Investing in Vital Infrastructure: Water

U.S. Water Policy for 21st Century: Key Elements

The scarcity of fresh water will be a major challenge to the 21st century, Prof. Peter Debaere, Associate Professor of Business Administration at the Darden School of Business, reminded the Forum. Water is essential for life, but it is an open-access resource, which is scarce, unevenly distributed, and unevenly utilized across nations, Prof. Debaere noted.

In the US, per capita water withdrawal is 80-100 gallons/day for personal use; but more than 10 times that amount per capita (1150 gallons/day) is withdrawn to support production, agriculture, and electricity generation. Almost thirty gallons of water are used to produce a glass of wine, 3043 gallons for a pound of steak, and 660 gallons for a T-shirt. Increasing population and burgeoning industrial water uses have led to significant drains on the nation’s aquifers, as illustrated by the water level drops in the Ogallala Aquifer under Texas, Oklahoma, and Kansas, Prof. Debaere pointed out.

 Aquifer Water Levels

A Holistic Policy

Numerous federal, state, and local agencies make decisions that impact water, Prof. Debaere told the group, and many different policies impact water usage. For example, an ethanol-favoring policy will lead to high-intensity water use as water is diverted to grow crops. Energy policies may tap into water resources for hydroelectric energy. How we store, process, transport, treat sewage, and reclaim water are determined by hundreds of fragmented and inconsistent policies. “A consistent, holistic water management policy is urgently needed,” Prof. Debaere advocated.

Allocating Water for Productivity

When water is treated as an open-access and uncontrolled resource, depletion and deterioration of the resource will occur. Water levels and aquifers are dropping, Prof. Debaere reported, due to open access and overuse. The supply-side engineering approach to increasing water supply by building infrastructure and capturing water has reached its limit in the US, Prof. Debaere observed. The current approach cannot increase the supply and is environmentally unsustainable.

“How will we allocate water among users?” Prof. Debaere challenged the Forum.  Prof. Debaere introduced the concept of water productivity, noting that a gallon of water for one purpose may produce more than it would in another application. He used the example of the higher yield produced by watering an olive grove compared to the yield from a hay field. The goal is to foster increased water productivity through changes in regulations, technology, and the structure of the economy. He reported that more value is created per unit of water in the service economy than in water-intensive agricultural activities. Therefore, policies subsidizing agriculture will lead to less productive water use.

Controlling the reallocation of water does not need to be costly, and neither does it limit economic growth, Prof. Debaere pointed out, noting that water extraction has been decoupled from economic and population growth for many decades. Instead, water productivity has increased. A key principle of a holistic water policy is to allocate water to the highest-productivity users such as services and manufacturing, and to stimulate innovation in the water sphere to improve productivity.

Water Markets Set the Price

A second principle, according to Prof. Debaere, is to create water markets that cap the use of water and determine its true price. “We need to define how much water we are willing to use and how much should be left in reserve,” Prof. Debaere said. This should be determined by pricing water properly. “We may define safe drinking water as a human right, but not water for growing lawns or washing cars,” he indicated.

Today’s price of water barely covers the maintenance costs, he reported. Water infrastructure is in dire need of repairs, replacement, and upgrades, including minimizing leaks. This will require a higher price of water. Emphasizing the true price tag on water has many benefits, he said, including encouraging people to save water and invest in water-saving technology and innovation, enabling public-private partnerships in water management, and incentivizing innovation to reuse and recycle water.

Effective water markets require:

1. Well-defined water rights

2. The ability to transfer and trade water

3. Caps on water use

4. Reliable water-metering information

Prof. Debaere concluded by noting that water is too inexpensive today, and its price must increase gradually. This will require a lot of communication to educate people about the true cost of water. It will require clear billing explanations and good governance, including rigorous standards and certifications. Consistent policies set at the local and State levels will determine how we manage this resource.

California Water 2017 and Beyond:
Where are we and where are we going?

Dr. Mark Gold, UCLA’s Associate Vice Chancellor for Environment and Sustainability, reminded the Forum that California’s heavy investments in storage and conveyance water infrastructure in the middle of the last century had fueled dramatic growth in industry, agriculture, and population in central and southern California with significant impacts on the economy and culture. California now produces half of the nation’s fruits and vegetables, as a result of its investments in water infrastructure. This created an economic driver that led to a vast expansion of agriculture and influx of population, which is expected to reach 50 million by 2050. However, these investments were made prior to the implementation of environmental protection rules, and, today, unintended consequences are seen as fish stocks crash, nitrates from agriculture and poisons from manufacturing contaminate the water supply and ground water, and damage to the ecosystem becomes more difficult to heal in the face of climate changes such as the State’s recent drought.

