Water Transfers: Paying Farmers to Conserve Water

1
Water TransfersPaying Farmers to Conserve Water

• ECI 155
• David Rosenberg

2
Outline

• Economic theory
• Transfer contracts
• Example transfers
• Imperial Irrigation District (IID) and
  Metropolitan Water District of Southern
  California (MWD), 1988
• IID and San Diego County Water Agency (SDCWA),
  1998 and 2003
• IID, MWD and Coachella Valley Water District
  (CVWD), 2003

3
Economic theory

• Transfers require a functioning market
• Quantifiable, enforceable, and exchangeable
  rights
• Willing buyers and sellers
• All parties can access full information
• No impacts to third parties (externalities)
• Conditions rarely exist
• Mitigate in one way or another to allow transfers

4
Types of Contracts

• Short-term use (limited transfer)
• Purchase option to buy water in future at a
  specified price (future option)
• Exercise option (call)
• Purchase water right (permanent transfer)

5
How the contracts work

• Urban users pay agricultural users to implement
  conservation actions
• Urban users take delivery of conserved (and
  foregone) water
• Urban users also pay costs to mitigate impacts
  and wheel water

6
Examples

• Imperial Irrigation District (IID) and
  Metropolitan Water District of Southern
  California (MWD), 1988
• IID and San Diego County Water Agency (SDCWA),
  1998 and 2003
• IID, MWD and Coachella Valley Water District
  (CVWD), 2003

7
Major Water Infrastructure in Southern California
California
Nevada
Colorado River (5,420 Mm3/yr to California)
Colorado River Aqueduct
Arizona
Parker Dam
1. Coachella Valley Water District 2. Imperial
Irrigation District
1.
MWD Service Area
2.
Imperial Dam
All American Canal
SDCWA Service Area
Mexico
8
Historical Timeline

• 1911. I.I.D. formed
• 1920. I.I.D deliveries irrigate more than
  202,000 ha (senor, non-quantified water rights on
  Colorado River)
• 1930. MWD builds Parker Dam and Colorado River
  Aqueduct (junior, quantified water rights on
  Colorado River)
• 1942. Boulder Canyon Act authorizes construction
  of Imperial Dam, All American Canal and Coachella
  Canal
• 1956 1980s. Limited canal and laterals lining
• Through 1990s. California consumes surplus
  Colorado River water (up to 6,400 Mm3/year) not
  used by Arizona, Nevada, Utah, and Colorado
• Late 1990s. U.S Department of Interior to reduce
  California use of Colorado River waters down to
  historical allocation of 5,400 Mm3/year

9
Contract Parties

• Seller
• Imperial Irrigation District (IID)
• 3,820 Mm3/yr historical use of Colorado River
• 186,100 Ha irrigated
• US 1 billion in agricultural revenues (5,480/ha
  or 0.27/m3 water applied)
• Cattle
• Field crops (alfalfa, lettuce, carrots, sugar
  beets, cantaloupes, onions)
• Permanent crops (citrus, fruits, nuts, etc.)
• 73 mm/yr rainfall
• 5,600 farm delivery gates
• Water sold to farmers for 0.013/m3

10
Contract Parties

• Buyers
• Metropolitan Water District of Southern
  California (MWD)
• Wholesale water provider to 120 local agencies
  and districts
• More than 18 million persons served
• Water sold from 0.24 to 0.41 per m3
• San Diego County Water Agency (SDCWA)
• Wholesale water provider to 23 member agencies
• 3 million persons served
• 790 Mm3/yr demands
• 85 of supply imported from MWD

11
Contract 1IID MWD, 1988

• MWD pays IID 233 million
• IID conserves 129 Mm3/yr and makes available to
  MWD
• 35-year contract duration
• Cost 0.08 - 0.17/m3/yr (depending on interest
  rate)
• Conservation achieved from
• Concrete canal lining
• Building regulatory reservoirs
• 12-hour deliveries
• Installing non-leak farm gates
• System automation
• Installing lateral intercepts
• Installing irrigation and on-farm water
  management infrastructure

12
Contract 2IID SDCWA, 1998

• SDCWA pays IID 295 million through 2011
• IID conserves 245 Mm3/yr and makes avail. to
  SDCWA
• 75-year contract duration
• Cost 0.04 - 0.11/m3/yr (depending on interest
  rate)
• Conservation achieved from
• Lining All-American and Coachella Canals with
  concrete
• Fallowing 12,100 Ha of land (6.5 )

13
Impacts of contract for San Diego County Water
Agency water supplies
Supplies in 2020
Supplies in 2003 (Demand 774 Mm3/yr)
(Projected Demand 994 Mm3/yr)
Source SDCWA (2004). http//www.sdcwa.org/about/s
dcwa-overview-2003.pdf
14
Contract 3IID, MWD, Coachella Valley Water
District, 2003

• Part of Quantification Settlement Agreement for
  Colorado River waters
• Coachella Valley Water District pays IID to
  conserve water
• MWD retains first refusal right for conserved
  water that CVWD does not take from IID
• MWD has option to buy 5, 10, and 12 Mm3 of water
  in 2008, 2009, 2010 that CVWD does not take
  delivery on from IID.
• Purchase price 0.10/m3

15
Mitigating effects of exporting water

• MWD pays 20 mill for lost jobs
• Short-term (single year) fallowing rather than
  long-term
• Limits on fallowing-based transfers (20 of total
  land in production)
• Up-keep requirements on fallowed land (crop
  rotations)
• Reinvest payments for on-farm improvements (local
  economic stimulus), e.g.,
• Buy better equipment
• Upgrade Irrigation technology
• Laser-level land

16
Key Points

• Agricultural water users often get low cost water
  and have little incentive to conserve
• Urban users are willing to pay more for water
• Ag / Urban contracts can provide
• , water system improvements, and stable incomes
  to agricultural users
• Reliable water supply (for a price), diversified
  sources, and drought security to urban users
• Conservation actions involve land fallowing,
  canal lining, irrigation and other on-farm
  improvements
• Can simultaneously settle other conflicting
  issues
• Water rights, environmental impacts, law suits,
  etc.
• Local limited-term transfers preferred