Economic Analysis of Stage I of the California WaterFix Costs and Benefits to Urban and Agricultural Participants

California Department of Water Resources (DWR) | February 12th, 2018

The California WaterFix, considered initially as part of the Bay Delta Conservation Plan, is a foundational component of the state’s Water Action Plan. It add

The California WaterFix, considered initially as part of the Bay Delta Conservation Plan, is a foundational component of the state’s Water Action Plan. It addresses environmental, seismic, water quality and climate change threats to the existing water conveyance infrastructure in the Delta and complements efforts to improve ecological functions being advanced by the state’s California EcoRestore program. During this planning process that now spans more than 11 years, economic principles for measuring costs and benefits have been applied over time in various reports to review the values of water system and ecosystem improvements and to help advance public discussion and debate. Such cost-benefit analyses have gone beyond what is legally required because of the statewide significance of the project. This most recent analysis is intended to help examine the evolved project and the related costs and benefits of the potenti al participants in both the urban and agricultural sectors. After several years of analysis, the California Department of Water Resources is considering an option to implement the California WaterFix project in two Stage s. Stage I would consist of two 3,000-cfs intakes connected to one 40-ft diameter tunnel. From the intakes, water would be conveyed by gravity flow to a 6,000-c fs pumping plant that lifts it into Clifton Court Forebay. Stage II of the California WaterFix would consist of an additional 3,000-cfs intake connected to a second tunnel. Because not all aspects of financing and project participation have been decided at present, this report considers Stage I costs and benefits in multiple alternative scenarios. These scenarios include whether i) low - interest federal financing will be available to cover a share of project costs, ii) revenues will be collected for federal contractors’ use of up to 1,000-cfs of the Stage I project or whether the State Water Contractors will make use of the entire capa city , and iii) trading of project capacity will be allowed among t he State Water Contractors . Participants in Stage II of the California WaterFix are not currently known. Depending on the evolution of environmental regulations, water demands and climate, state and federal water agencies may decide to implement Stage II at some point in the future. At that time, a detailed cost - benefit analysis of Stage II can be completed. The analysis described in this report concludes that Stage I of the California WaterFix passes a cost - benefit test for SWP urban and agricultural agencies under all scenarios analyzed . T he ability of project participants to trade their shares in the project is highly beneficial to SWP agricultural agencies, as is the availability of federal low - interest financing . The analysis also indicates that federal contractors south of the Delta receive benefits in excess of costs from the use of up to 1,000-cfs of Stage 1 project capacity. The State Water Project contractors would also receive positive net benefits were they to use all 6,000-cfs of capacity.

Economic Analysis of the 2014 Drought for California Agriculture

University of California, Davis (UC Davis) | July 15th, 2014

California is enduring its third driest year on record as agricultural, urban and environmental demands for water are at an all-time high. This report presents an assessm

California is enduring its third driest year on record as agricultural, urban and environmental demands for water are at an all-time high. This report presents an assessment of the economic impacts of the 2014 drought on crop production, livestock and dairies using a suite of models.  This analysis extends the preliminary estimates of the Central Valley drought impacts released May 19, 2014 (Howitt et al. 2014) to include:  •Broadened coverage of the Statewide Agricultural Production Model (SWAP) to include majoragricultural areas on California's central and south coasts and inland farms of the Imperial,Coachella and Palo Verde valleys, •Updated SWAP agricultural production and economic impact estimates for the Central Valleyusing the most current data available, •Estimated Central Valley impacts if the drought persists through 2015 and 2016, includingeconomic effects and the impact of increasing groundwater depletion and pumping depths usingthe California Department of Water Resources’ (DWR) C2VSIM model, •Estimated fallowing of cropland due to drought using the SWAP model, •Estimated losses to dairies and livestock using a supply elasticity approach based on pasturelosses and feed crop prices, and •Comments on the preliminary draft from various state agencies. The study finds that the 2014 drought will result in a 6.6 million acre-foot reduction in surface water available to agriculture. This loss of surface water will be partially replaced by increasing groundwater pumping by 5 million acre-feet.  The resulting net water shortage of 1.6 million acre-feet will cause losses of $810 million in crop revenue and $203 million in dairy and other livestock value, plus additional groundwater pumping costs of $454 million. These direct costs to agriculture total $1.5 billion. The total statewide economic cost of the 2014 drought is $2.2 billion, with a total loss of 17,100 seasonal and part-time jobs. Table ES-1 summarizes the key findings of the study. 