Drought Impacts

Dr. Gold informed the Forum that the past 5 years have been the driest in California history. The consequences include 102 million dead trees on 7.7 million acres in the Southern Sierras since 2010, the disappearance of the Sierra snowpack, and increasing numbers of community well systems where contamination has been detected.

In the 2014-2015 growing season, California’s drought forced 400,000 acres of agricultural land to be fallowed due to lack of irrigation, idling 18,000 agricultural workers. Low water flows negatively affected fish and wildlife across the State, and raging wildfires caused destructive impacts on air, land, and water that will continue into the future. Groundwater levels dropped precipitously and communities ran out of drinking water. The State faces additional water quality problems from legacy and ongoing agriculture and industrial pollutants as well. Dr. Gold cited reports that 2% of California’s 38 million people are exposed to contaminated drinking water or have uncertainty about the safety of their drinking water.

 California's Drought (2015)

Mandatory Water Reduction

California implemented mandatory water reductions when voluntary efforts were not effective.  Results were reported monthly, and violations were made public to leverage public opinion as a goad to behavioral change. After 17 months of statewide urban water conservation requirements (since June 2015), water usage declined to 89.5 gallons per day per capita, for a cumulative water savings of 22.8% or 2.26 million acre feet, which is enough to provide water for 11.3 million Californians or 29% of the State’s population, Dr. Gold reported.

A Holistic Solution

Dr. Gold described the California Water Action Plan, which is a holistic approach to water management. “It’s not just about the need to conserve during a drought. And it’s not just about replacing old drinking water systems and sewer lines; it’s about building different kinds of infrastructure; it’s about updating our treatment systems. But it is also about building water systems differently, using distributed solutions,” Dr. Gold said. But all of this takes investment—most of which comes from the local level. Californians have passed $20 billion in water bonds in the past 15 years, including $7.5 billion in 2014 for regional water storage and recycling.

Some of the holistic approaches to water management being considered include sewer mining—pulling water out for reclamation upstream, storm water capture, using groundwater basins for storage in wet years, eliminating lawns, and making better use of existing facilities in a “reuse-and-recycle-and-work-smarter way.” The Water Action plan is “about engaging people in different choices. It’s about rain barrels, and greywater. It’s about full watershed thinking, where everything is captured and reused,” he pointed out.

Ground water represents 40% to 60% of California’s water supply, Dr. Gold said. The Central Valley area has lost 60 million acre feet of groundwater since 1960. California was the last state to implement a Groundwater Policy, he noted. Today, innovative approaches to improve ground water sources include treating wastewater through reverse osmosis and microfiltering, returning it to the ground, and allowing it to re-percolate to become potable water. Pumping and treating contaminated water has proven to be more effective than trying to clean up a Superfund site, Dr. Gold noted.

Integrating water infrastructure into development plans offers significant benefits, Dr. Gold reported. “Compare the costs of water treatment,” he recommended. “It costs about $2300 an acre foot for desalination versus about $1400 per acre foot for recovery. A $10 billion investment in Los Angeles is transforming street development to capture storm-water runoff and recycling it as a source of water. New developments are built with a green infrastructure designed to capture runoff, which provides both flood control and a higher quality water supply.”

Discussion

Sen. Aaron Ford (NV): Nevada is a water-starved state. I am concerned that if we created water markets and commoditized water, poor people would not be able to afford water.

Prof. Debaere: It is important that water markets price water properly. You want to be able to support economic growth with the water that you have. You also need policies that ensure equitable access. Drinking water is a human right. But not car-washing water. Water can be provided at a low price for essential needs, or low-income people could be given water credits. In order for water markets to work, you have to define all the water sources, including groundwater rights.

Dr. Gold: In California, access to water is a human right. But significant populations did not have access to clean water. We implemented tiered water pricing so some people get water for free, and basic water is cheap, while water used for landscaping and other non-essential uses is more expensive.

Sen. David Long (IN): We have a growing population and uncertain sources of water. What is the role for desalination? Where and when does it make sense?

Dr. Gold: Desalination could be useful for brackish groundwater, which has about one-tenth the salinity of ocean water. It does not require a lot of energy to filter out the salt. The energy cost per acre foot for groundwater desalination is about half of what it costs to desalinate ocean water. The upside of desalination is a reliable supply. However, the cost of desalination in San Diego is $2300 per acre foot compared with $1500 per acre foot for recycled water. Desalination has downsides beyond costs, including high energy use, greenhouse gas emissions, and negative impacts on marine life. Some companies are working on improving this technology, and the same technology you would need for desalination could be also be used to recycle wastewater.

Prof. Debaere: Desalination is too costly to provide water for agriculture. You must have a more flexible approach so you can hedge your bets. Desalination is not flexible. Desalination works on the supply side, but requires maintenance and is expensive. The cheapest way to get more water is to use less, to conserve. Setting the true price of water supports conservation and management.

