Presenter: Dr. Bonnie G. Colby, Professor of Agricultural and Resource Economics, University of Arizona
5 page  Outline  and 38 slide

Colby, Bonnie G.

English

Colorado Law

University of Colorado Law School Colorado Law Scholarly Commons Water, Climate and Uncertainty: Implications for Western Water Law, Policy, and Management (Summer Conference, June 11-13) 2003 6-13-2003 SLIDES: Managing Risks Associated With Climate-Related Water Supply Variability Bonnie G. Colby Follow this and additional works at: https://scholar.law.colorado.edu/water-climate-uncertainty  Part of the Climate Commons, Environmental Law Commons, Environmental Policy Commons, Natural Resources and Conservation Commons, Natural Resources Law Commons, Natural Resources Management and Policy Commons, Public Policy Commons, Science and Technology Law Commons, State and Local Government Law Commons, Urban Studies and Planning Commons, Water Law Commons, and the Water Resource Management Commons Citation Information Colby, Bonnie G., "SLIDES: Managing Risks Associated With Climate-Related Water Supply Variability" (2003). Water, Climate and Uncertainty: Implications for Western Water Law, Policy, and Management (Summer Conference, June 11-13). https://scholar.law.colorado.edu/water-climate-uncertainty/13 Reproduced with permission of the Getches-Wilkinson Center for Natural Resources, Energy, and the Environment (formerly the Natural Resources Law Center) at the University of Colorado Law School. Managing Risks Associated With Climate-Related Water Supply Variability  Bonnie G. Colby Professor of Agricultural and Resource Economics University of Arizona  bcolby@ag.arizona.edu  Outline prepared for: Water, Climate and Uncertainty Natural Resources Law Center University of Colorado, June 11-13, 2003  The research reported here has been supported by an EPA-NSF Water and Watersheds grants, by the University of Arizona Agricultural Experiment Station, and by the NOAA-funded RISA project at the University of Arizona:     Overview of Topics:   • what climate-related water supply risks need to be managed?  • firming up dry year supplies • water acquisition strategies – advantages, disadvantages and examples • tools for implementing acquisition programs • acquiring agricultural water supplies  • effective methods to reduce ag consumptive use • pervasive effects of the federal farm bill on western water use  Risk: Water Supply Variability • difficult to deliver customary water quantities • difficult to comply with environmental regulations -- surface water quality standards -- instream flow requirements  Risk: Variability in Water Costs • acquiring dry year supplies • regional coordination efforts • changes in power costs • changes in water treatment costs • addressing conflicts  Typical Responses to Drought • lobby for infrastructure funding • restrict urban outdoor watering  1• argue about raising water rates  • lobby (successfully) for disaster relief • repeated cycles of short-run panic and long run inertia  “Common Sense” Drought Preparedness • fine-tune reservoir operations • groundwater recharge and recovery • authorize dry-year surcharges: urban and ag • negotiate to firm up dry year supplies  Arrangements To Firm Up Dry Year Supplies  Dry year Option Contracts • ownership of water right remains with original water user • compensation for lost crop revenues, disruption of farm planning • terms and timing for notification to cease irrigation • cost of options must be weighed against  increased reliability provided • dry-year options much more expensive (per af/year) than buying water rights  • useful way to introduce water trading  Regional Water Banks • legally authorized arrangement for storing water to be used in the future • functions: • coordinate negotiations • standardize units of water traded • standardize trading procedures • reduce transaction costs • match buyers and sellers • requires state-of-the-art website, professional staff • develop clear acquisition guidelines • develop compensation mechanisms (if needed) • temporary water transfers • requires flexibility in river operations and reservoir or aquifer storage   Spot Markets for Water • one-time lease of specific quantity • low (and relatively certain) transfer costs • price negotiated between lessor/lessee • no change in ownership of water right  Spot Market: Snake River Basin, 2001 • 400 farmers agreed to fallow 150,000 acres so the electric power and water could be re-directed.   • Payments averaged $485/acre (better than crop returns even in good years). • All agreements finalized in 2 weeks  2 Water Acquisition Costs five variables determine acquisition costs: 1. prices paid for water (mix of water acquired) 2. annual increase in water prices 3. how quickly acquisitions get underway 4. time to complete acquisitions 5. transaction costs incurred  Transaction Costs • in addition to the actual price paid to water sellers: transaction costs must be budgeted • transaction costs include: • administrative fees • attorney fees for water acquisitions • expert fees paid to undertake negotiations, investigate water rights, accomplish administrative processes • estimated range to plan budget: 15-25% of the price paid for the water right • based on studies in New Mexico, Colorado, Utah and Nevada  Acquiring Agricultural Water  • new federal Farm Bill in May, 2002 • tens of billions of dollars in programs for U.S. agriculture • $$ for water conservation and environmentally beneficial changes in water management • role of agricultural subsidies in responding to climate variability  Effects of the 2002 Farm Bill On the one hand: • enhances profitability of irrigated crops • contributes to larger irrigated acreage and water use • alfalfa acreage much higher due to Farm Bill   On the other hand: • earmarks funds for ag water conservation • earmarks funds for wetland/stream flow protection  Reducing Agricultural Consumptive Use • fallowing irrigated acreage • “deficit” irrigation • improved delivery systems and irrigation technologies • “precision farming” irrigation management • changes in crop mix  3  Example of Land Fallowing Agreement • MWD S. California – Palo Verde Irrigation District, 2003 • 7-29% of district land fallowed annually (max 26,500 acres) • 25K to 111K water for urban needs • one-time sign up payment: $3,170/acre • annual payment: $750/acre fallowed  Acquiring Irrigation District Water:  • make offer to district as a whole • offer bonus for early response, build momentum • avoid “divide and conquer” approach • open public process • each member receives something of value      • spreads revenues from water acquisition program • can help build acceptance of the program  Mechanisms for Establishing Price   Case-by-Case Negotiated Acquisitions  • tailor to meet specific needs • transaction costs • examples:  Standing Offers  • widely-used mechanism • publicize a fixed offer price • examples:  Auctions and Bidding Mechanisms  • public, transparent process  • reflect current market conditions • examples:   Bargaining With a Sellers’ Consortium  • negotiate with an organization rather than on a one-by-one basis • useful where transfers out of local agriculture controversial • examples:   Summary: firming up dry year supplies  4 5• No simple or cheap options – but lots of innovative examples around West • establishing a water acquisition program: • open process, community outreach  • confidential negotiations with individual sellers • BUT secretive acquisition plans = high levels of objections and costs   “And it never failed that during the dry years the people forgot about the rich years, and during the wet years they lost all memory of the dry years.  It was always that way.”  East of Eden, John Steinbeck  Managing Risks and Costs of Water S l V i bilitupp y ar a yDr. Bonnie G ColbyUniversity of Arizona  Natural Resources Law Center Conference    June 2003Risk: Water Supply Variability• difficult to deliver customary water     quantities• difficult to comply with environmental     regulationsf t lit t d d– sur ace wa er qua y s an ar s– instream flow requirementsRisk: Variability in Water Costs• acquiring dry year supplies   • regional coordination effortsh i t• c anges n power cos s• changes in water treatment costs• addressing conflicts…the lower the water in the river, the drierthe season, the more people came to beinvolved in distributing the water through the valley…when it gets as bad as this, everytime someone opened a ditch gate, ath d l ld b t hi dousan  peop e wou  e wa c ng anlistening. - Stanley Crawford, MayordomoDrought• twelve U S droughts since 1980 with . .     