6
Better Management of Existing Water Supplies

Increasing demands for water in many areas across the United States, constraints on traditional engineering approaches to augmenting supplies, and concerns over environmental impacts of additional water withdrawals have prompted the search for nontraditional means for procuring new supplies of water to meet shortfalls during drought periods or to provide for more permanent uses. Market-based mechanisms have been implemented in many western states in an effort to lend greater flexibility to water allocation and to reallocate water to higher-value uses without increasing water diversions. This chapter examines water’s economic dimensions as well as experiences with water transfers and other nonstructural measures that could be used to help augment supplies. These market-based measures have the potential to contribute to economic and human needs. Furthermore, because they focus on improved water use efficiencies, they do not require additional water withdrawals and can thus also contribute to viable salmon populations and a healthy Columbia River ecosystem.

THE ECONOMIC VALUE OF WATER

As discussed throughout this report, the waters of the Columbia River today sustain a wide variety of economic activities. Columbia River salmon populations have important commercial, recreational, and cultural values. The Federal Columbia River Power System provides an abundance of low-cost electricity that has been crucial to the region’s economic growth. The Columbia River is important for irrigation, as it supports the Columbia Basin Project and hundreds of irrigation farms. The river provides water for municipal and industrial uses in the Tri-Cities of Washington. The Columbia River and its tributaries assimilate



The National Academies | 500 Fifth St. N.W. | Washington, D.C. 20001
Copyright © National Academy of Sciences. All rights reserved.
Terms of Use and Privacy Statement



Below are the first 10 and last 10 pages of uncorrected machine-read text (when available) of this chapter, followed by the top 30 algorithmically extracted key phrases from the chapter as a whole.
Intended to provide our own search engines and external engines with highly rich, chapter-representative searchable text on the opening pages of each chapter. Because it is UNCORRECTED material, please consider the following text as a useful but insufficient proxy for the authoritative book pages.

Do not use for reproduction, copying, pasting, or reading; exclusively for search engines.

OCR for page 146
Managing the Columbia River: Instream Flows, Water Withdrawals, and Salmon Survival 6 Better Management of Existing Water Supplies Increasing demands for water in many areas across the United States, constraints on traditional engineering approaches to augmenting supplies, and concerns over environmental impacts of additional water withdrawals have prompted the search for nontraditional means for procuring new supplies of water to meet shortfalls during drought periods or to provide for more permanent uses. Market-based mechanisms have been implemented in many western states in an effort to lend greater flexibility to water allocation and to reallocate water to higher-value uses without increasing water diversions. This chapter examines water’s economic dimensions as well as experiences with water transfers and other nonstructural measures that could be used to help augment supplies. These market-based measures have the potential to contribute to economic and human needs. Furthermore, because they focus on improved water use efficiencies, they do not require additional water withdrawals and can thus also contribute to viable salmon populations and a healthy Columbia River ecosystem. THE ECONOMIC VALUE OF WATER As discussed throughout this report, the waters of the Columbia River today sustain a wide variety of economic activities. Columbia River salmon populations have important commercial, recreational, and cultural values. The Federal Columbia River Power System provides an abundance of low-cost electricity that has been crucial to the region’s economic growth. The Columbia River is important for irrigation, as it supports the Columbia Basin Project and hundreds of irrigation farms. The river provides water for municipal and industrial uses in the Tri-Cities of Washington. The Columbia River and its tributaries assimilate

OCR for page 146
Managing the Columbia River: Instream Flows, Water Withdrawals, and Salmon Survival and carry away agricultural, industrial, and municipal waste. Given increasing demands for water from the Columbia River and its tributaries, it is important to understand how the value of water varies across each of these different types of water use. Water resources in the western United States have traditionally been allocated across competing uses via legal or institutional means, not by markets. As noted in Chapter 5, water resources in the western U.S. are typically allocated by the prior appropriation doctrine, which tends to fix the allocation of water across a specific set of uses. In an attempt to add flexibility to the prior appropriation doctrine, traditional definitions of “beneficial use” are being reconsidered in many western U.S. states by specifying how water rights holders use water. This requires some understanding the economic value of water across a range of different uses. There is a rich literature on the value of water in a number of uses, including agricultural, industrial, municipal, recreational, and hydropower uses. Estimates of water value can be influenced by a variety of factors. These include measurement techniques employed, the nature of the data used in the assessment, and assumptions made in the estimation. Spatial and temporal aspects of water use also affect its value. The economic definition of value is tied to the concept of willingness to pay. This concept holds that the value of an item is equal to what an individual is willing to pay for it (in monetary terms) or in terms of what the individual would give up to obtain the item. This concept of willingness to pay is also related to the notion of “demand” and is related to the relationship between the demand for a good and its price. Specifically, a price-demand relationship can be viewed as an expression of marginal willingness to pay for the item (the term “marginal” refers to the value of the next or incremental unit demanded). This marginal willingness to pay usually declines with units consumed. In addition to the direct measurement of marginal willingness to pay for water, the concept of alternative cost can be used to assign values to water in various uses. With this concept, the value of water is defined as the cost of the least expensive alternative to water (Gibbons, 1986). The following values for various use categories are derived primarily from a review of the literature (Gibbons, 1986), in which values from several studies in each water use category were synthesized. Values listed in this section are expressed in 1999 U.S. dollars unless indicated otherwise.

