环境与自然资源经济学教师手册M10_TIET1380_08_IM_C.pdf
Chapter 10 Replenishable but Depletable Resources:Water Chapter 10 deals with the efficient allocation of surface water and groundwater resources over time.Water is one of the most important resources since we cannot live without it.As such,it is also one of the most highly politicized resources.As a moving resource,it is also difficult to manage and has many aspects of a common property resource.Water also has characteristics of both a renewable(surface water)and nonrenewable(many groundwater aquifers)resource.This chapter examines the economic and political institutions that have traditionally governed water resource management.Sources of inefficiency are highlighted,as are potential remedies and opportunities for institutional reform.It is highly likely that you have students from all over the world in your classes.They may know a lot or very little about water management and distribution in their countries or hometowns.If they do not know,they may want to find out.This can be a charged topic.Have fun with it.1.Define and distinguish among basic hydrologic terminologies,such as surface water,groundwater,aquifers,etc.2.Discuss actual and potential water scarcity,using examples.3.Define an efficient allocation of surface water.4.Define an efficient allocation of groundwater.5.Discuss the current allocation system in the United States,distinguishing between the riparian and prior appropriation doctrines.6.Illustrate how the current allocation system is inefficient.7.Show how inefficiencies arise due to restrictions on transfers,subsidies,pricing,and common property problems.8.Present potential remedies to the inefficiencies,including water markets and“getting the prices right.”9.Discuss rate structures and the potential improvements in efficiency.10.Discuss the advantages of using GIS.Chapter 10 Replenishable but Depletable Resources:Water 55 I.The Potential for Water Scarcity This section presents some basic hydrology and statistics on global water availability.In many parts of the world,water scarcity is becoming more common.A.Surface water is a renewable resource consisting of rivers,lakes,and reservoirs.Surface water withdrawals in the United States in 2000 amounted to 262 billion gallons per day.B.Groundwater is water that collects underground in aquifers.Some aquifers are nonrecharging and are thus nonrenewable resources.Additionally,recharging aquifers that are being drawn down faster than they are being recharged are also considered depletable.Ninety percent of the worlds readily available freshwater is groundwater.C.In many parts of the world,excess demand for water is causing great stress.D.Groundwater levels have also been declining in many areas due to intensive pumping.E.Tucson,AZ is an example of a city that has overdrafted its groundwater aquifer and was running out of water(at current consumption rates,the aquifers supplying Tucson would have been exhausted in 100 years).A large diversion project called the Central Arizona Project transfers water from the Colorado River to Phoenix and Tucson.This large project was built to help close the large gap between water demand and water supply in Tucson.F.The Central Arizona Project has a capacity to deliver Arizonas 2.8 million acre-foot share of the Colorado River,however,it is not enough water for Phoenix and Tucson.G.Excessive water withdrawals are also causing major land subsidence in some areas,including Phoenix,Houston,and Mexico City.H.Water quality is also a growing problem and will be addressed in Chapter 19.I.The question of whether allocations have been efficient is highlighted.II.The Efficient Allocation of Scarce Water An efficient allocation of water depends on whether the source of water is surface water or groundwater.The degree of renewability will determine whether or not it is crucial to incorporate a user cost.This section presents both,beginning with the simpler renewable resourcesurface water.A.An efficient allocation of a renewable resource involves a contemporaneous opportunity cost or the cost imposed on an alternate user.There are typically many competing uses for water such as agricultural,municipal,industrial,and in-stream uses.B.Efficiency in the presence of competing uses implies that the marginal net benefit should be equalized across all users.C.Marginal net benefit is the vertical distance between the demand curve for water and the marginal cost of extracting and distributing that water for the last unit consumed.D.If marginal net benefits are not equalized,net benefits can be increased with a reallocation to the user with the higher marginal net benefit.Continuing to reallocate water until marginal net benefits are equalized will maximize net benefits.Figure 10.3 illustrates the equalization of marginal net benefits.Starting from a point of unequal marginal net benefits,such as an equal division of supply,the illustration of a move to efficiency will help show the increase in net benefits.56 