ahhh – it’ll be worth it for the schadenfreude.

              1. Well, there’s always Mexico. They don’t give a shit about some little fish.

                1. I don’t remember exactly when I first noticed we could get veggies out of season. I don’t think it was the 70’s – I think it was early 80’s.

                  Whenever it was, I remember clearly that what prompted it was buying apples in February. “What?”

                  it’s obviously ubiquitous now, and it’s great. I can get watermelon (my fave) in January (albeit not nearly as good as in season – but still, passable). Cali supports a TON of that. Them having a drought makes me nervous…I like my January watermelon.

    2. I agree with Ron that SOME water needs to be set aside, to run into the ocean. The alternative — empty rivers and lakes — is FAR worse than lower ag exports of almonds…

  10. I’m hoping for a wet winter.

  11. my best friend’s step-mother makes $74 every hour on the internet . She has been without work for 8 months but last month her pay check was $13932 just working on the internet for a few hours. view……

    ================ http://www.netjob70.com

    1. Could she please buy some water for California?

      1. Here’s a novel thought you’ll never see in the mess media…

        http://www.plusaf.com/lessons/aquariusproject.htm

        If you think the Interstate Highway System was a good idea and our national network of natural gas pipelines have been ‘overall benefits’ to us all, why can’t anyone conceive of investing in a ‘water transport system’ when some areas have floods and other areas have droughts?

        Silly humans..

  12. I keed about all this. I think what’s gone on in Cali for years is a fucking travesty, and I hope they can fail/rebuild or vote or whatever their way out of all the retardation eventually. It’s such an achingly beautiful land that’s perfect for growing veggies and fruit, and the pols have just fucked it up from stem to stern to the point that people are leaving. Leaving PARADISE. It’s a damned shame…people can fuck up anything, I guess.

  13. never have i been more grateful of my own private well. that sounds horrible!

  14. How should California solve it’s water problem?

    A) Begin market-based pricing of water
    B) Kill illegal aliens

    Which option will resonate with voters?

  15. Hi everyone — I’m a bit late to comment here, but I’d love for you to download/read my book — Living with Water Scarcity — which you can get for free here: http://livingwithwaterscarcity.com/

  16. my buddy’s mother makes $65 every hour on the laptop . She has been out of work for 5 months but last month her check was $19142 just working on the laptop for a few hours. have a peek at this website….

    ???????? http://www.netjob70.com

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  23. California’s water shortage is the result of two very important issues. First, people forget in reality, the southern part of the state is a desert and without the water from the north, must of it would still be a desert. The other reality is this drought is much worse not because of some tremendous climate change, but the simple fact that many of the reservoirs which helped get the state through previous drought have been drained following lawsuits by environmentalist to save species like the Delta smelt. The reserve California once relied on when the rain was scarce are all gone, thanks to the stupidity of radical environmentalists. Put those two facts together and you have a recipe for the disaster we are all witnessing right now. However, the Democrats in California, in DC and the environmental movement will never tell the public the truth about why they are all suffering.

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