OCR for page 146
Managing the Columbia River: Instream Flows, Water Withdrawals, and Salmon Survival Agriculture In discussions regarding the value of water to agriculture, it is important to note the assumptions that underlie the procedures used to assign a value to water, as these assumptions influence the derived water values. Historically, as western water was allocated primarily in accordance with the doctrine of prior appropriation, and not by market mechanisms, there were thus no market prices from which to determine its “value.” As a result, initial efforts at valuing agricultural water usually relied on techniques that imputed or inferred a value by comparing all expenses associated with producing a crop with the revenues received from sale of the crop. The residual value (the difference between revenues and assigned costs) was assigned to the unpaid input—in this case water. However, the residual value reported in some studies may also include other values, such as a return to the farmer’s management as well as to land. It is thus important to claim only the residual due to water in assigning a value to water. The values reported in Gibbons (1986) appear to be for those associated only with water, as are additional references cited below. Another factor that affects water values is whether the value is assigned to water diverted (applied) to the field or assigned to water actually consumed (water “consumed” refers to the amount of evapotranspiration, or ET). Since diversions always exceed evapotranspiration, water values calculated using diversions will be lower than those based on ET. The values in this section are assumed to be based on diversions. Water’s value as an input in the agricultural production process depends primarily on the value of the crop being produced. Thus, a farmer’s demand for irrigation water is a derived demand that depends on the demand for the crop being sold. The effect of crop value on water value is confirmed in numerous studies that have shown that the marginal value of water is higher for high-value crops than for low-value crops. For example, several studies conducted at different locations in the western United States have presented estimates for the marginal value of water for grain sorghum (a low-value crop) in the range of roughly $3 to $40 per acre-foot (1999 dollars), while estimates of the marginal value of water in the production of fresh vegetables (high-value crops) often exceed several hundred dollars per acre-foot.

OCR for page 146
Managing the Columbia River: Instream Flows, Water Withdrawals, and Salmon Survival Although many studies provide crop-specific marginal values of water, other studies estimate marginal water values based on current proportion of acreage dedicated to each crop type at a given location. For example, in a study of irrigated farmland in Oregon’s John Day River basin, the U.S. Bureau of Reclamation estimated the value of water for the production of a mix of crops including pasture, alfalfa, and wheat to be in the range of $20 to $48 per acre-foot (Adams, 1999). At a different location in Oregon, Adams and Cho (1998) reported values for four regions of the Klamath Irrigation Project in southern Oregon and northern California. In a region of the project dominated by low-value crops, the marginal value of water across the crops in the region was estimated at $42 per acre-foot; in another region dominated by high-value crops, the marginal value of water across the set of higher-valued crops was estimated at $80 per acre-foot (ibid.). The marginal value of water depends not only on the value of the crop to which it is applied but also on the quantity of water used by the crop and the nature of crop yield and water response relationships. Although there is debate over precise relationships, as more water is applied, the effect on yield generally begins to decline. Also, as efficiency (the proportion of water applied to the crop actually used by the plants) increases, one expects that the value of the water (or willingness to pay for water) will increase. Empirical evidence of this effect is found in a study in which marginal values for a representative Columbia River basin crop mixture were inferred to be $46 per acre-foot when water was tightly restricted but were only a few dollars per acre-foot when water available to the crop was not restricted (Bernardo and Wittlesey, 1989). The range of the value of water in agricultural applications in the westernUnited States generally varies from values as low as $3 per acre-foot for low-value crops under conditions of adequate water supplies (no water stress) to values in excess of $200 per acre-foot for high-value crops. Median values for most mixed cropping systems in the Pacific Northwest suggest that the agricultural value is in the $40 to $80 per acre-foot range. For example, in a recent study of the economic impact of the scenarios defined in the Washington Department of Ecology’s Columbia River Initiative (CRI), Huppert et al. (2004) estimated a value for additional agricultural water of $32 to $101 per acre-foot. The authors assumed that any new allocation of Columbia

OCR for page 146
Managing the Columbia River: Instream Flows, Water Withdrawals, and Salmon Survival River water under the CRI will be used on high-value crops (primarily orchard crops). It should be noted that farmers will be less likely to plant high-value irrigation crops with “interruptible” water rights, given the risk associated with loss of investment in drought years. This pattern of risk aversion is observed throughout other regions of the West, where farmers with junior water rights tend to favor lower-value crops. This is especially the case when water supplies vary substantially from year to year, as junior appropriators may have their allocations cut off under conditions of limited water flows and supply. These values are estimated values, based on various economic assessment methods. These values are supported, however, by recent real-world experiences with water bank transactions in the western United States. For example, within the California Water Bank, created in 1998 and 1999 to address water shortages due to drought, equilibrium prices for water transfers between irrigators were approximately $75 per acre-foot. The actual value to irrigators may be slightly lower than this price given that the sales price includes a “tax” to provide water for environmental uses, primarily in the Sacramento-San Joaquin Delta. In the Klamath River basin in southern Oregon and northern California, a pilot water bank program created for the 2003 irrigation season also established a price of approximately $73 per acre-foot for the purchase of water from irrigators for environmental uses (this is the value averaged across both high-and low-value crops). During a drought in 2001, a temporary water bank was created within the Bureau of Reclamation’s Yakima Project in south-central Washington. Substantial quantities of water were transferred from irrigation districts with more senior rights and low- value crop mixes, to districts with junior rights and higher value crops. For example, the Roza Irrigation District, which is dominated by high-value perennial crops such as tree fruits, purchased over 16,000 acre-feet of water at a season average price of approximately $120 per acre-foot (Northwest Economic Associates, 2004). In summary, patterns of water values observed in actual transactions in water banks in California, Oregon, and Washington are generally consistent with those that would be suggested by economic theory and data (higher water values for higher-value crop mixes), and they provide general corroboration of the estimated values (cited previously) of water found in the economics literature.