Tietenberg/Lewis Environmental and Natural Resource Economics,Eighth Edition E.If water were not scarce,scarcity rents would be zero,all users would get all they want and marginal net benefits would be equal at zero.F.Water is also a highly variable resource in terms of the timing of flows.Thus,a system must be able to deal with interannual variation in flows.G.For groundwater,there is a marginal user cost reflecting the intertemporal opportunity cost.H.For groundwater sources for which withdrawals exceed recharge,the resource will be mined over time until it is depleted or until the marginal extraction cost reaches a prohibitive level.I.The marginal extraction cost,and thus the price,should rise over time until the well runs dry,or the marginal cost of pumping is either greater than the marginal benefit or greater than or equal to the marginal cost of an alternative surface water source.J.In some regions,groundwater and surface water are not physically separate and management must consider the linkages.III.The Current Allocation System This section examines the current legal and institutional framework for allocating water resources within the United States.A brief history of water law is presented,as is a breakdown of the two main legal doctrines used for allocating water resources.The focus is on the arid Southwest.The sources of inefficiency in water resource allocations are also discussed.A.The legal doctrines used to govern water resource allocations vary by climate and arise in response to varying geographic needs.B.Riparian rights allocate the right to use water to the owner of the land adjacent to the water.The riparian doctrine is most common in more humid climates such as the eastern United States.C.With increasing demands for water resources,the need to transfer water away from the stream became an issue.Mining was the first off-stream use that stressed the need to move water away from the stream.D.The prior appropriation doctrine allows the transfer of water away from the stream for beneficial use.E.Prior appropriation rights are based on a seniority system and require that the water is be put to beneficial use(“use-it-or-lose-it”).“Beneficial”usually referred to an off-stream,consumptive use.F.Water rights are usufruct rights which are rights to use,not rights to own.G.The federal role in water resources has been very large.Since the Reclamation Act of 1902,the federal government has helped finance the building of almost 700 dams for water supply,power,and to encourage settlement of the West.H.The federal government has subsidized water development extensively and has paid an average of 70 percent of the cost of water projects.For example,the federal government pays 81 percent of the cost of supplying irrigation water and 64%of municipal water costs(Rubin 1983).I.The current legal and institutional framework and government subsidies have lead to inefficient allocations of water resources.The sources of inefficiencies include:1.Restrictions on transfers a.If property rights are well-defined,efficiency will result from the direct transferability of rights.Water will move to its highest valued use or to users with higher marginal net benefits and away from users with lower marginal net benefits.Chapter 10 Replenishable but Depletable Resources:Water 57 b.The existing system limits the degree of transferability and results in inefficiencies.c.The“use-it-or-lose-it”characteristic of the prior appropriation doctrine exacerbates the inefficiency since there is no incentive to conserve.d.The preferential-use doctrine gives certain uses the highest priority for allocation during a shortage regardless of the marginal net benefit of that use.Within each category,rights are based on seniority.The risk of shortfall is also allocated inefficiently.The doctrine does not adequately consider the marginal damage caused by a temporary shortfall.e.Agricultural uses are very low valued uses,yet 90 percent of the water consumed in the western states goes to irrigated agriculture.Transferring water to higher valued municipal uses would raise net benefits,but restrictions limit the number and volume of transfers.2.Federal reclamation projects a.The federal government has subsidized many water projects even when the project failed a benefit-cost analysis(net benefits were negative).b.Projects that fail a national benefit-cost analysis can sometimes pass a benefit-cost analysis calculated from a different viewpoint(or accounting stance),such as at a more regional level.Local benefits likely outweigh costs if federal subsidies are involved.c.An example of a project that failed an ex-post benefit-cost analysis performed at the national level,but passed at a regional level was the Colorado-Big Thompson project in Colorado(Howe 1986).d.The pricing of the subsidized water also leads to inefficiencies.Subsidies to the Westlands Water District in California have been estimated to be approximately$217 per irrigated acre(Frederick 