Economic Analysis of the 2015 Drought for California Agriculture

University of California, Davis (UC Davis) | August 17th, 2015

In 2015 California agriculture is facing its fourth year of severe drought. As in 2014, irrigation districts and farmers are showing more resilience to the drough

In 2015 California agriculture is facing its fourth year of severe drought. As in 2014, irrigation districts and farmers are showing more resilience to the drought than many had anticipated. Groundwater substitution has again greatly reduced crop fallowing and job losses. Water trading and operational flexibility also have significantly reduced the costs of the drought, and preservation of the most valuable crops has helped buffer economic impacts. However, the effects of drought are unevenly distributed over regions. In some regions with limited groundwater reserves the economic and employment impacts are very severe. In others, there is an increased cost of expanded groundwater use which is partially offset by high crop prices. Just as the economic impacts of the drought have grown modestly since 2014, continuation of the drought to 2016 or beyond with similar intensity is likely to slowlyerode the state’s agricultural production and employment.

Economic Analysis of the 2016 California Drought on Agriculture

University of California, Davis (UC Davis) | August 15th, 2016

Persistent dry conditions over the past few years have put California’s irrigated agriculture under severe water stress. Improved precipitation during the win

Persistent dry conditions over the past few years have put California’s irrigated agriculture under severe water stress. Improved precipitation during the winter and spring of 2016, and favorable market conditions, among other factors, have improved prospects for agriculture in 2016. However, water supply restrictions for temperature, endangered species, and salinity management continue to challenge some farming regions. We present an analysis of the economic impact of the 2016 drought on California’s agriculture. The analysis relies on a suite of models and data to estimate responses to water scarcity. The Statewide Agricultural Production Model (SWAP, Howitt et al. 2012) is calibrated to average year water conditions and used to simulate the response of agriculture to changes in water availability. SWAP model output is linked to the IMPLAN input­output model and used to estimate changes in gross revenues, employment, and value added across all related sectors ofthe economy. The report is structured as follows. First, we summarize 2016 water supply conditions for agriculture. Next, we present the results of an economic analysis of impacts to agriculture using the SWAP model, and impacts to ancillary industries using the IMPLAN model. We conclude with a discussion of policy implications, limitations, and future analyses. Several appendices provide further details on groundwater availability and cost, land fallowing, consumptive use, livestock and dairies, employment, and regional economic impacts.

Economic and Environmental Implications of California Crop and Livestock, Adaptation to Climate Change

California Natural Resources Agency (CNRA) | August 27th, 2018

Economic and Water Supply Effects of Ending Groundwater Overdraft in California's Central Valley

University of California, Davis (UC Davis) | March 1st, 2016

Surface water and groundwater management are often tightly linked, even when linkage is not intended or expected. This link is especially common in semi-arid regions, suc

Surface water and groundwater management are often tightly linked, even when linkage is not intended or expected. This link is especially common in semi-arid regions, such as California. This paper summarizes a modeling study on the effects of ending long-term overdraft in California’s Central Valley, the state’s largest aquifer system. The study focuses on economic and operational aspects, such as surface water pumping and diversions, groundwater recharge, water scarcity, and the associated operating and water scarcity costs. This analysis uses CALVIN, a hydro-economic optimization model for California’s water resource system that suggests operational changes to minimize net system costs for a given set of conditions, such as ending long-term overdraft. Based on model results, ending overdraft might induce some major statewide operational changes, including large increases to Delta exports, more intensive conjunctive-use operations with increasing artificial and in-lieu recharge, and greater water scarcity for Central Valley agriculture. The statewide costs of ending roughly 1.2 maf yr of groundwater overdraft are at least $50 million per year from additional direct water shortage and additional operating costs. At its worst, the costs of ending Central Valley overdraft could be much higher, perhaps comparable to the recent economic effects of drought. Driven by recent state legislation to improve groundwater sustainability, ending groundwater overdraft has important implications statewide for water use and management, particularly in the Sacramento–San Joaquin Delta. Ending Central Valley overdraft will amplify economic pressure to increase Delta water exports rather than reduce them, tying together two of California’s largest water management problems.

Economic and water supply effects of ending groundwater overdraft in California’s Central Valley

University of California, Davis (UC Davis) | March 1st, 2016

Surface water and groundwater management are often tightly linked, even when linkage is not intended or expected. This link is especially common in semi-arid regions,

Surface water and groundwater management are often tightly linked, even when linkage is not intended or expected. This link is especially common in semi-arid regions, such as California. This paper summarizes a modeling study on the effects of ending long-term overdraft in California’s Central Valley, the state’s largest aquifer system. The study focuses on economic and operational aspects, such as surface water pumping and diversions, groundwater recharge, water scarcity, and the associated operating and water scarcity costs. This analysis uses CALVIN, a hydro-economic optimization model for California’s water resource system that suggests operational changes to minimize net system costs for a given set of conditions, such as ending long-term overdraft. Based on model results, ending overdraft might induce some major statewide operational changes, including large increases to Delta exports, more intensive conjunctive-use operations with increasing artificial and in-lieu recharge, and greater water scarcity for Central Valley agriculture. The statewide costs of ending roughly 1.2 maf yr-1  of groundwater overdraft are at least $50 million per year from additional direct water shortage and additional operating costs. At its worst, the costs of ending Central Valley overdraft could be much higher, perhaps comparable to the recent economic effects of drought. Driven by recent state legislation to improve groundwater sustainability, ending groundwater overdraft has important implications statewide for water use and management, particularly in the Sacramento–San Joaquin Delta. Ending Central Valley overdraft will amplify economic pressure to increase Delta water exports rather than reduce them, tying together two of California’s largest water management problems.

