Incentive pricing and cost recovery at the basin scale

Incentive pricing programs have potential to promote economically efficient water use patterns and provide a revenue source to compensate for environmental damages. However, incentive pricing may impose disproportionate costs and aggravate poverty where high prices are levied for basic human needs. This paper presents an analysis of a two-tiered water pricing system that sets a low price for subsistence needs, while charging a price equal to marginal cost, including environmental cost, for discretionary uses. This pricing arrangement can promote efficient and sustainable water use patterns, goals set by the European Water Framework Directive, while meeting subsistence needs of poor households. Using data from the Rio Grande Basin of North America, a dynamic nonlinear program, maximizes the basin's total net economic and environmental benefits subject to several hydrological and institutional constraints. Supply costs, environmental costs, and resource costs are integrated in a model of a river basin's hydrology, economics, and institutions. Three programs are compared: (1) Law of the River, in which water allocations and prices are determined by rules governing water transfers; (2) marginal cost pricing, in which households pay the full marginal cost of supplying treated water; (3) two-tiered pricing, in which households' subsistence water needs are priced cheaply, while discretionary uses are priced at efficient levels. Compared to the Law of the River and marginal cost pricing, two-tiered pricing performs well for efficiency and adequately for sustainability and equity. Findings provide a general framework for formulating water pricing programs that promote economically and environmentally efficient water use programs while also addressing other policy goals.     

Water Prism: A Tool to Assess Water Availability Risk and Investigate Water Management Strategies

Water availability risk is a local issue best understood with watershed‐scale quantification of both withdrawal and consumptive demands in the context of available supply. Collectively, all water use sectors must identify, understand, and respond to this risk. A highly visual and computationally robust decision support tool, Water Prism, quantitatively explores mitigation responses to water risk on both a facility‐level and basin‐aggregated basis. Water Prism examines a basin water balance for a 40‐ to 60‐year planning horizon, distinguishes among water use sectors, and accounts for ecosystem water needs. The 2012 Texas State Water Plan was used to apply Water Prism to the Big Cypress‐Sulphur Basin (Texas). The case study showed Water Prism to be an accurate and convenient tool to provide fine‐scale understanding of water use in the context of available supply, evaluate multi‐sector combinations of conservation strategies, and quantify the effects of future demands and water availability. Analyses demonstrated water availability risks for rivers and reservoirs can vary within a basin and must be calculated independently, simulation of water balance conditions can help illuminate potential impacts of increasing demands, and scenario simulations can be used to evaluate relative conservation efficacy of different water resource management strategies for each sector. Based on case study findings, Water Prism can serve as a useful assessment tool for regional water planners.     

Irrigation pricing policies and its impact on agricultural inputs demand in Tunisia: a DEA-based methodology

This paper estimates farmers' individual irrigation water demand functions employing the information hidden in individual farmers' technical efficiency. This information is extracted through the development of a new deductive methodology based on inverse Data Envelopment Analysis (DEA) models. The empirical results for Tunisia show that farmers who are more technically efficient have less elastic irrigation water demand functions; these farmers would adjust demand only to a limited extent and they can afford the water price. In contrast, water pricing significantly affects those that are less efficient. These farmers shift towards a different cropping pattern using significantly less water and more land when the price of water increases. Thus, higher water prices would threaten this category's livelihood if their efficiency is not improved. However, if the technical efficiency of these farmers were to improve, then it would be more difficult to reach water saving objectives since their demand will also become highly inelastic. The findings have important implications in view of the objectives of Tunisia water policy which include:full cost recovery, continuity of the irrigation activity, and water saving at the national level.     

Water resource pricing: Policy options

This paper critically examines pricing policy options for water resources and attempts to derive an operationally feasible and socially desirable pricing structure for this important resource. Marginal cost pricing options are studied under different economic and resource conditions, such as inflation, constrained water resources and price distortions in an economy. Options such as pricing of water at its ‘real’ resource value, ‘social’ pricing, and pricing to reflect intangible benefits are also examined.     

THE IMPORTANCE OF INSTITUTIONAL STRUCTURE IN CONTROLLING AGRICULTURAL RUNOFF1

Abstract: Agricultural runoff, such as dissolved mineral salts and selenium, creates pronounced downstream impacts to agricultural producers and to wildlife. The ability to manage these problems efficiently depends critically on the institutional pricing structure of irrigation water delivery agencies. An important characteristic of irrigation water delivery is whether irrigators pay per unit of water received or make one payment regardless of the quantity of water received. In this study we compare the effectiveness of agricultural runoff reduction policies in two regions that employ these different water pricing structures. We find that reduction policy is more effective and can be achieved at a lower cost when water is priced on a per unit basis and that growers have greater incentive to act on their own to reduce runoff problems. Operating under a per unit pricing system encourages water conservation and runoff reduction, which creates public benefits that are not achieved under the single-payment, fixed allotment method of irrigation water delivery.     