Sen. Harry Brown (NC): Is it possible to reverse saltwater intrusion into the aquifers?

Dr. Gold: Seawater intrusion into the groundwater was an issue in California. Now there are barriers in place and we can inject high-quality treated wastewater into the aquifers to restore them. Cleaning up brackish water allows for more storage of storm water or treated wastewater.  Aquifers are good storage sites. You can treat salty groundwater, and then store it in an aquifer basin.

Speaker Biography

Peter Debaere

Associate Professor Peter Debaere is faculty leader for the MBA for Executives. In addition to teaching the core Global Economies and Markets (GEM) course, he developed and teaches "Global Economics of Water" and "Managing International Trade and Investment," two second-year electives. Debaere has received a multiyear outstanding teacher award for being consistently in the top 10% at Darden.

Debaere is an international economist, with a focus on international trade, multinationals, and trade policy. He is also a water expert. In recent years, his research has studied the economics of water especially in a global context: To what extent does water scarcity determine what countries produce and trade? What explains the remarkable pattern of water use in the United States, and is the U.S. experience replicable abroad? How can water markets work as a tool in the fight against water scarcity? With a Rockefeller Grant, Debaere currently investigates together with The Nature Conservancy the use of water markets for environmental purposes in the United States, Chile, and Mexico. Many of his articles have been discussed in textbooks and graduate courses. Debaere's papers have been published in top general interest and field journals such as Journal of Political Economy, American Economic Journal: Applied, the Journal of International Economics, and the Journal of Development Economics, as well as policy-oriented journals such as Water Policy.

A native of Belgium, Debaere has held other positions worldwide. Before joining Darden, Debaere was on the faculty of the Economics Department at the University of Texas, Austin. He also had a stint at the International Monetary Fund, and the Institute for the German Economy in Germany. In 2012, Debaere taught at the Haas Business School while visiting UC Berkeley. He also visited the Kiel Institute for the World Economy in Germany and the Leverhulme Centre for Research on Globalisation in the United Kingdom. At the University of Virginia, Debaere has co-organized the World Water Day symposia. He is also affiliated with Darden's Institute for Business in Society and the university's Economics department, and is on the advisory board of the Center for German Studies, where he takes a keen interest in transatlantic environmental questions.

Mark Gold

Mark formerly served as President of the environmental group Heal the Bay, and was their first employee hired 20 years ago. Heal the Bay is an environmental group dedicated to making Southern California coastal waters and watersheds, including Santa Monica Bay, safe, healthy and clean. Mark received his Bachelors and Masters in Biology and his doctorate in Environmental Science and Engineering from UCLA. He has been inducted into the UCLA School of Public Health Hall of Fame, and has received the James Irvine Foundation Leadership Award and the Aspen Institute Catto Fellowship.

Mark has worked extensively over the last 20 years in the field of coastal protection and water pollution. In particular he has worked on research projects on urban runoff pollution, DDT and PCB contamination in fish, and the health risks of swimming at runoff contaminated beaches. He created Heal the Bay’s Beach Report Card, and has authored or co-authored numerous California coastal protection, water quality and environmental education bills. He served on the USEPA Urban Stormwater Federal Advisory Committee and was the vice chair of the California Ocean Science Trust and is vice chair of the National Estuary Program’s Santa Monica Bay Restoration Commission. Mark was recently appointed Associate Vice Chancellor for Environment and Sustainability.

Other Winter 2017 Forum Highlights articles:

Prof. Peter Debaere

Darden Business School

University of Virginia

The scarcity of fresh water will be a major challenge to the 21st century.

How we store, process, transport, treat sewage, and reclaim water are determined by hundreds of fragmented and inconsistent policies. A consistent, holistic water management policy is urgently needed.

The goal is to foster increased water productivity through changes in regulations, technology, and the structure of the economy.

... allocate water to the highest-productivity users ...

Create water markets that
cap the use of water and determine its true price.

Effective water markets require:

1. Well-defined water rights

2. The ability to transfer and
     trade water

3. Caps on water use

4. Reliable water-metering
    information

Mark Gold, D.Env.

UCLA Associate Vice Chancellor for Environment and Sustainability]

California now produces half of the nation’s fruits and vegetables, as a result of its investments in water infrastructure.

After 17 months of statewide urban water conservation requirements (since June 2015), water usage declined to 89.5 gallons per day per capita, for a cumulative water savings of 22.8% or 2.26 million acre feet.

It’s about building different kinds of infrastructure; it’s about updating our treatment systems. But it is also about building water systems differently, using distributed solutions.

Sen. Aaron Ford

(NV)

Sen. David Long

(IN)

Sen. Harry Brown

(NC)

Prof. Peter Debaere

Darden Business School

University of Virginia

Mark Gold, D.Env.

UCLA Associate Vice Chancellor for Environment and Sustainability]

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