OCR for page 146
Managing the Columbia River: Instream Flows, Water Withdrawals, and Salmon Survival This information from economic assessments and actual transactions establishes a general set of values for irrigation water. Recently, however, the U.S. Supreme Court approved values for water in irrigation at substantially higher levels than those generally found in the economics literature or in market transactions. Specifically, in the case of Kansas v. Colorado (533 U.S. 1 (2001)), which concerned a dispute over Arkansas River water used for agricultural irrigation, the U.S. Supreme Court accepted values of approximately $125 per acre-foot (1999 dollars) for water used on a mix of wheat, corn, grain sorghum, and hay (low- to medium-value crops). These values were estimated by the State of Kansas as part of the damage assessment phase of the trial, and were accepted by the Special Master.1 The values were accepted initially by the Supreme Court’s special master in the case and ultimately approved by the court as part of the damage assessment. The implications of the values accepted by the Supreme Court for agricultural water may be significant, particularly in litigation concerning reductions in irrigation water deliveries to agriculture arising from state or federal policies or actions. Municipal The marginal value of water for residential purposes depends on the end use and the level of current consumption; marginal value is typically less for outdoor consumption (e.g., lawns) than for indoor consumption and typically declines as more water is consumed. In an early survey of water value estimates, Gray and Young (1983) found that published household valuations of water ranged from $63 per acre-foot for lawn watering to $403 per acre-foot for indoor water use. Gibbons (1986), on the other hand, synthesized three water demand studies and used the estimated demand equations to calculate marginal willingness-to-pay estimates. Estimates in that study ranged from $34 to $56 per acre-foot for summer consumption (primarily outdoor uses) and from $50 to $212 per acre-foot for winter consumption (pri- 1   The values were developed for the State of Kansas and accepted by the special master and are for direct effects only; that is, they are representative of the effects on farmers’ incomes only and thus do not include secondary effects on the local economy that may arise from reductions in water allocated to farmers.

OCR for page 146
Managing the Columbia River: Instream Flows, Water Withdrawals, and Salmon Survival marily indoor uses). In a water transfer agreement negotiated in California in 2002 between the Imperial Irrigation District (IID) and the San Diego County Water Authority (SDCWA), water ultimately intended for municipal uses was valued at a minimum of $230 per acre-foot. This price equals the cost of conserving the water plus an incentive to encourage program participation by Imperial Valley farmers. The water’s price reflects considerable effort by the IID and SDCWA to assess the cost of on-farm conservation measures, including systems to capture and reuse water, as well as line earthen irrigation canals with concrete. The actual cost of water delivered to residential users in San Diego will be substantially higher than $230 per acre-foot. The Imperial Irrigation District-San Diego agricultural-urban water transfer is a good example of how conserved water can be transferred to a use of greater economic value and how water supplies might be augmented in order to sustain economic growth without increasing withdrawals from surface or groundwater supplies. As with all water transfers, “third-party” effects should also be considered in the interests of equity. Industrial Industries utilize water for cooling, processing of products (e.g., washing materials, conveying inputs, input in the end product), in-plant sanitation, and other purposes. Since water costs constitute a very small portion of industrial costs, industrial demand for water is expected to be quite inelastic (i.e., there is little change in demand with changes in price). The amount of water used by industry is influenced by raw material quality, relative price of inputs, output mix, and government regulations. The cost of water to industry includes intake costs, treatment of water for recirculation, and waste treatment of effluent. When the price of water rises, firms typically reduce intake and increase treatment of water for reuse. Thus, the marginal value of water for industry is often estimated by the alternative cost of internal recirculation of water (Gibbons, 1986). Alternative costs of recirculation depend on the use to which the water is applied and on current processes. As water efficiency of the current technology increases, the marginal value of water also generally

OCR for page 146
Managing the Columbia River: Instream Flows, Water Withdrawals, and Salmon Survival increases. Process recycling costs also vary widely by industry and current processing technology. One study of a textile finishing plant (Kollar et al., 1976) estimated marginal costs of $269 per acre-foot to increase the percentage of process water recycled from 48 to 76 percent, while another study investigating a meat-packing plant (Kane and Osantowski, 1981) with an extensive water reuse system estimated marginal costs of recycling process water at $660 to $939 per acre-foot. As water users become more efficient, the marginal value of water in industry rises. Hydropower Generation The Columbia River and its tributaries power one of the world’s largest hydroelectric systems. In 1998 for example, the system produced an average of 12,000 megawatts of electricity, enough to supply a city 10 times the size of Seattle. Reductions in streamflow have important implications for the value of water in hydropower production. It is interesting to note that the marginal value of water for hydropower depends on where the water is in the Columbia River system; the higher the elevation of the water, the higher its marginal value, as water at a higher elevation in the system will generally pass through more generation facilities. One study estimated marginal values of water in the Columbia system at various points along the river (Hastay, 1971). The study estimated water values for energy generation based on the alternative cost of requiring more thermal power generation to replace reduced hydropower generation. Marginal values of water were estimated at $4.50 per acre-foot at the downriver location of McNary Pool and a marginal value of roughly $20 per acre-foot at Upper Salmon (Butcher et al., 1972). A study by McCarl and Ross (1985) estimated the hydroelectric value of Columbia River water by calculating how much electricity costs would rise due to additional water being diverted for irrigation. The alternative cost of requiring more thermal generation to replace the decreased hydroelectric generation was found to range between $14 and $76 per acre-foot of additional irrigation diversions. The higher values corresponded to the value of water diversion farther upriver, while the lower values were based on water located in the middle reach of the Columbia River. In a

