Water: An Economic Perspective Water: The Hydrological Cycle - - PowerPoint PPT Presentation

Water: An Economic Perspective

Water: The Hydrological Cycle

Water: The Hydrological Cycle

2 sources readily available for human exploitation:

• 1. Surface water

Rivers, lakes, reservoirs

• 2. Groundwater

Collects in porous layers of underground rock, called “aquifers”

Water: The Hydrological Cycle

Note:

• some groundwater is recharged, through percolation of rainwater

and snowmelt

• most groundwater is not recharged, except over geologic time scales

Estimate: 16,000 trillion gallons of U.S. groundwater 400 trillion “recharged” annually, and therefore renewable

Water: Withdrawals, 2005

Water: Withdrawals, 2005

Water: Withdrawals by state, 2005

Water: Withdrawals by state, 2005

Water: Withdrawals by state, 2005

Water: Unsustainable use in Arizona

Example: Tuscon, AZ

• Annual rainfall: 11”
• Surface water? Not so much
• Population explosion

==> aquifer down 100 feet in 10 years! Estimate: aquifer exhausted in 100 years Estimate: pumping rate roughly 5x the natural recharge rate

Water: Unsustainable use in California

Surface Water Resource:

• 200m. acre-feet/year rainfall

7 m. acre-feet/year (Colorado & Klamath Rivers) _________ =207 m. a.f./yr Net Surface Water 2/3 evaporation/transpiration 1/3 (i.e. 71 m. a.f.) as annual runoff Groundwater: 850 m. a.f. available 14 m. a.f. withdrawn annually (12.5 m.a.f. annual recharge) _________ =1.5 m.a.f. overdraft

Water: Unsustainable use in California

Specific Uses: Eco-system maintenance (necessary in-stream flows): average 36.9 m.a.f./yr Net available: 71 - 36.9 = 34.1 m.a.f./yr 80% dedicated to agriculture 16% for urban 4% for recreation, wildlife, power generation Urban use growing @ 64 k.a.f./yr Populations projections show rapid growth in the driest areas

Water: Unsustainable use in California

Water: Unsustainable use in California

Water: Unsustainable use in California

Water: Unsustainable use in California

Water: An Economic Perspective

Two kinds of efficiency: 1) Efficient allocation among competing uses (at a moment in time) 2) Efficient allocation across time (dynamic efficiency)

Water: An Economic Perspective

(1) Efficient allocation among competing uses:

• requires that MNBi = MNBj all i,j

NOTE: this is similar to the equimarginal condition If MNBi > MNBj ==> i should get more, j should get less (i could compensate j, Pareto improvement) NOTE: in the case of non-storable Surface Water (river water, e.g.), this is the

• nly efficiency criterion

Water: An Economic Perspective

BUT: when there is storage (and scarcity), we also have: (2) Dynamic efficiency To maximize the present value of the flow of value from a finite, exhaustible resource: MNBt = MNB(t+1)/(1+i) all t, t+1 which brings us to: Groundwater

Water: Groundwater

Water: Groundwater

Water: Groundwater

Water: Groundwater

Water: Groundwater

Water: Groundwater

Water: Groundwater

Exercise: Compare on Google Maps

• 1. Iowa
• 2. SW Nebraska

Water: Groundwater

Water: The Basic Economic Challenge

1) Static efficiency: equate MNB’s across sectors, at each moment in time

• urban domestic, rural irrigation, industrial/commercial, etc.

2) Dynamic efficiency: equate present value of MNBs, across time

Water: The Basic Economic Challenge

Question: How are we doing? Answer: Badly. Market failures all around.

• lack of property rights make trading difficult
• common pool resource problems make “storage” difficult
• institutional details make efficiency pricing difficult