Irrigation water management policies: Allocation and pricing principles and implementation experience

Food security and sustainable development require efficient use of water resources, especially in irrigation. Economic pricing can be an effective tool to achieve more efficient water use, provided it is supported by other policies in implementation. Applying various water pricing and cost recovery arrangements is suggested for efficient allocation. Any adverse impact on farmers’ incomes must be addressed and more reliable service must accompany higher prices. Experience from several countries suggests a variety of implementation issues. Essential complements to water pricing are water distribution rules and technological choices at critical nodes in the delivery system that allow farmers flexibility in conserving water in response to higher prices. Among supporting institutions, water users associations seem a higher priority than water markets.     

排污权交易基准价定价机制探讨

构建科学合理的基准价定价机制是推动排污权交易的基础性工作,本文以政策、管理、技术三个方面作为立足点,探讨了基准价定价机制,构建了工作框架。研究认为现阶段基准价定价采取成本定价法是合适的,并对基准价定价技术难点进行了剖析,提出了建议。     

CONSERVATIONAL WATER PRICING FOR INCREASED WATER SUPPLY BENEFITS1

ABSTRACT: A study was undertaken to see if benefits from water supply could be increased by utilizing price-usage information in reservoir design studies. Three pricing policies were examined. The first policy assumed no price-use relationship, and quantity demanded was based on existing community usage with a low water rate. The price of water was set to recover system costs. A price-use relationship was assumed in the second policy and the water rate was constant. The price of water was determined from the associated system which provided maximum expected net benefits. The third policy assumed the price-use relationship and the price charged for water during each billing period was a non-linear function of storage which increased as the amount of water in storage at the beginning of the period decreased. It was found that the use of the conservation pricing policies substantially reduced storage requirements while providing demonstrable net benefits to the community and a large average supply. The conservation pricing policies substantially lowered the average price paid for water. The effect of uncertainty in consumer response to changes in price was studied by using a probabilistic price-use relationship. This uncertainty did not significantly reduce the effectiveness of the conservation policy. It was concluded that demand management by the use of a proper pricing policy could significantly increase net water supply benefits to a community.     

Clean Water State Revolving Fund Loans and Landowner Investments in Agricultural Best Management Practices in Iowa1

Arbuckle, Jr., J. Gordon, 2012. Clean Water State Revolving Fund Loans and Landowner Investments in Agricultural Best Management Practices in Iowa. Journal of the American Water Resources Association (JAWRA) 1‐9. DOI: 10.1111/j.1752‐1688.2012.00688.x Abstract: Clean Water State Revolving Fund (CWSRF) loan programs for water quality have traditionally funded infrastructure projects at the community, municipality, or state level. They are increasingly being used to support individual landowner adoption of agricultural best management practices (BMPs) for nonpoint source pollution abatement. In 2005, the Iowa CWSRF initiated the Local Water Protection Program (LWPP) to increase the scope, scale, and rate of agricultural BMP establishment. This research examines the effectiveness of that program through a comparison of survey data from LWPP participants and state cost‐share recipients who were eligible for loans, but did not take them. Loan recipients’ assessments of the program were overwhelmingly positive, with near‐universal satisfaction with both the loan product and process. Results of statistical analyses indicate that loan recipients invested substantially more in conservation than nonrecipients. Evidence suggests that by helping program participants to overcome financial constraints, loans are facilitating larger and accelerated investments in conservation. Although findings indicate that conservation loans can play an important role in funding conservation, loan recipients also still depend on cost‐share. Loans are not necessarily a substitute for traditional forms of conservation funding, but rather another tool that landowners and conservation professionals can employ to facilitate investments in BMPs.     

Residential Water Demand Management: Lessons from Aurora,Colorado1

Abstract: Residential water demand is a function of several factors, some of which are within the control of water utilities (e.g., price, water restrictions, rebate programs) and some of which are not (e.g., climate and weather, demographic characteristics). In this study of Aurora, Colorado, factors influencing residential water demand are reviewed during a turbulent drought period (2000‐2005). Findings expand the understanding of residential demand in at least three salient ways: first, by documenting that pricing and outdoor water restriction policies interact with each other ensuring that total water savings are not additive of each program operating independently; second, by showing that the effectiveness of pricing and restrictions policies varies among different classes of customers (i.e., low, middle, and high volume water users) and between predrought and drought periods; and third, in demonstrating that real‐time information about consumptive use (via the Water Smart Reader) helps customers reach water‐use targets.     