damages exceeding $1B each• drought damages accumulate slowly are   ,  larger than hurricanes and tornadoest tl d d if d t• cos s grea y re uce   ry-year wa er arrangements made “in advance of need”He made arrange-ments in advance of need!Why is this man grinning?    Typical Responses to Drought• lobby (successfully) for disaster relief    • lobby for infrastructure fundingt i t b td t i• res r c  ur an ou oor wa er ng• argue about raising water rates • repeated cycles of short-run panic and long run inertiaFederal Drought Mitigation Funding• billions spent in 2002   • 2003: $3 billi f lover  on or ag osses$53 million for irrigation improvements $750 million for ranchersplus funds for specific basins    Drought Preparedness• fine-tune reservoir operations• groundwater recharge and recovery• authorize dry-year surcharges:               urban and ag – triggered by forecasts?  – If no meters: per acre, per hookup• negotiate to firm up dry year supplies      Arrangements To Firm Up Supplies: D O ti C t try-year p on on rac s• ownership of water right remains with      original water user• compensation for lost crop revenues    ,disruption of farm planning• terms and timing for notification to cease irrigationExample of Dry Year OptionMWD S California and Sacramento Valley .     irrigators• district to district arrangements- -  • $10/af to district to secure option• $90/af to farmer to exercise optionExample of Dry Year OptionMWD S California and Sacramento Valley .     irrigators• $5 million paid in 2003 for 50 000 af      ,  • farmers shift from rice to less water i t in ens ve crops• shift from surface to groundwater (???)Tribal involvement: providing d li bilitry year re a y• dry-year lease Wyoming’s Wind River ,    • fish flow assurances, Truckee RiverA i ttl t “ i ” CAP t• r zona se emen s, sen or   wa er• high potential for tribal participation if senior quantified rights • or as part of settlement negotiationsDry Year Option Contracts• cost of options must be weighed against        increased reliability provided• dry year options much more expensive-     (per af/year) than buying water rights f l t i t d t t di• use u  way o n ro uce wa er ra ngArrangements To Firm Up Supplies: R i l W t B keg ona  a er anlegally authorized arrangement for:• storing water to be used in the futuret t t f• emporary wa er rans ersrequires flexibility in river operations and reservoir or aquifer storageWater Banks Around the WestSeveral established banks:  • Idaho, Snake RiverA i i t d i t t t• r zona, n ra- an  n er-s a e• Texas• California, many regionsWater Banks Around the Westnewly emerging: • Oregon – Klamath BasinN M i P B i l ( f )• ew ex co – ecos as n on y so ar• Nevada – proposed• Colorado Klamath Basin Water Bank• accumulated 50 000 af for 2003 ,    • water acquired will be released for fishery needs• high prices in 2002, approx $300/acre• in 2003, approx $188/acre (still exceeds farm land rental rate)Arizona-Nevada Interstate Water B kian ng• small pilot program in place for several       years• new agreement provides up to 200 000 afy     ,   storage for Nevada in Arizona aquifersl ti t f N d t• cumu a ve s orage or eva a may no  exceed 1.2 mafArizona-Nevada Interstate Water B kian ng• storage gives Nevada “credits” to take      equivalent quantity of Arizona’s share of Colorado River water from Lake Mead     • max 100,000 af credits can be used by Nevada in any one year    • long, complex federal-state negotiationsArrangements To Firm Up Supplies: S t M k tpo  ar e s• one-time lease of specific quantity    l ( d l ti l t i ) t f t• ow an  re a ve y cer a n  rans er cos s• price negotiated between lessor/lesse• no change in ownership of water rightSpot Markets: ExamplesTexas Lower Rio Grande Valley    • well-defined surface water rightsl t it i / f t• comp e e mon or ng en orcemen• 10-20% of water rights in spot market “normal” years• 30-40% in dry years• ag-to-ag, ag-to-urban, ag-to-miningSpot Market: Snake River Basin, 2001• 400 farmers agreed to fallow 150 000     ,  acres so the electric power and water could be re-directed  .  • Payments averaged $485/acre (better than crop returns even in good years)      .• All agreements finalized in 2 weeksSo, where’s the flexibility in t i b i ?wes ern r ver as nsThe infamous American bank robber Willie    , Sutton, was once asked why he robbedb kan s.  Sutton replied, somewhat perplexedby the question:“Banks are where the money is ”     .Irrigation Consumptive Use Irrigation’s Consumptive U (MAF/ )Irrigation's Share of State C i U (%)se year onsumpt ve se Columbia River Basin Oregon 2.7 96Washington 2.5 91Idaho 3.8 99 Montana 1.6 93Colorado River BasinW i 2 4 95yom ng .Colorado 4.4 94Utah 1.7 88New Mexico 1.5 85Arizona 2.8 83Nevada 0.9 79Increase in water for to other uses from a 3% reduction in irrigation use60.0%70.0%80.0%uses40.0%50.0%to other 10.0%20.0%30.0%ncrease 0.0%80 84 88 92 96Irrigations initial share of consumptive use (%)IAcquiring Agricultural Water  • new federal Farm Bill in May 2002     , t f billi f d ll i f• ens o  ons o  o ars n programs or U.S. agriculture• these payments are in addition to low cost water and power for many ag districtsEffects of the 2002 Farm BillOn the one hand:   • enhances profitability of irrigated cropst ib t t l i i t d d• con r u es o arger rr ga e  acreage an  water use• alfalfa acreage much higher due to Farm Bill  Effects of the 2002 Farm Billon the other hand:   k f d f t ti• earmar s un s or ag wa er conserva on• earmarks funds for wetland/stream flow protectionExample: Use of Farm Bill Funds• Oregon’s instream flow and riparian     protection program100 000 irrigated acres targeted– ,    – fair market value payments for leasing water to state – $250,000 budget, 75% federal fundsReducing Agricultural Water A li tipp ca ons• fallowing irrigated acreage  • “deficit” irrigationi d d li t d i i ti• mprove  e very sys ems an  rr ga on management• changes in crop mixExamples of Land Fallowing A tgreemen• MWD S California – Palo Verde Irrigation .     District, 2003• 7 29% of district land fallowed annually-       (max 26,500 acres)25K t 111K t f b d•  o  wa er or ur an nee s• one-time sign up payment: $3,170/acre• annual payment: $550/acre fallowedExample: suspending irrigationSan Antonio area of Texas 1990s    , • solicited offers to suspend irrigationi i t b itt d bid• rr ga ors su m e   per acre • 20,000 acre feet acquired• half auctioned to municipal water users, remainder used for ESA needsExample: suspending irrigationSan Antonio area of Texas 1990s    , l t d i i t ’ bid b deva ua e  rr ga or s s ase  on:– types of crops– types of irrigation system– commitment to dry land farming– bid price per acre Summary: firming up dry year lisupp esestablishing a water acquisition program:    • open process, community outreach • confidential negotiations with individual    sellers• BUT secretive acquisition plans = high levels of objections and costs N i l h ti b t l t f• o s mp e or c eap op ons – u  o s o  innovative examples around Westconference news flash:  • Economics has been displaced as the “dismal science” • The title now belongs to the science of:climate modeling!And it never failed that during the dry years        the people forgot about the rich years, andd i th t th l t ll fur ng e we  years ey os  a  memory othe dry years.  It was always that way.East of Eden  John SteinbeckAridity, more than anything else, gives the      western landscape its character. It is aridity that gives the air its special dry clarity; aridity that puts brilliance in the light and polishes        the stars…- Wallace Stegner, Thoughts in a Dry Land

SLIDES: Managing Risks Associated With Climate-Related Water Supply Variability

https://scholar.law.colorado.edu/cgi/viewcontent.cgi?article=1012&context=water-climate-uncertainty

SLIDES: Managing Risks Associated With Climate-Related Water Supply Variability

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