Post on 02-Jan-2016
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Water EconomicsProf. David Sunding
Water EconomicsProf. David Sunding
Used to Useful: Economics
Prof. David Sunding
UC Berkeley
November 13, 2009
4
Water Supply
• At present, recycled water is a relatively small part of world’s water supply
– Global installed capacity: 50 million m3/d
– Actual output is around 60% of capacity
– Would take three years to fill Hoover Dam
– Installed capacity of desal is around 40 million m3/d
• What economic fundamentals explain where we are and drive change in this market?
5
Water Allocation
• Most water customers pay for conveyance, treatment, distribution, but nothing for the water itself
• How then is water allocated?
• Variety of legal allocation schemes around the country
– Riparian Doctrine
– Prior Appropriation Doctrine
6
Water Allocation
• Allocation rules are problematic
– Hard to keep pace with a dynamic economy
– Reserve large quantities for relatively inefficient uses
– Hard to accommodate environmental needs
– Exacerbates scarcity by concentrating shortage on certain users
7
Environmental Concerns
• Traditional surface water diversion projects are increasingly controversial
• Unlikely to be much more dam construction around the world
• Recycled water and desal can take pressure off riparian ecosystems and replenish local aquifers
– Seawater intrusion
8
Water Pricing• US water customers pay relatively little for
water (0.5% of household income)
Country Gallons/$
Germany 88
UK 111
France 132
US 357
China 840
9
Water Rates and Finance
• 2002 GAO study concluded that 29% of drinking water utilities were not covering full cost of service (40% of wastewater utilities)
• One-third deferred maintenance due to insufficient funding, had more than 20 percent of pipelines nearing end of useful life, and lacked basic plans for managing capital assets
• Also a lack of adequate financial planning
10
Rate Trends
• True that US customers pay relatively little for water
• Yet, prices are rising
– In 2007, a 6.1% increase in water and sewer rates
– Dramatic increases in certain regions (e.g., Southern California) caused by scarcity
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MWD Rates vs. Cost of Desalinated WaterMWD Rates vs. Cost of Desalinated Water
$0
$500
$1,000
$1,500
$2,000
$2,500
$3,000
$3,500
1980
1982
1984
1986
1988
1990
1992
1994
1996
1998
2000
2002
2004
2006
2008
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Private Investment• Recycled water development projected to grow
rapidly around the world
– Current spending on construction: $2.4 billion
– In 2016: $8.4 billion
• Around 1/3 of all reuse projects are privately financed
• Proportion should increase as size and complexity of projects grows
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Achieving Sustainability
• A sustainable water sector is
– Mindful of environmental externalities
– Robust to fluctuations in precipitation
– Supportive of economic growth
– Financially sustainable
• Development of recycled water is consistent with a vision of urban water sustainability