Economic consequence analysis of the ARkStorm scenario

American Society of Civil Engineers (ASCE) | November 1st, 2016

The business interruption (BI) impacts of ARkStorm, a severe winter storm scenario developed by the U.S. Geological Survey and partners, is estimated. BI stems from l

The business interruption (BI) impacts of ARkStorm, a severe winter storm scenario developed by the U.S. Geological Survey and partners, is estimated. BI stems from losses of building function, productivity of agricultural land, and lifeline services. A dynamic computable general equilibrium model of the California economy is developed to perform this economic consequence analysis. Economic resilience in the form of input and import substitution is inherent in the model’s equilibrium solution, and the model parameterization is adjusted to reflect other forms of resilience such as production recapture. Varying assumptions about the timing and source of funds for reconstruction results in a range of recovery paths. Five years after the storm, flood-induced building damage is the overwhelming source of gross domestic product (GDP) losses, timely and partially externally funded reconstruction mitigates impacts by approximately 50%, and the economy is not guaranteed to return to its baseline GDP trajectory. The methodology serves as a template for assessing the macroeconomic consequences of disasters and the influence of resilience in reducing BI losses.

Economic consequences of optimized water management for a prolonged, severe drought in California

American Geophysical Union (AGU) | May 21st, 2010

If abrupt climate change has occurred in the past and may be more likely under human forcing, it is relevant to look at the adaptability of current infrastructure system

If abrupt climate change has occurred in the past and may be more likely under human forcing, it is relevant to look at the adaptability of current infrastructure systems to severe conditions of the recent past. Geologic evidence suggests two extreme droughts in California during the last few thousand years, each 120–200 years long, with mean annual streamflows 40%–60% of the historical mean. This study synthesized a 72-year drought with half of mean historical inflows using random sampling of historical dry years. One synthetic hydrological record is used, and sensitivity to different interpretations of the paleo record is not evaluated. Economic effects and potential adaptation of California’s water supply system in 2020 to this drought is explored using a hydro-economic optimization model. The model considers how California could respond to such an extreme drought using water trading and provides best‐case estimates of economic costs and effects on water operations and demands. Results illustrate the ability of extensive, intertied, and flexible water systems with heterogeneous water demands to respond to severe stress. The study follows a different approach to climate change impact studies, focusing on past climate changes from the paleorecord rather than downscaled general circulation model results to provide plausible hydrologic scenarios. Adaptations suggested for the sustained drought are similar for dry forms of climate warming in California and are expensive but not catastrophic for the overall economy but would impose severe burdens on the agricultural sector and environmental water uses.

Economic Efficiency of Water Use and Allocation in California: A Scoping-Level Analysis

Delta Vision Blue Ribbon Task Force (Delta Vision) | July 1st, 2008

This report identifies key issues related to the economic efficiency of water development, allocation and use in California and discusses general policy changes that migh

This report identifies key issues related to the economic efficiency of water development, allocation and use in California and discusses general policy changes that might improve economic efficiency. Policy options focus on water pricing, water transfers, water use efficiency (i.e, conservation) and State development and enforcement policies. Analysis is provided at a scoping level of detail. Some important empirical issues that weigh on the relative merits of potential policy changes are not addressed. Efficiency of water use has never been more important in California. There is a need to save water and money. California has recently made progress in improved economic efficiency of water use, but major issues remain. Also, recent changes in the amount and location of supplies suggest a review of allocation efficiency. There are two important efficiency topics that this paper does not address in detail. First, economic efficiency of water use for ecosystem purposes is a viable concept, but it is difficult to apply given the state of Delta ecosystem science and the current range of possible futures. We can not quantify the relationship between water and ecosystem functions and values. Therefore, our ability to prescribe efficiency changes related to Delta water for ecosystem purposes is limited. Second, this paper also does not address the economic efficiency of major new storage or Delta conveyance facilities. The efficiency of specific water supply projects including regional or local conjunctive use and groundwater storage projects are also not considered. These are being addressed in different forums. This report focuses on other types of uses, allocations and development of water. A variety of potential actions and policies that might improve efficiency in the allocation, use and development of water resources are discussed. Some of the efficiency issues are • Are water allocations under California’s water rights systems efficient? • If there are inefficiencies, could an effective water transfer market increase efficiency? • Are there barriers or constraints to water transfer markets that should be removed? • How could water pricing be changed to increase efficiency? • How could California encourage efficiency in the use and development of water through incentives such as grants and loans, and through enforcement? In all cases, our findings represent potential improvements from the perspective of economic efficiency alone. There are usually other, non-economic considerations which would play into the larger question of the laws and policies that might be changed.