1989).3.Municipal and industrial water pricing a.Prices charged by water distribution utilities are also inefficient.b.Price levels are too low and do not reflect the value of water.c.Rate structures also do not adequately reflect the costs of providing service to different types of customers.d.Surface water rates are too low because typically average costs determine rates and because the marginal scarcity rent is not included.e.Efficient pricing requires price to equal marginal cost.f.Regulated utilities typically are not allowed to earn a profit and thus are regulated to price at average cost.Due to economies of scale,average costs are lower than marginal costs,and thus prices are too low.g.Regulators also do not allow a marginal user cost to be incorporated into the price,resulting in prices that are too low.h.Low prices leads to a significant amount of waste.4.In-stream flows a.Conflicts between in-stream use and off-stream use are not uncommon.b.Nonmarket resources,such as recreational fisheries,compete with agricultural users,creating conflicts.c.Currently in-stream flow rights do not exist in many states.d.Some studies have found recreational value of water to be higher than that for irrigation water.58 Tietenberg/Lewis Environmental and Natural Resource Economics,Eighth Edition 5.Common property problems a.Aquifers are common pool resources.Many users can create an open access problem.Open access resources lose their asset value as the resource cannot be saved from others using it.This will lead to overdraft of the aquifer.There may also be a race to get a share of the water while pumping costs are cheap.b.Pumping costs will rise too rapidly.Additionally,initial prices would be too low and too much water would be consumed by the earliest users.c.Future users will carry the larger burden.IV.Potential Remedies This section provides an overview of current and potential changes to existing legal and institutional structures governing water resources.Transfers and efficient pricing for utilities are highlighted.A.The“use-it-or-lose-it”clause of the prior appropriation doctrine does not allow water owners to capture the value of saved water by selling it.Relaxing this restriction would encourage conservation and allow water to move to higher valued uses by allowing owners to sell conserved water.B.Water markets and water banks are being increasingly utilized to treat both inefficiencies and scarcity in the short term or on a long-term basis.C.The prior appropriation doctrine also fails to provide adequate protection for in-stream flows as in-stream flows historically were not recognized as a beneficial use.Some states are beginning to recognize in-stream rights,however,those in-stream rights that do exist typically have low priority.D.Creeks that do not cross property lines are not subject to the same legal restrictions,and thus the water rights are more“well-defined.”E.England and Scotland are examples of countries that protect in-stream rights.Fishing rights are selling for large sums of money.F.Pricing reform by the elimination of subsidies would also reduce inefficiencies.One example of pricing reform is the Central Valley Project Improvement Act of 1992.The act raises the prices that the federal government charges for irrigation water and allows the transfer of water to new users.While not entirely a full-cost rate,efficiency is improved.Funds are used to mitigate environmental damage to the Central Valley.G.Table 10.1 summarizes pricing systems for irrigation water in developing countries.Two-part charges,volumetric pricing,and tiered pricing have all been used.H.Box Example 10.1 highlights another improvement in efficiency in California based on an agreement between growers and MWD.I.Water utilities also have limited options for improving efficiency in pricing because traditionally these are regulated natural monopolies allowed to only cover the costs of distribution and treatment of water.The water itself is treated as a free good.Additionally,user cost is typically not incorporated in the price,as the monopoly is not allowed to earn excess profits.Incorporation of a user cost would generate profits.J.Marginal cost pricing that includes a scarcity value would be most efficient.K.One rate structure that encourages conservation and reflects rising marginal cost is an increasing block rate.With an increasing block rate,the price per unit of water consumed rises as the amount consumed rises.An increasing block rate is considered equitable for residential consumers because low income users can pay a lower marginal price for the essential units of water.Increasing block rates also mimic increasing marginal cost.Chapter 10 Replenishable but Depletable Resources:Water 59 L.Decreasing(declining)block rates and flat fees however are still common.M.Flat fees are inefficient because with a flat fee,the marginal cost of additional water consumption is zero.Incentives to conserve are nonexistent.N.Declining block rates are also in