OCR for page 146
Managing the Columbia River: Instream Flows, Water Withdrawals, and Salmon Survival study of Canadian hydropower, Gillen and Wen (2000) defined water’s economic value differently. They defined the economic rent (marginal value) per kilowatt-hour of electricity from hydropower to be the difference between the competitive market price of electricity and average costs to produce electricity. Using long-run electricity supply contracts to estimate the competitive price and power utility financial records to estimate costs, the authors estimated cost savings arising from hydropower produced by Ontario Hydro at 3.4 cents per kilowatt-hour relative to the price per kilowatt-hour from other sources. Applying this measurement of value to the Columbia River system, the loss of its hydropower would imply roughly a doubling of electricity costs to the region if alternative means of power generation (i.e., fossil fuel) were required. Recreation The value of water for recreation is based on the value of recreational activities taking place both on the water (e.g., boating, fishing, windsurfing) and adjacent to water (e.g., picnicking, camping). Studies of the marginal value of water for recreation indicate that estimates of water values differ substantially, depending on recreational activity, magnitude of streamflow, and quality of the water. In a study of reservoirs in Colorado, the average recreational benefit of water retained in the reservoirs was estimated at $72 per acre-foot for each additional day retained (Walsh et al., 1980). A study by Ward estimated the value of water for angling and white-water boating in the Rio Chama River in New Mexico at $46 per acre-foot. A study of recreation in Colorado estimated marginal values of water at alternative streamflow levels. Marginal values of $41 per acre-foot for fishing, $10.25 for kayaking, and $7.70 for rafting were estimated along one stream stretch (Walsh et al., 1980). The dependence of water values on the levels of stream flow is evident in a study by Amirfathi et al. (1974) of angler benefits on northern Utah’s Blacksmith Fork River. Marginal benefits were zero when flow was reduced by 50 percent but increased to $130 per acre-foot when flows were to 20 to 25 percent of peak levels. Studies often estimate the value of recreational fishing in terms of value per visitor-day. The more fish of a given species pre-

OCR for page 146
Managing the Columbia River: Instream Flows, Water Withdrawals, and Salmon Survival sent in a body of water, the more anglers it can support and the higher the total value of water. The value of water for fishing per angler also depends on the number of other anglers present. The value of the fishing experience will likely be lower when use of the river by other anglers is greater (Lin et al., 1996). Navigation The Columbia and Snake rivers can be navigated as far upriver as Richland, Washington, and Lewiston, Idaho, respectively, the latter of which is 465 miles from the Pacific Ocean. Combined with barge traffic from the Willamette River, these stretches carried approximately 38 million metric tons of cargo into Portland in 2000, which represents approximately 5 percent of the Portland metro tonnage from all sources of transportation (Bingham, 2002). The majority of this cargo was grain: in the period 1990 to 1998, between 35 and 50 percent of all grain receipts at Columbia River terminals were shipped by barge on the Columbia River system, with the remaining portion shipped primarily by rail (Casavant, 2000). Waterway transportation can be advantageous because of the relatively low cost of transporting bulky, low-value commodities such as grain. Short-run estimates of water value for navigation typically utilize the alternative cost method; the value of water used to support navigation is equal to the savings of using water-based transportation over railroad transportation, minus the costs of operation and maintenance of the waterway. Long-run estimates include the costs of construction of the waterway (it is assumed that railroad rates reflect all fixed and variable costs, while barge rates reflect only private costs and not waterway costs, since user fees are uncommon). The marginal value of water is either equal to zero (at all levels except the level at which the water flow is reduced such that navigation is no longer possible) or equal to the entire economic value of navigation (the level at which navigation is made possible). Therefore, average values (as opposed to marginal values) are typically used to estimate the value of water for navigation.

