Replenishable but Depletable Resources: Water

1
Replenishable but Depletable Resources Water

• You will never miss water, till your taps get dry.

2
Supply of water

• Our renewable supply of water is controlled by
  the hydrologic cycle only a fraction available
  for humans of which 2.2 is freshwater just
  0.01 available for us
• Replace body fluids food sources depend on it
• Current supply is 10 times more than consumption
  Surface water ground water
• withdrawals in US in 2000 262 b gallons per
  day of which 83 b g from ground water
• Worldwide 1.5 b depend on groundwater for
  drinking supplies (2002) agriculture largest
  consumer

3
Rain Clouds
Rain
Clouds formation
Evaporation
Vegetation
Surface run-off
Ground water
Soil
Ponds
Deep Percolation
Ocean
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• 1.5 billion people depend on ground water
• Agriculture largest consumer
• Water diversion is common (Tucson) but
  increasingly unavailable
• Quality of water depletion contamination is a
  problem limits supply of potable water
• Excessive withdrawal from aquifers ? sudden
  sinking of land
• Groundwater bore wells difficult to replenish
• Water shortage everywhere Mexico city/India
• Is this allocation efficient?

5
Efficient allocation of Scarce Water

• Efficiency depends on whether surface water
  ground water is trapped?
• Surface water absence of storage competing
  users - supply by nature - future generations
  not affected by withdrawal practices today
• Ground water withdrawal now affects future
  allocation over time is crucial

6
Surface Water Efficient Allocation

• Many uses / users for efficient allocation
• (1) Strike balance among a host of competing
  users (2) find an acceptable means of variable
  supply of surface water each year
• Supply not constant changes in a year year to
  year ? allocated in the fashion when MNB is equal
  for all users
• If MNB s are not equalised - transfer water from
  low MNB to high MNB

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• A B individual net benefit curves Supply So
  water available OQTo

S0
S1
Per unit
A
MNB1
B
Aggregate MNB
MNB0
0
QB0 QA1 QA0 QT0

Quantity of water
QT2
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• If supply of water changes to S1 then B use
  receives no water A gets it all
• Why is allocation so radically different between
  S0 S1 ?
• MNB curve of use A is above that of use B, shows
  that as supply falls the cost (forgone net
  benefits) of doing without water for A is higher
  than that of B
• To minimise the cost more burden is on B than on
  A
• Efficient allocation those who find substitutes
  or conserve receive smaller allocation as supply
  diminishes than those who have few alternatives

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Groundwater

• Depletable
• Withdrawals gt recharge resource will be mined
  until
• Supply gets exhausted or
• MC of pumping additional water gets prohibitive
• Substitute to groundwater proximity to surface
  water
• Price rises over time until the point of
  exhaustion or until marginal pumping cost gets
  prohibitive or MC of pumping next least
  expensive source of water i.e. when MC of pumping
  price
• If ground is porous groundwater withdrawals can
  affect surface water flows

10
The Current Allocation System

• In US ( also in India) the means of allocating
  water differ from one geographic area to the
  other
• Property rights - Riparian rights right to use
  water to one staying adjacent to water
• Gold mining - demand for change in property
  rights structure - need for transferability
• Evolution in mining camps became the forerunner
  of prior appropriate doctrine.
• Shifting of water to more useful uses - from
  surplus to deficit areas - Irrigation system by
  private companies - agriculture flourished
• Public ownership - usufructory rights

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• State control on rates of water transfer by
  private companies
• Demand still high profits high large scale
  water diversion
• Federal role originated in 1800s out of concern
  for countrys development economic growth -
  built network of inland waterways for
  transportation
• 1902 Reclamation Act federal govt. built 700
  dams to provide water power to help settle the
  West
• Subsidy for water supply

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Inefficiency

• Current system not efficient - due to
  restrictions on water transfers - MNB should be
  equal in all uses trading rights for water ?
  efficiency
• Inefficiently low prices
• Allocation inefficient - transfers from
  agriculture to municipality are common as it
  raises the marginal benefit
• Subsidies - Rate structure prices both are at
  fault
• Prices low as (i) historic ACs are used to
  determine rates (ii) marginal scarcity rent is
  rarely included
• Efficient pricing should use MC not AC water
  utilities are capital intensive with large fixed
  costs in SR

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• S-Run AC will be falling ? MC falls below AC - ?
  Mc pricing will not generate enough revenue to
  cover costs
• Low pricing ignoring marginal scarcity rent
  will promote excessive demand for water
• 2001 conflict between off-stream in-stream
  users
• Without formal recognition of in - stream flow
  rights, the value of species cannot be properly
  incorporated into allocation of decision

14
Common Property Problems

• Open access resource depleted too rapidly
• Users loose interest in conserving - marginal
  scarcity rent ignored
• In an efficient market incentive to conserve
  groundwater is created by the desire
• To prevent pumping costs from increasing too
  rapidly
• To capitalise on increasing prices that would
  rise in future
• Conserver no exclusive right to the water saved
• People on the periphery of aquifer would be hit
  1st at center supply for longer time

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• For open access resources economic theory
  suggests several direct consequences
• Pumping cost rises rapidly initially price low
• Too much consumption by early users
• Burden of this waste not shared uniformly
• Aquifer bowl shaped centre supply water for
  longer time
• Future users hit hard
• For coastal aquifers salt water intrusion is an
  additional cost

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Potential remedies

• Reforms to promote efficiency of water use, while
  keeping in mind interests of future generations
• Reduce number of restrictions on water transfers
  - use it or loose it extravagant use of water
• Pricing practices for irrigation water Two part
  volumetric pricing, output pricing, block
  rates, input pricing, area pricing
• Water free good charge only distribution cost-
  scarcity value should be charged

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• Various variable charges

Uniform rate structure
Declining block rate structure
Per Unit Cost
Inverted block rate structure
Peak
Seasonal peak rate structure
Non-peak
Usage
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• Role of Water Politics 1976 Tucson
• Privatisation of water supply monopoly
  excessive rates when rights allocated fairly
  enforced consistently, privatisation of access
  rights can become beneficial for all users not
  only to the rich
• Water scarcity is not merely a problem to be
  faced at some time in the distant future. In many
  parts of the world it is already a serious
  problem unless preventive measures are taken it
  will get worse . The problem is not insoluble,
  though to date the steps necessary to solve it
  have not yet to been taken.

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To sum up

• Water scarcity is already a serious problem
• Current use of water exceeds replenishable
  supplies, implying that aquifers are being
  irreversibly drained.
• Replenishable water should be allocated to
  equalise the MNB
• Ground water requires that the user cost of be
  considered
• Reforms are possible