David R. Henderson  

California Water Numbers

The Opposite of What Robin Say... Surviving on the Margin...
Apparently we are supposed to be worried about fracking depleting water in California. ThinkProgress reports that Despite Historic Drought, California Used 70 Million Gallons Of Water For Fracking Last Year. Similar concerns are raised by RT, Huffington Post, and even The New York Times. But 70 million gallons equals 214 acre-feet. Remember, alfalfa production uses 5.3 million acre feet. In our family-of-four analogy above, all the fracking in California costs them about a quarter. Worrying over fracking is like seeing an upper middle class family who are $6,000 in debt, and freaking out because one of their kids bought a gumball from a machine.
This is from "Scott Alexander" (in quotations because it's a pseudonym), "California, Water You Doing." The whole thing is worth reading because it's such a beautiful numerate analysis.

Of the 80 million acre feet a year of water use in California, only 2.8 million acre feet are used for toilets, showers, faucets, etc. That's only 3.5 percent of all water used.

One crop, alfalfa, by contrast, uses 5.3 million acre feet. Assuming a linear relationship between the amount of water used to grow alfalfa and the amount of alfalfa grown, if we cut the amount of alfalfa by only 10 percent, that would free up 0.53 million acre feet of water, which means we wouldn't need to cut our use by the approximately 20 percent that Jerry Brown wants us to.

What is the market value of the alfalfa crop? Alexander quotes a study putting it at $860 million per year. So, assuming, for simplicity, a horizontal demand curve for alfalfa, a cut of 10% would reduce alfalfa revenue by $86 million. (With a more-realistic downward-sloping demand for alfalfa, alfalfa farmers would lose less revenue but consumers would pay more.) With a California population of about 38 million, each person could pay $2.26 to alfalfa growers not to grow that 10%. Given that the alfalfa growers use other resources besides water, they would be much better off taking the payment.

Of course, this assumes that it's relatively easy to transfer water from farmers to mainly urban dwellers. But it's not. Government regulation has made this difficult. Here's a quote from a piece by Nathanael Johnson, who appears to be someone who tracks it closely:

My experience in trying to sell hypothetical water [in California] left me with the sense that the risks and transaction costs would make it prohibitively unattractive. But people still manage to do it. It's the water districts, not the individual farmers, that take care of the red tape.

But it could be much easier. In Australia, you can do the whole deal over the internet. I talked to Tom Rooney, founder of Waterfind, an online platform for buying and selling Australian water, and the process he described sounded simpler: "You post your order up, and of course if you want too much, you won't find a buyer right away. But if you are at the market price, it will clear that same day, and the person will have the water the next day."

HT to Tyler Cowen.

The author continues:

In 2002, when Rooney developed his first version of the online marketplace, people thought he was crazy, because there was hardly any water market, and it was still the age of dial-up modems. "I'm lucky I didn't get locked up in the loony bin," he said. But Australia was also two years into a drought, which stretched on until 2010. And the water markets turned into a key tool for adapting to the drought.

As the country dried up, it was forced to make changes. Australia passed a law to clarify water rights and make them more easily tradable. It installed meters to measure how much each farmer was taking. It set strict fines for farmers who broke the rules.

There's still plenty of complex water law and environmental regulations, but all that has been rationalized enough so that it can take place under the hood of an online marketplace like Waterfind. There are 27,000 government rules integrated into the system, Rooney said. As you move water from one place to another, if you have to leave a percentage for environmental uses or pay a special fee, Waterfind automatically makes those adjustments to the price.

Australia may seem light-years ahead of California. But as California enters its fourth year of drought, it's edging toward the decade-long ordeal that forced Australia to rewrite its laws. If the state legislature were motivated to make the necessary changes to water law, Central Valley farmers could be trading water from their smartphones, Silicon Valley-style. And even if the state doesn't go that far, it could improve its water market considerably with some simple tweaks. (Hanak suggests six fixes in this report.) Even in its current, cumbersome manifestation, the California water market is working -- moving water to the farmers that need it most.