OCR for page 146
Managing the Columbia River: Instream Flows, Water Withdrawals, and Salmon Survival Ecosystem Goods and Services The Columbia River provides an abundance of goods and services that include goods like food and fiber (salmon and other aquatic species), drinking water, services such as waste assimilation, and broader values such as biodiversity and aesthetic pleasure. These goods and services sustain important economic activities, such as commercial and sport fisheries. Nonmarket Values In addition to the direct economic value derived from the use of water and other ecosystem goods and services, there is a demand for values from the river that are not exchanged in markets. For example, the Columbia River system provides habitat for many valued fish species and also sustains populations of waterfowl, aquatic mammals, and other wildlife. Fish and wildlife provide nonconsumptive values to photographers, hikers, and others who enjoy outdoor recreation. People may also value the existence of salmon and other species in the Columbia system even when they do not directly observe or “use” them (so-called existence or nonuse values). Although it is more difficult to estimate existence values than values associated with direct use, numerous studies have shown that people express a positive willingness to pay for preserving ecosystems and the species within them. For example, in a study of passive-use values for coho salmon in the Columbia River, Olsen, et al. (1991) estimated passive-use value of $21.80 for each adult coho male that reached its natal stream. Huppert et al. (2003) reported a range of existence values for salmon in the Pacific Northwest of $66 to $268 per acre-foot of water. Although existence values appear to be very site and context specific, studies of existence values for other species and ecosystems suggest that the value of the waters in the Columbia River system in providing habitat for diverse species is high and of importance when making public policy decisions concerning the basin’s water resources. Ideally, when comparing the efficiency of alternative water allocations, policy makers should obtain estimates of the sum of all use and nonuse values to determine the “total economic value” of a particular water allocation.

OCR for page 146
Managing the Columbia River: Instream Flows, Water Withdrawals, and Salmon Survival (Howitt et al., 1992). Water for the 1991 water bank came from three sources: fallowing, groundwater, and surface storage. This and other water banks in California are managed by the State Department of Water Resources. In December 2002 the Imperial Irrigation District (IID) and the San Diego County Water Authority (SDCWA) approved an agreement for the long-term transfer of conserved water from the Imperial Valley to the San Diego region. This agreement is a principal component of the Quantitative Settlement Agreement, California’s plan to abide by its Colorado River water allocation (California has long exceeded its legal allocation by about 20 percent). Under this agreement the IID and its agricultural customers would conserve water and sell it to the SDCWA for at least 45 years. Deliveries in the first year of the contract would total 20,000 acre-feet and would increase annually in 20,000 acre-foot increments until they reach a maximum of 200,000 acre-feet. In the event of water shortages in the Colorado River, the IID and the SDCWA would share shortages proportionately. The price of the transferred water between IID and the SDCWA is currently set at $248 per acre-foot. This price equals the cost of conserving the water plus an incentive to encourage participation by Imperial Valley farmers. The water’s price reflects considerable effort by the IID and the SDCWA to assess the cost of on-farm conservation measures, including systems to capture and reuse water and line earthen irrigation canals with concrete. Specifically, price is calculated in the contract by a formula that indexes the water’s price to the Metropolitan Water District of Southern California’s water rate minus the SDCWA’s cost to transfer the water to San Diego County. A discount is applied to the price that begins at 25 percent in year one and declines gradually over 17 years to stabilize at 5 percent for the remainder of the contract. Under this formula, water price is comparable to that of other supplies available to the SDCWA (www.iid.com/water/transfer.html, accessed Janauary 11, 2004). Four state- and federally funded water transfer programs exist or are being developed in California to facilitate water transfers to the environment. The projects are the Environmental Water Account (EWA), the Environmental Water Program (EWP), the Water Acquisition Program (WAP), and the Drought Water Bank. The EWA and EWP are part of the CALFED Bay-Delta Program, which is a cooperative effort that, among other goals,

OCR for page 146
Managing the Columbia River: Instream Flows, Water Withdrawals, and Salmon Survival is addressing environmental problems within the aquatic ecosystems in California’s Bay and Delta region. The WAP formed under the authority of the Central Valley Project Improvement Act (CVPI), is a U.S. Department of the Interior joint program of the Bureau of Reclamation and the U.S. Fish and Wildlife Service. The WAP acquires water for protecting, restoring, and enhancing fish and wildlife populations to meet the goals of the CVPIA. Table 6-2 shows the water acquired between 1993 and 2001 by the WAP. As indicated, substantial amounts of water have been transferred for fish and wildlife purposes, at a wide range of prices. The EWA was established to make additional water available at critical times during the life cycle of various endangered and threatened species, while not adding additional costs or uncertainty to urban or agricultural users. The Environmental Water Account has a portfolio of variable and fixed water assets. It acquires water from willing sellers and banks borrowing and transferring water from one location to another. In the three years it has been operating, it has helped provide security to users while also allowing fishery managers additional water supplies at critical times. The main criticism has been that EWA managers may have paid too much for water at certain times, although it is reasonable to expect that agencies with limited experience in water markets may make some mistakes as they gain experiences with these processes. The Columbia River basin has had some experiences with market-based water transfer mechanisms. The State of Idaho, for example, has implemented a water banking scheme. The Idaho scheme differs somewhat from the water banking system managed by California’s Department of Water Resources. The Idaho water banking program aims to help irrigation districts earn a modest return from sales of surplus water in wet years and to keep water in irrigated agriculture during drought years (Miller, 2000). As drought conditions worsened in Idaho in the early 1990s, the level of water transferred through Idaho’s established banks declined (as opposed to increasing levels of transfers in California during droughts). A study comparing the experiences of California and Idaho with water banks thus concluded that in Idaho, “from the perspective of the broader society, the banks did not promote the most efficient use of the available resource” (Miller, 2000).

