Real Clear Markets explains why innovation, along with conservation, is the way out of the drought.
California’s four-year (and on-going) drought is causing everyone a mild migraine. In the north, forest fires are costing the state $200 million (and counting) to fight and contain, while many are losing their property and possessions to the flames. In the Central Valley, the agriculture industry will lose almost $2 billion in 2015 because of the drought. Meanwhile, some Central Valley communities are completely without water, relying on daily deliveries from neighboring reserves. And finally, across the state, municipalities are forced to cut back water, which will soon lead to a $600 million dent in water utility revenue – a hole ratepayers will surely be forced to cover.
This is the landscape as California grapples with probably the worst drought on record. But California isn’t without solutions. Next week the Hoover Institution will release the September-October 2015 issue of Eureka featuring commentary on California’s drought conundrum. The issue investigates 1) how the drought is affecting California’s “bread basket” (maybe, fruit and nut basket would be more apt), 2) whether innovation can play a role in the prevention of future droughts, and 3) how Orange County embraced innovation decades ago and has benefitted immensely since.
Ironies in the Central Valley: Central Valley communities and farms are faced with a compounding problem. First, the State Water Project and Central Valley Project have turned off the surface water spigot, forcing farmers to rely almost entirely on the Central Valley’s vast groundwater aquifer. However, this aquifer exists in a fragile symbiosis. Groundwater resources can only be recharged via runoff from the Sierra Nevada Mountains or excess irrigation from surface water transfers – both of which show no signs of reflowing anytime soon. Therefore, the aquifer is quickly being depleted forcing farmers to dig deeper wells and running pumps constantly – both of which are costly. To pay for this new expense, farmers have refocused their crops on ones that demand a higher price, i.e. fruits and nuts. These profitable crops, however, catch the eye of investors leading to more demand for agricultural land, which in turns puts more pressure on an ever decreasing and more expensive groundwater resource.
Water Innovation Requires Reliable Financing: During California’s energy crisis, government policy and forward-thinking industry leaders looked to energy innovation to stabilize the Golden State’s volatile electricity market. While California’s growing reliance on renewables presents other challenges to overcome, one lesson from the energy crisis is clear: for innovation to occur, financing must be available. One of the serious challenges to water financing is the disconnect between what water users pay for it and what its scarcity actually makes it worth. To move forward the water sector must explore readjusting the rate structure and pricing policies to better reflect the full cost of water delivery and the marginal cost of consumption and scarcity, while also divorcing water utility revenue from the quantity of water sold – in order to insulate the utilities from conservation-induced revenue drops.
Orange County is Putting Innovation to Work: In the 1970s, Orange County opened the world’s first water treatment plant to recycle wastewater. They haven’t looked back since. In 2008, a ten-year collaboration between the Orange County Water District and the Orange County Sanitation District resulted in an even-more advanced treatment system that takes wastewater and turns it into clean, potable water. And what does this system accomplish? First, it prevents seawater intrusion into Ornage County’s groundwater aquifer. Second, it produces, currently, 100 million gallons per day of drinkable water, enough to quench the thirst of 850,000 people – over a quarter of Orange County’s population. Moreover, it showcases that water recycling is not only doable, but largely acceptable to the masses.
It’s obvious that California cannot conserve its way out of this drought. In July 2015, Californians conserved almost 74 billion gallons of water compared to July 2013, which is double the amount of water used by the city of Sacramento annually. But Sacramento represents just 1% of the state’s population and municipal water use is just 10% to 14% of California’s total water consumption. The solutions to California’s water challenges are simple: more storage, more resource development, better functioning water markets, and more efficient environmental protection efforts. The implementation, however, of these solutions are very complicated. But California should heed the words of Winston Churchill and “never let a good crisis go to waste.”
For a more in-depth look at these topics and an analysis on the September 2015 Golden State Poll – also related to California’s drought – keep your eye out for the September-October 2015 issue of Eureka at hoover.org/publication/eureka to be released on Tuesday, September 29.