Enhancing the Management of Arizona's Aquifers - an Alternate Proposal to ADWR

Arizona Department of Water Resources (ADWR) recently floated a proposal to change the formula is uses to grant groundwater credits to entities that artificially recharge renewable water into aquifers as a way to permit additional groundwater pumping.  The state recharge program is a somewhat complicated scheme that I can't explain in detail right here, but you can get lots of other information at ADWR's website here.  This proposal is being made as part of the 4th Management Plan process - a once-a-decade planning exercise that is intended to get Arizona's Active Management Areas to Safe Yield by 2025.

The gist of the proposal is that it would reward entities that locate their recharging activities closer to where they are actually pumping out groundwater.  A worthwhile endeavor to be sure. 

ADWR Water Allocation Process

One month ago, the Arizona Dept. of Water Resources (ADWR) held a public meeting to announce that they were beginning the process to allocate (or reallocate) approximately 96,000 acre-feet of Colorado River water delivered via the Central Arizona Project (CAP).  This is water that was made available by the big Arizona Water Settlement that was crafted almost 10 years ago, but under the language of the act was not available for reallocation until 2014.

As you might expect from the state agency responsible for management of the state's water they have proposed a tightly controlled administrative process for deciding who should get the water and how much they should be entitled to.  Oh, and there are also some costs associated with this water.  But as is typically the case, the cost for this water only covers the "costs" of administering the process, then when the recipient takes the water they will pay the "costs" for delivery.  There are no "opportunity costs" or "scarcity costs" included.  Now admittedly these costs are greater than what has been paid by those who currently possess allocations of Arizona's Colorado River water, but that is all water under the bridge, so to speak.  And what the entities who manage to "win" an allocation of this water will get is something slightly less than a continuously assured supply of renewable water.

Because this is water that was relinquished by agricultural contractors it holds a priority within the CAP system that is lower than the standard municipal and industrial allocation.  What this means is that when there is a shortage on the Colorado River that impacts Arizona's supplies this water may be unavailable for delivery.  ADWR has analyzed the expected reliability of this water and believes that up to 2/3 of this water should be continuously available, depending on the assumptions you use (a summary of their analysis can be found if you click the "presentation" link on the process page).

So far that's all well and good.  Where I have a problem is the whole process they have proposed for determining who is "worthy" of receiving an allocation of this water.  This is what administrative agencies always try to do and they never seem to get it right, especially in situations where you are dealing with a scarce resource.  People try to game the system, assumptions have to be made about where future demand will reside, and there just tends to be a whole range of normative "calculations" that need to be made to justify the actions of the agency.

I am planning to draft up some comments recommending that they at least try to allocate some of this water via a market-clearing auction (CAP staff proposed something similar as part of the ADD Water process that you can find here - click the link for "ADD Water Program Proposal").  I have no hope that it can all be auctioned off (there are too many bureaucratic hurdles in the way) but it just seems to me that given the year-to-year variability that might be present in at least some of the water available and the well-known superiority of market mechanisms to allocate scarce resources, an auction has to be the best way to ensure that this water is allocated in an equitable and efficient manner.  It's a long shot, but someone has to take the first shot.

How strong is the connection between price and water use?

I get a weekly email with updates from the website Circle of Blue, that occasionally contains gems like this one that showed up recently. What I've really been impressed with on their site are some of the nifty things they do by combining data with mapping functions.*  So if you scroll down on the Circle of Blue page linked above you will see a Google map that has a bunch of data call out points on it. Click on any of those points and it will show you data on per capita residential water use and average costs for water in each of the cities shown.**

By way of background, I received an email from John Fleck last year where he asked if I knew of a source listing per capita water use that compared "apples to apples" - i.e. comparing only residential water use, not just taking some random total water use number and dividing it by population. This can be surprisingly hard to find.