OCR for page 146
Managing the Columbia River: Instream Flows, Water Withdrawals, and Salmon Survival TABLE 6-2 Summary of WAP Water Transactions Fiscal Year Total Water Acquired (acre-feet) Price Range ($/acre-foot) 2001 190,424 60-150 2000 64,995 25-125 1999 232,500 60 1998 91,100 15-700 1997 273,539 15-70 1996 47,152 25-40 1995 101,832 36-50 1994 43,322 50 1993 1,559 34-40 Total 1,046,423 15-700   SOURCE: Available online at http://www.usbr.gov/mp/cvpia/wap/docs/summary.html, last accessed June 10, 2004. The U.S. is not the only nation grappling with the issues of limited water supplies, increasing demands, and environmental concerns. In Australia, for example, the Murray-Darling Basin Commission works in a setting with some parallels to the Columbia River, including an arid climate, an important irrigated agricultural sector, and pressing environmental concerns. In response to environmental stresses on the Murray-Darling River ecosystem, in 1995 the commission’s Ministerial Council introduced an interim “cap” on diversions of water from the basin (interbasin transfers from the Murray-Darling are an important source of irrigation water), which was confirmed as a permanent cap in 1997 (see Box 6-1). Lessons from experiences in the Murray-Darling River basin in balancing economic and environmental needs may have relevance for water managers facing similar challenges in the Columbia River basin and across the western U.S. Water Conservation Water markets are designed to enable transfers of water supplies among potential users. Typically, the supply of available water is assumed to be fixed over a particular time period. However, it is possible to increase the amount of water available for

OCR for page 146
Managing the Columbia River: Instream Flows, Water Withdrawals, and Salmon Survival BOX 6-1 The Murray-Darling River Basin Cap The Murray-Darling River basin covers much of southeastern Australia and includes some of Australia’s best farmland and some 2,000,000 inhabitants. Diversions of water from this river basin have increased steadily since the 1950s, which resulted in both important economic benefits and substantial changes to the river’s flow regimes. Median flows in the lower stretches of the Murray River were reduced to 21 percent of predevelopment flows. The environmental effects of these reduced flows included loss of wetlands, reductions in the number of native fish, and an increase in salinity levels. In 1995 the Ministerial Council of the Commission produced a report (An Audit of Water Use in the Murray-Darling Basin) that confirmed increasing levels of diversions (much of them for cotton production) and attendant declines in ecosystem health. The council determined that the balance between economic and social benefits from water development, and benefits from instream flows, needed to be revisited. The council thus implemented a permanent cap on diversions of water from the basin in 1997. The cap does not attempt to reduce diversions but rather to prevent them from increasing, as it aims to restrain diversions not development. Establishment of the cap marked a substantial change in Australia’s water-sharing framework, and it will require considerable adjustments from water users and management entities in the basin. In enacting the cap, the council is promoting a new emphasis on water use efficiencies, reductions in groundwater withdrawals, and a more efficient framework for water trading between states and between individuals. The Australian Bureau of Agricultural and Resource Economics has estimated that more widespread use of water trading in the basin would increase economic output by around $48 million (Australian) annually (for more information on the cap, see http://www.mdbc.gov.au/naturalresources/the_cap/the_cap.htm, accessed February 16, 2004). transfer by encouraging water conservation. In many parts of the country, water conservation has emerged as an important source of “new” water supply. In places where available surface and groundwater supplies are fully appropriated or overappropriated, making more efficient use of existing supplies frees up water to serve new demands. Substantial opportunities exist in all sectors to reduce the volume of water used and to decrease adverse im-

OCR for page 146
Managing the Columbia River: Instream Flows, Water Withdrawals, and Salmon Survival pacts on water quality. Partly in order to meet water quality standards, many industries have installed closed systems, which recycle water supplies and consequently reduce the amounts of industrial water used. Irrigated agriculture has made great strides in increasing water efficiency through means such as the lining of ditches, laser leveling of fields, and more efficient water delivery systems. Incentives for such changes have sometimes derived from legal institutions. The concept of beneficial use includes prevention of waste, and most legal authorities view the concept of beneficial use as useful in encouraging the installation of conservation infrastructure. For instance, as part of the active management areas in Arizona created by the Arizona Groundwater Management Act, beneficial use has been defined as a best management practice. In Arizona groundwater rights are periodically adjusted downward as conservation technologies improve. The program initiated by the State of Washington under the Columbia Basin Initiative appears to be taking an unique approach in that water rights become more secure (i.e., noninterruptible) when better management practices are installed on participating farms. Conservation infrastructure in agriculture is expensive, and farmers are not likely to make such investments without incentives to do so. Even if conservation leads to better crop yields and reduced pumping costs, the cost of initial investment may be prohibitively expensive. The federal government, through the Natural Resources Conservation Service of the U.S. Department of Agriculture, is providing low-interest loans, cost-sharing arrangements, and other incentives to make such investments more attractive. If farmers are able to transfer or sell conserved water (as is the case in Oregon), conservation investment is a more attractive proposition. As discussed in this report, farmers in California’s Imperial Valley have negotiated with the Metropolitan Water District to transfer conserved water to urban users in exchange for financial support in the installation of conservation technologies, and similar strategies would seem to hold promise in the Columbia River basin. It should be remembered that water conservation measures may reduce diversions or losses (e.g., seepage to groundwater through unlined conveyance canals) but that they do not reduce crop physiological needs. The implications of this fact for the quantity and quality of return flows should be considered in discussions of potential water transfers.