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COMMENTS (10 to date)
Michael S. writes:

I think the bourgeois liberal elite enjoy the water rationing. It gives them a good crisis to justify more government (never let a crisis go to waste), and gives them a feel-good opportunity to publicly demonstrate how "green" they are. Front lawns allowed to die (or better yet, converted to costly native xeriscaping with boutique clumps of native grasses) are a very public way to demonstrate their modern virtue.

MikeP writes:
Australia passed a law to clarify water rights and make them more easily tradable.


It is dreadful that politicians, water boards, and writers of letters to the newspaper complain that California's complicated water rights mean this problem can't be solved. If the rights are tradable, the problem is trivially solved as urban users can easily outbid agricultural uses.

The one concern I haven't seen addressed is whether capital investments in, say, almond orchards can survive less water for a season or two. Can the trees be kept alive when the intentional almond production is significantly curtailed?

Even so, I expect that urban users can easily outbid the capital loss as well.

Mark M writes:

I like the dig about economists and blogging in Alexander's post. :)

Jon Murphy writes:

It is also my understanding that fracking uses non-potable water. From what I understand, some "new" water is used to start a new well, but after that, they keep reusing water over and over again.

Yaakov writes:

Since I was a kid I was told that Israel is short in water and we must conserve. I believed these lies, until one day I saw the Mediterranean sea and said you have to be silly to believe we are short on water. Recently, the government started desalinating and raised the water price (which is government regulated) and now Israel has a problem of water surpluses (well, not a serious one). California, if I remember correctly, has an ocean on the west. I assume it is illegal to desalinate and therefore there are shortages.

Hanako writes:

It's nice to pick low hanging agricultural fruit. And while alfalfa appears to be there, I think there is another agricultural candidate in California that could be eliminated, corn. California is a minor (or even smaller) factor in US corn production. Extracting it's production from the water pool would yield 1.7 MAF. I presume that a portion of this corn is produced for the ethanol mandate. This hints at a possible twofer.

MikeP writes:

The canonical waste of water in California is that one gallon of water yields one almond.

But, by all means, don't let that stop you from showing your fretful concern that your neighbor's lawn is green.

Kenneth A. Regas writes:

Desalting the sea is expensive, $2000 per acre foot in San Diego, where I live. That's more than the residential retail price of water here. The raw energy cost alone is over $400 per acre foot. In comparison, California's Imperial Valley farmers buy untreated water from the nearby Colorado River for $20 per acre foot.


Yaakov writes:


Thanks for the numbers. The cost in Israel of desalting is about $0.6 for a cubic meter, which is about $740 for an acre foot, if I have my numbers straight. I do not know why we get such a bargain, maybe because the government owns just about all the land and there are no land costs or maybe because the government promises to buy all the water desalted for 20 years ahead. I used to pay about $1 for a cube meter of water, which would be $1233 for an acre foot. Farmers paid half that price or maybe a third. We now pay 2.5 times that price for excess water and a little more than a dollar for our basic quota 5 cube meter per person per month.

So this is how I understand the situation: water in California is basically free and is therefore used on the margin for things that in Israel would be considered very very wasteful. It makes the complaints on a drought in California look ridiculous from the middle east.

Chris Perry writes:

The arguments presented in this article are indeed powerful, and would be even more powerful if the water accounts were presented more clearly:

Agriculture is a CONSUMPTIVE user of water -- the purpose of providing irrigation water is to pass it through the plant, converting it into water vapour.

Domestic use (other than for watering the garden) is primarily a NON-CONSUMPTIVE use -- the water mostly just goes through the system (be it bath, shower, washing machine, dishwasher or WC) and returns to the system for treatment and reuse elsewhere. (Except, of course in coastal cities).

Industry tends to be non-consumptive, BUT pollution in return flows may require multiple additional volumes of water to dilute effluent to acceptable quality.

So taking water out of agriculture is indeed the way to go for minimum cost release of water to others -- but always do the accounts carefully to see what the "real" water savings of any intervention might be. Then set water rights, then allow trading. It took Australia two decades, starting from a well defined operational system, to get to trading. It is not easy, and vested interests will resist.

And finally, in support of alfalfa and corn, note that these relatively low value seasonal crops can be abandoned at times of shortage with little cost. Not so with the almonds!

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