So as I was looking at the water use data I got the idea that it might be interesting to try plotting the gpcd numbers against the average price numbers just to see how well they correlate. And this is what I came up with:

 If I remember my statistics, 0.3563 indicates pretty strong correlation, but obviously there are other factors present besides price.  You might notice that I pretty much cherry-picked the data I presented as well.  I tried to include data from Western cities that might have similar water use patterns so that price would be main variable being tested here.  Is the result fairly obvious - sure.  But that's often the point of statistics - to test something that appears obvious and try to figure out if it really is.

Oh, and there was one other nice bit of data in the call outs attached to the map - it says what type of rate structure each city uses.  I hope the Circle of Blue folks keep up the good work.

* My only quibble with data presented in this way is that they don't indicate a source for their numbers.  There's an email address for the person who put the graphic together, so I might have to email him and find out where he got all his data from and verify that it really is "apples to apples".

** The data for Fresno is pretty shocking, but when you consider that they charge a flat rate for water and I believe still don't meter most of their connections it seems pretty self-evident.  Also I was disappointed that there was no gpcd data for San Diego and Los Angeles - they're probably pretty tired of taking their lumps for residential water use.

The “New Oil”, or just the Same Old Water?

Well, unfortunately I''m laid up with a bum knee this week which has limited by ability to get around. This has resulted in me missing yesterday's City/County Water Study meeting (this week was mostly about population projections and available water resources to serve that population) and a brown bag at the Water Resources Research Center discussing policy updates at the Central Arizona Groundwater Replenishment District. Instead I have been lounging around the house thinking about water supplies and economics as evidenced below.

Seems like every time I turn around someone else is proclaiming that water is the “new oil” – implying it is the next vital natural resource coming under ever greater supply constraints due to population and economic growth. The latest example is found in last week’s Economist in the first article in their business section – “Running dry” (can be found at www.economist.com ). There may be some truth to that statement – limitations on the availability of water, just like oil, can result in limits on growth and higher prices to sustain the standard of living we are accustomed to. Competition between water-rich and water-scarce areas is likely to increase in the future. But there are some significant differences between oil and water that make the comparison inapt.

First of all, oil is completely consumed when it is extracted and used – once used it cannot be recovered in any form (except by removing CO2 from the atmosphere or waiting for that CO2 to be taken up by plants, then geologically buried, compressed, and heated to form more oil – an admittedly time-consuming process). Water is not typically used consumptively, although it may no longer be available for use in the same location if used in a way that results in evaporation, transportation, or transformation (i.e. into corn or beef). It can also be lost by flowing downstream to another state or country or ultimately into the ocean. But water is never truly lost because it merely reenters the hydrosphere, or water cycle, to be later returned as rain or snow to a surface or groundwater reservoir where it will once again be available for consumption.

Secondly, and perhaps more importantly, water is almost never priced as a scarce resource – even in areas where it truly is a scarce and irreplaceable resource (such as where it is produced by mining groundwater reservoirs). While recent history has shown that oil is relatively price inelastic – demand is not significantly curbed by modest rises in price – it is nonetheless priced as a finite commodity, with price rising significantly as supply constraints become ever greater. Water is almost never priced to reflect its true value to the consumer (bottled water is one exception). Most domestically supplied water is priced in a way that reflects the delivery costs but there is no cost for the water itself – water is in most cases completely valueless. But consumers clearly place value on the availability of clean water – just look at what we’re willing to pay for bottled water.

People who live in water-scarce environments have always appreciated the value of water to society. Just look at the wealthy trading communities that clustered around water sources in the Middle-east or the American Southwest 1000s of years ago. For people in these areas water is not the “new oil,” its just the same old water. For people in the Eastern U.S. or parts of Western Europe that are facing water supply constraints for perhaps the first time ever – sure water may seem like the new oil. But it’s important to remember the differences between those two valuable liquids and develop appropriate responses to scarcity of each. Oil is destructible but also replaceable. Water is indestructible but irreplaceable. That makes a big difference in how you respond to crisis.