Strategic Environmental Assessment of Greenhouse Gas Mitigation Options in the Canadian Agricultural Sector

This article presents a methodological framework for strategic environmental assessment (SEA) application. The overall objective is to demonstrate SEA as a systematic and structured policy, plan, and program (PPP) decision support tool. In order to accomplish this objective, a stakeholder-based SEA application to greenhouse gas (GHG) mitigation policy options in Canadian agriculture is presented. Using a mail-out impact assessment exercise, agricultural producers and nonproducers from across the Canadian prairie region were asked to evaluate five competing GHG mitigation options against 13 valued environmental components (VECs). Data were analyzed using multi-criteria and exploratory analytical techniques. The results suggest considerable variation in perceived impacts and GHG mitigation policy preferences, suggesting that a blanket policy approach to GHG mitigation will create gainers and losers based on soil type and associate cropping and on-farm management practices. It is possible to identify a series of regional greenhouse gas mitigation programs that are robust, socially meaningful, and operationally relevant to both agricultural producers and policy decision makers. The assessment demonstrates the ability of SEA to address, in an operational sense, environmental problems that are characterized by conflicting interests and competing objectives and alternatives. A structured and systematic SEA methodology provides the necessary decision support framework for the consideration of impacts, and allows for PPPs to be assessed based on a much broader set of properties, objectives, criteria, and constraints whereas maintaining rigor and accountability in the assessment process.     

Use of Predictive Weather Uncertainties in an Irrigation Scheduling Tool Part II: An Application of Metrics and Adjoints

We apply predictive weather metrics and land model sensitivities to improve the Colorado State University Water Irrigation Scheduler for Efficient Application (WISE). WISE is an irrigation decision aid that integrates environmental and user information for optimizing water use. Rainfall forecasts and verification performance metrics are used to estimate predictive rainfall probabilities that are used as input data within the irrigation decision aid. These input data errors are also used within a land model sensitivity study to diagnose important prognostic water movement behaviors for irrigation tool development purposes simultaneously performing the analysis in space and time. Thus, important questions such as “how long can a crop water application be delayed while maintaining crop yield production?” are addressed by evaluating crop growth stage interactions as a function of soil depth (i.e., space), rainfall events (i.e., time), and their probabilistic uncertainties. Editor’s note : This paper is part of the featured series on Optimizing Ogallala Aquifer Water Use to Sustain Food Systems. See the February 2019 issue for the introduction and background to the series.     

AN EVALUATION OF THE 1997 EDWARDS AQUIFER IRRIGATION SUSPENSION1

ABSTRACT: In early 1997, the Texas Edwards Aquifer Authority implemented a pilot Irrigation Suspension Program with the objectives of increasing springflow and providing relief to municipalities during drought. Irrigators were paid an average of $234 per acre to suspend water use, a price higher than regional land rental rates. Auction theory and program implementation details suggest that the program implementation partially caused inflated bids. The Irrigation Suspension Program is also compared to two alternative programs: (1) subsidizing more efficient irrigation technology and (2) buying land. The irrigation suspension is found to be more cost‐effective relative to subsidizing improved irrigation efficiency because it can be put in place only when aquifer levels are low. Land purchase is a cheaper alternative if the bid levels remain at the levels observed.     

FIELD SCALE MULTIOBJECTIVE DECISION MAKING: A CASE STUDY FROM WESTERN IOWA1

ABSTRACT: Water quality issues in agriculture are growing in importance. A common theme is the provision of better information to decision makers. This study reports the trial of a prototype decision support system by the U.S. Department of Agriculture Natural Resources Conservation Service and the Agricultural Research Service in the NRCS Harrison County Field Office in 1998. Observed data collected at the Deep Loess Research Station (DLRS) near Treynor, Iowa, were extrapolated using a modified GLEAMS field scale simulation model that included a nitrogen leaching component and a crop growth component. An accounting tool was used to convert crop yield estimates into crop budgets. A model interface was built to specify the climate, soil, and topography of the field, as well as the management scenarios for the alternative management systems. For the Deep Loess Hills area of Harrison County, a total of six soil and slope groups, with 66 total combinations of management practices forming management systems, were defined and simulated based on previously calibrated data from DLRS. A multi‐objective decision support system, the Water Quality Decision Support System, or WQDSS, was used to examine the tradeoffs in a comprehensive set of variables affected by alternative management systems with farmers in Harrison County. The study concluded that a multiobjective decision support system should be developed to support conservation planning by the NRCS. Currently, a larger scale effort to improve water quality decision making is underway.     