OCR for page 146
Managing the Columbia River: Instream Flows, Water Withdrawals, and Salmon Survival Municipal water use is the fastest-growing demand in the West. Urban water pricing, use, and conservation policies can be valuable in helping reduce lower-cost and wasteful uses. For example, a recent study of California urban water use policies concluded that “California’s urban water needs can be met into the foreseeable future by reducing water waste through cost-effective water-saving technologies, revised economic policies, appropriate state and local regulations, and public education” (http://www.pacinst.org/reports/urban_usage/waste_not_want_not_exec_sum.pdf, last accessed March 23, 2004). Building codes requiring low-flow toilets and other water-saving appliances can make a substantial difference in indoor water use. In most cities in the arid western U.S., outdoor watering in the summer constitutes a large water use that can be affected by water conservation policies. Many cities have differential summer and winter water rate structures, with additional costs levied on customers whose use rises sharply in the summer. Also, many cities have increasing block rate structures in which the more urban residents use, the more they pay. Most cities also engage in public information campaigns stressing the scarcity of water and the need for conservation. The urban water conservation literature notes that the artificially low water rates common to most cities undercut conservation incentives. Elected officials are often reluctant to raise water rates. Some experiences suggest that such actions may have political costs; for example, in the 1970s several members of the Tucson, Arizona, city council were removed for sharply raising water rates during the summer. On the other hand, some surveys have indicated that customers have a high willingness to pay for safe, reliable, high-quality water services (AWWARF, 1998; NRC, 2002b). As long as relatively cheap sources of additional water are available for diversion, there is little incentive for urban water utilities to press elected officials to adopt rate increases sufficiently to prompt serious urban water conservation. In establishing urban water use fees, the relations between fees and conservation incentives should be considered. Adjusting to Water Shortages The climate of the Columbia River basin is characterized by annual fluctuations in snowpack, precipitation, and streamflow.

OCR for page 146
Managing the Columbia River: Instream Flows, Water Withdrawals, and Salmon Survival Both natural systems (e.g., aquatic habitat) and managed systems (e.g., irrigated agriculture) have evolved in ways to accommodate variations in precipitation and streamflow. In the case of irrigated agriculture, the ability to adapt to changes in water supplies is central to this sector’s economic viability. The ability to make such adjustments can provide insights into the consequences of water permitting decisions. That is, what adjustments are available to agriculture if new permits are limited and some classes of water rights (interruptible) are not changed? One means by which farmers respond to drought is by securing water supplies from alternative sources. For example, in the Klamath basin of Oregon during the 2001 drought, the Oregon Water Resources Department permitted the development of several drought/supplemental use wells (OSU/UC, 2002). California growers have routinely used wells to supplement surface water supplies during drought periods. Continued use of wells in Oregon, specifically during nondrought years, will be limited by growers’ ability to obtain permanent water rights for them. Recently drilled wells are generally permitted for use only during declared droughts (ibid.). The use of such wells during nondrought years will also be affected by water quality issues, interference with previously permitted wells, and high operating expenses. In addition, there is evidence of marked groundwater drawdowns during drought periods. Although emergency wells offer important flexibility during a drought, their usefulness during future droughts is thus not always certain. For farmers (both those who are able to secure additional water through wells or purchases and those who must adjust to reduced supplies), a basic decision in the face of drought is to determine which combination of crops and fields could be successfully planted, irrigated, and harvested under a changed water supply. For example, acres that would not receive sufficient irrigation are usually left fallow. Crop rotation and selection are important management tools used by irrigators, regardless of water availability. Rotation of low- and high-value crops maintains soil productivity, reduces disease, and moderates interannual variability in revenue. In addition, since water requirements differ across crops, if one of the crops used in the rotation requires less water per acre to produce a harvestable yield, some excess water may be available for other crops in the rotation. In fact, rotation patterns and the resulting harvest and income patterns

OCR for page 146
Managing the Columbia River: Instream Flows, Water Withdrawals, and Salmon Survival often continue relatively undisturbed, even in drought years. During a water shortage, a farm’s water is typically directed first to high-value perennial crops, such as apples or grapes, or to high-value annual crops such as potatoes. Producers plant high-value crops in fields with reliable water supplies, sometimes despite the presence of inferior- quality soil. During drought periods, low-value crops like wheat and hay are often irrigated with reduced amounts of irrigation water or may not be planted at all (Faux and Perry, 1999). Jensen and Shock (2002) have suggested a set of possible responses to drought by irrigators in the Pacific Northwest: Leave some ground idle, applying water first to high-value crops; Avoid overirrigating by using evapotranspiration charts to estimate crop water need, soil moisture monitoring equipment, graphing soil moisture readings, and knowing the water-holding capacity of different soils on each farm; Know the drought tolerance of different crops and plant according to water availability; Implement alternative irrigation methods, such as surge irrigation, on the first irrigation to reduce water loss to deep percolation; Switch to sprinkler or drip irrigation for high-value crops like orchard crops, if it is cost effective; Change irrigation sets when water reaches the ends of the furrows, rather than at specified times of the day; Eliminate deep watering of shallow-rooted crops and employ more frequent irrigations of smaller amounts to keep water in the plants’ root zones; Use catch basins to capture and reuse runoff. Historically, irrigators have incorporated flexibility in annual cropping and irrigation decisions to help moderate interannual variability in exogenous factors, like weather and prices. In general, producers manage their crops during a drought year as they do through an average or wet year, with a diverse set of crops, flexible planting, irrigating, and harvesting schedules, and an expectation that low yields during dry years will be offset by high yields during average and wet years. However, prolonged droughts, failure to secure operating capital due to lenders’ per-

