Economics and Inter-Disciplinary Research: California’s Delta Problems

1. Economics and Inter-Disciplinary Research: California’s Delta Problems Richard Howitt AERO Conference, UC Davis October 11 2007

2. Information Needs for Inter-Disciplinary studies • Agricultural &Resource Economics research is driven by public policy questions • Many agricultural public policy problems have environmental motivation • Linkage between data sets from different disciplines is neccessary • Visualization of time and space relationships between environmental and economic processes • GIS as an integration mechanism

3. The Delta as Critical Water Supply Infrastructure • Water supply to 23 million • 50% annual runoff of California, 40% surface area • 7.5 MAF export/year • 1800 in-Delta diversions • 250 ag discharge sites • 1100 miles of levees

4. The Problem: • The Delta is a dynamic landscape undergoing significant change at multiple scales • There is a high probability that abrupt change will take place in the next 50 years, disrupting ecosystem services • All current planning efforts predicated on the flawed assumption that the Delta is, or can be made to be, a fixed hydrologic, ecologic and physical landscape

6. Current Focus on Levees

7. Impacts of Levee Failures • Draws salt water into the Delta: Big Gulp • Changes tidal prism, leading to further intrusion of salt water into Delta • Shuts down the CVP, SWP and Contra Costa Canal • Potential to disrupt all environmental services June 29

8. Impacts of Levee Failures • Draws salt water into the Delta: Big Gulp • Changes tidal prism, leading to further intrusion of salt water into Delta • Shuts down the CVP, SWP and Contra Costa Canal • Potential to disrupt all environmental services Day 2

9. Impacts of Levee Failures • Draws salt water into the Delta: Big Gulp • Changes tidal prism, leading to further intrusion of salt water into Delta • Shuts down the CVP, SWP and Contra Costa Canal • Potential to disrupt all environmental services Day 14

10. Impacts of Levee Failures • Draws salt water into the Delta: Big Gulp • Changes tidal prism, leading to further intrusion of salt water into Delta • Shuts down the CVP, SWP and Contra Costa Canal • Potential to disrupt all environmental services Day 31

11. Impacts of Levee Failures • Draws salt water into the Delta: Big Gulp • Changes tidal prism, leading to further intrusion of salt water into Delta • Shuts down the CVP, SWP and Contra Costa Canal • Potential to disrupt all environmental services Day 45

12. Impacts of Levee Failures • Draws salt water into the Delta: Big Gulp • Changes tidal prism, leading to further intrusion of salt water into Delta • Shuts down the CVP, SWP and Contra Costa Canal • Potential to disrupt all environmental services Day 62 C. Schmutte

13. A System Undergoing Constant, Rapid Change • Subsidence • Sea Level • Seismicity • Sedimentation • Climate Change • Hydrology • Land Use • Invasive Species

14. The DWR Disaster Scenario: 6.5 magnitude quake on the Hayward-Calaveras Fault L. Snow • 16 Islands fill • Shut down of all water projects • Loss of 2 major highways, railroad, gas and oil pipelines, 2 ports • 85,000 acres farmland lost, 3000+ homes • Permanent loss of some islands • Increased dependence on low-quality San Joaquin Water • 5-year costs exceed $40B (low)

15. Abrupt Change in 50 Years: Remote or Real? • P = 1-[1-1/T]n • 100-year earthquake = .40 • 100-year flood event = .40 • 100-year earthquake AND flood = .16 • 100-year earthquake OR flood = .64 It is a 2-in-3 probability that abrupt change will occur in the Delta in the next 50 years

17. Agricultural Land Use

18. Environmental Islands (<5%ag)

19. % Base land and profits

20. Ag Production Model Revenue Cost pjg: Selling price of crop j in region g aijg, gijg: Cost function parameters j: Crop index g: Region index i: Input index

21. Yield Reduction by Salinity (Salinity indirectly measured as Electrical Conductivity, EC)

25. Sacramento-San JoaquinRiver Delta Peripheral Canal

26. Changes in Current Delta Planning • Need a dynamic approach since we are faced with dynamic exogenous drivers. • Need trade-offs rather than consensus. • Mitigation based on opportunity cost & environmental costs. • The “Beneficiary pays” principle can be implemented through user financing. • Project sizing and financing must be decided simultaneously • One cost allocation method is Ramsey pricing.

27. Jones Tract Economics • June 3rd 2004 flooding event during spring tide • 11,000 acre island, subsided to 10-12 ft. below MSL • Single breach, but near loss of other levees • $44 million for levee repair and pump-out • Total land purchase value $28 million • Shut-down of water supply infrastructure

28. Some Delta Management Alternatives • Fluctuating Salinity & Year Round Exports • New Peripheral Canal • Island Aqueduct • Reduced Exports • Opportunistic exports • Gradually Abandon the Delta levees

29. Triangulating a Delta Solution Abandoned Delta • Subsidence • Sea Level Rise • Seismicity • Runoff Change • Invasive Species • Urbanization/Population • Water Supply • Farming • Native Biodiversity • Transportation • Recreation • Runoff Disposal Solution Area Restored Delta Fortress Delta

30. Book: “Envisioning Futures for the Sacramento-San Joaquin Delta” Public Policy Research Institute, San Francisco http://www.ppic.org/main/publication.asp?i=671

31. A Spatial Econometric Approach to Estimation of Salinity Effects • Three cross section field level GIS overlays of crop, soil class, salinity depth and concentration- About 45,000 fields • Estimate the extensive margin adjustment to salinity • Fit a multivariate logit model to estimate the probability of observing a given crop on a field • Calculate the marginal probability as a function of salinity • Use cost and return data to calculate the marginal salinity cost

35. Conclusions • Agricultural policy research will increasingly include environmental goals • Models and data needs will shift toward more integrated physical data • Online data sets with spatial and temporal referencing will be required • Primary economic data is getting more costly, and scarcer? • Geo-referenced physical data is getting much more available and cheaper • Specialized agricultural and resource libraries will adapt- possibly as regionally focused nodes in an integrated information network.