Water supply policies and issues in developing countries

The significant progress made during the UN International Water Decade is reviewed, eight years after its inception in 1981. Major issues remain, especially in rural areas. The advantages of an integrated water resource planning framework (IWRP) are explained, including the use of this process to develop a flexible strategy for the water and sewerage sector to meet national policy objectives. Economic efficiency in supply implies optimal service quality and least cost planning, while efficient pricing policy requires the implementation of long-run marginal cost based tariffs. Better sector organization, management, accountability, options for decentralization and innovative financing methods are also discussed.     

PROJECTED EFFECTS OF ENERGY POLICIES ON AGRICULTURAL WATER USE AND IRRIGATION1

ABSTRACT: A national and interregional programming model was used in projecting the impacts of alternative energy policies and prices on agricultural production, land use, and irrigation. The alternatives analyzed include (a) natural gas deregulation, (b) natural gas curtailment, (c) doubled energy prices, and (d) tripled energy prices. These alternatives are compared with a base alternative where prices and conditions are at normal levels. Restraints in the model control availability of water, land, nitrogen fertilizers, and energy. Water production functions were used to adjust water use to conform with projected energy prices and policies. Natural gas curtailment would have the largest effect on nitrogen use on irrigated land. Values or shadow prices for lands that remains in irrigation would increase under all of the alternatives because of reduced supply. Increased energy prices generally would increase use of surface water for irrigation and reduce use of ground water due to higher pumping costs. Reductions of 50 percent or more in ground water use would occur in the South Central and Western regions of the United States. Water supply prices increase under all of the alternatives; with the amount varying by regions and the policy or price situation.     

SEWER AND WATER PRICING AND INVESTMENT POLICIES TO IMPLEMENT URBAN GROWTH POLICY1

ABSTRACT. The article proposes the use of certain water and sewer extension pricing and investment policies. Such policies would complement an urban growth policy designed to guide the location and timing of growth in urbanizing areas. Proposed pricing policies are based upon marginal cost principles. The types of pricing policies discussed include benefit assessments, connection fees, and user charges. Proposed investment policies deal with the division of financing responsiblities between the public and private sectors. Discussion of each proposal explains the economic influence of the proposed policies upon key decision makers in the land development process. The application of proposed pricing and investment policies in the case study communities is mixed. In Knoxville, Tennessee, where pricing and investment policies reflect the proposed policies, no urban growth policy exists. In Lexington, Kentucky, mixed pricing and investment policies do not complement what is a relatively good urban growth policy. In Greensboro, North Carolina, reasonably effective pricing and investment policies complement other policies which provide some guidance to the urban growth pattern. It is hoped that the article will increase the recognition of utility pricing and investment policies as one means of implementing urban growth policy.     

PRICING IRRIGATION WATER IN DEVELOPING COUNTRIES1

ABSTRACT Alternative combinations of water pricing and regulations are possible in allocating irrigation water. The best combination will depend on the value of water, ability to control deliveries, desire to subsidize agriculture, ownership traditions, crops grown, return flows, drainage problems, staff training, ability to collect fees, the number of farmers involved, etc. Marginal cost pricing is just one possible alternative and it is more a way of thinking about prices rather than a set system. The possibilities for achieving an equitable and efficient distribution of water are improved if some form of marginal cost pricing is included in the system of water charges.     

A DECISION SUPPORT TOOL FOR THE MANAGEMENT OF MULTI‐RESERVOIR SYSTEMS1

ABSTRACT: A decision support tool is developed for the management of water resources, focusing on multipurpose reservoir systems. This software tool has been designed in such a way that it can be suitable to hydrosystems with multiple water uses and operating goals, calculating complex multi‐reservoir systems as a whole. The mathematical framework is based on the parameterization‐simulation‐optimization scheme. The main idea consists of a parametric formulation of the operating rules for reservoirs and other projects (i.e., hydropower plants). This methodology enables the radical decrease of the number of decision variables, making feasible the location of the optimal management policy, which maximizes the system yield and the overall operational benefit and minimizes the risk for the management decisions. The program was developed using advanced software engineering techniques. It is adaptable in a wide range of water resources systems, and its purpose is to support water and power supply companies and related authorities. It already has been applied to two of the most complicated hydrosystems of Greece, the first time as a planning tool and the second time as a management tool.