OCR for page 146
Managing the Columbia River: Instream Flows, Water Withdrawals, and Salmon Survival ceptions of risk, and institutional mandates, such as provisions of the Endangered Species Act, pose special challenges to irrigators. These types of adjustments to reduce water will take on increasing importance as the demand for water from other uses increases. SUMMARY The economic value of water in different uses varies widely in the western United States. Equity, intergenerational considerations, and other factors suggest that water should not always simply be allocated to the highest bidder; nonetheless, willingness to pay indices demonstrate that water does provide different types and amounts of economic and social benefits in different uses. The traditional doctrine of prior appropriation in the western United States allocate water rights according to the principles of “first in time, first in right” (establishing a system of seniority of rights), and “use it or lose it” (water rights are open to forfeiture if not beneficially applied). Prior appropriation requires that water be put to beneficial uses, but it does not prioritize water rights based on willingness to pay considerations, or the economic or social return, of water applications. Water uses and water demands changed greatly across the West during the twentieth century. The “New West” (Riebsame, 1997) features increasing urban populations, changing employment patterns, changing cultural and leisure preferences, an increase in nontraditional economies and employment (e.g., recreation, tourism), and a decreasing economic reliance on traditional activities such as ranching and irrigated agriculture. Traditional sectors remain important, however, in many areas in the West, and there are increasing pressures and competition for often-limited water resources. Some of the pressures for water resources take the form of demands to not divert water from streams but rather allow “instream” flows in place for ecological and related social benefits. The doctrine of prior appropriation did not historically recognize instream flows as “beneficial,” but changes in the doctrine in many western states were made during the late twentieth century to recognize the social and economic benefits of instream flows. The pressures of increasing human population and shifting

OCR for page 146
Managing the Columbia River: Instream Flows, Water Withdrawals, and Salmon Survival social preferences with regard to water resources represent both opportunities and potential conflict in the West. Opportunities exist for water rights holders in traditional sectors, such as irrigated agriculture, to sell water rights for a profit to higher-value uses. Opportunities also exist for traditional users to manage water better—through conservation or better technology—and to sell a portion of this “saved” water. Problems may arise, however, when market-based sales of water between willing buyers and sellers result in third-party effects, which should be carefully guarded against, as these effects can be economically and socially damaging. Conflicts may also arise when traditional users are not interested in selling or when traditional users and newer users vie for the same limited water resources. These conflicts also suggest some roles for governmental bodies in helping ameliorate third-party conflicts and in making decisions about allocations between competing users. Many of these opportunities and conflicts are manifested in the Columbia River basin and along the mainstem Columbia River. The doctrine of prior appropriation has some flexibility in allowing water rights to be transferred or sold. For example, water rights under prior appropriation are often not attached to land rights and may thus be sold separately from land, which helps effect some water rights transfers and sales from lower- to higher-value uses. Water markets and water banks attempt to increase this flexibility by improving communication and effecting interactions between potential buyers and sellers of water. Although they are not perfect, water markets and banks have demonstrated advantages in producing both flexibility and security in a number of contexts. Market-based programs—several of which have been used to good effect across the West—such as water banks, environmental water accounts, and water rights sales and leases, along with careful monitoring of outcomes, would allow management organizations to learn more about the value (or lack thereof) of these various programs. These market-based measures can also improve incentives for water conservation through better management or new technologies, as conserved water could be sold for profit through markets or banks. These nonstructural water management measures also offer alternatives to traditional means of “increasing” available water (e.g., additional storage reservoirs or diversions). Thus, in addition to helping increase overall social benefits of water uses, these measures hold

OCR for page 146
Managing the Columbia River: Instream Flows, Water Withdrawals, and Salmon Survival the prospect of decreasing conflicts over limited water supplies. Water management entities across the Columbia River basin should cooperate on exploring the utility of these measures that can help support the regional economy, but without additional withdrawals of Columbia River water, as the well-being of salmon habitat and salmon is also an integral part of the regional economy. Water conservation measures and means for reallocating water, such as water banks and water markets, should be promoted in a quest to increase “water productivity” and to contribute to a healthy regional economy and Columbia River ecosystem. As discussed in this chapter, water markets and water banks present their own unique set of implementation and operational challenges. Such programs often require the creation of significant administrative structures, leadership skills, and wisdom in order to ensure that potential buyers and sellers have good information and are aware of each other’s demands, and that there are adequate, effective databases that reflect ongoing transactions and that help ensure fair execution of lease and option arrangements. They also require adequate storage and conveyance facilities to store and reallocate water; capital investments in such facilities may also be required. The human resources requirements to ensure the transparency and credibility of such programs may be considerable. Moreover, the wide range of business, economics, and administrative skills necessary for such programs is often not widely available in most natural resources agencies. Successful creation of water markets and water banks thus often holds great potential to identify “new” sources of water and may therefore increase beneficial uses and reduce tensions; but human resources investments to ensure that adequate organizational, environmental, and social frameworks are essential and may be substantial. The State of Washington and other Columbia River basin entities should continue to explore prospects for water transfers and other market-based programs as alternatives to additional withdrawals.