ECONOMICS Files

Water/Energy Nexus

Water and energy are fundamental components of our 21st century life, but they can no longer be considered separately. Just as producing energy consumes water, pumping, treating and distributing water requires energy. In other words, water is an energy issue; energy
is a water issue. Called the water-energy nexus, this interrelationship is beginning to receive the attention it merits. View Documents.

Market-based Responses to Arizona’s Water Sustainability Challenges

The Cornerstones Report explores how market-based tools can contribute to the protection and restoration of ecosystem water needs. The overarching goal of this report is to demonstrate how a market-based response—defined as the use of tradable water rights by institutions to facilitate voluntary reallocation of water to meet ecological needs—can
be an integral part of water management in Arizona. To meet this goal, the report identifies the foundational elements needed to develop and apply market-based options by examining:
• Arizona's water sustainability challenges and their driving forces
• The diverse water geographies in Arizona
• Market-based reallocation alternatives
• Challenges and opportunities for market-based responses

View Document.

Tradable Permits Approach to Protecting the Commons

Tradable permits address the commons problem by rationing access to the resource and privatizing the resulting access rights. The first step involves setting a limit on user access to the resource. For fisheries this would involve the total allowable catch. For water supply it would involve the amount of water that could be extracted. View Document.

The Use of Pricing and Markets for Water Allocation

The complexity of water and its crucial value to society make the design of management and pricing rules that are simple, transparent, efficient and equitable a formidable task. This paper provides an economic perspective for determining water allocation rules and pricing. First we will present a general framework for the pricing of water. Then we will discuss the issues of water reform that will allow better use of water pricing and finally, we will address some of the particular issues associated with water pricing and allocation in the municipal, agricultural and environmental sectors. View Document.

Water Conservation through pricing and markets

Presentation by John Danforth to CWAG. Slides show that market forces can allocate water more efficiently, promote conservation, and help protect the environment. View Document.

How Federal Policies Affect the Allocation of Water

Use of the nation's freshwater resources attracts particular scrutiny in times of drought. When water is scarce, people are more aware of its importance. The mechanisms that govern the allocation and use of water are complicated, however. To examine how society uses its water resources, this Congressional Budget Office analysis addresses several major questions:
What are this country's water sources, and how is the water used?
What determines the underlying allocation, and does that allocation maximize water's potential benefits to society as a whole?
What policies might the federal government consider toward that end? View Document.

Verde River Ecosystem Values Project

This valuation study is designed to be the first phase of a series of studies to value the ecosystem services of the Verde River and its watershed. Interviews were conducted with 35 anonymous community leaders who live, work, or manage some aspect of the watershed (or a combination of the three). The interviews have resulted in a large list of values for the watershed and provide a starting point for more studies. This report includes preliminary analysis of the data collected from these interviews, a brief literature review on ecosystem services, and recommendations for future research. View Document.

West is Best. How Public Lands in the West Create a Competitive Economic Advantage

This report finds that the West's popular national parks, monuments, wilderness areas and other public lands offer its growing high-tech and services industries a competitive advantage, which is a major reason why the western economy has outperformed the rest of the U.S. economy in key measures of growth—employment, population, and personal income—during the last four decades.
In addition, as the West's economy shifts toward a knowledge-based economy, new research shows that protected federal public lands support faster rates of job growth and are correlated with higher levels of per capita income. View Document.

Arizona at the Crossroads: Water Scarcity or Water Sustainability

Authored by Karen Smith of the Grand Canyon Institute (24 pages), the report focus is on statewide water issues and the challenges Arizona faces concerning water resources. The analysis looks more closely at the economics of water supply and demand and suggests five specific recommendations for legislative action that, if enacted, will place Arizona firmly on the path of more sustainable water use. View Document.

Rethinking the Contribution of Water Conservation

Presentation to CWAG by Linda Stitzer of Western Resource Advocates advocating a greater role for water conservation. View Document.

Watering the Sun Corridor

Report by the Morrison Institute for Public Policy analyzing the long-term adequacy of Arizona's water supply. View Document.

Public/Private Partnerships

Prescott and Prescott Valley have explored the possibility of a public-private partnership (PPP) to assist in the financing, construction, and/or operation of the proposed water pipeline. Dr William Kendig comments on this scheme. View Document.

Response to Pollack Report: Kendig

Most thoughtful people are concerned that the lack of adequate water in the area will have significant implications for the local economy and, in a related fashion, will also impact the fiscal situation of area governments. The subject paper, prepared by Elliott D. Pollack & Company for The Central Arizona Partnership (a non-governmental group), was developed to provide specific information regarding the economic and fiscal impact of the pipeline through the year 2050. It appears that study is meant to provide citizens, business representatives and others with information for making decisions. The study has significant problems that reduce its use in decision making: (1) the foundation upon which the study is built, and (2) technical issues. View Document.

Response to Pollack Report: Moglewer

The August 2008 report by Elliot D. Pollack & Company on the Big Chino Water Ranch Project has been reviewed. This report was an impact analysis of the proposed project. The analysis incorporated forecasts of community population growth, alternative scenarios of growth based upon assumptions of available water supplies, and opportunity costs from failure to develop the pipeline. Results were quantified in constant 2008 dollars. The report focused on impacts to the City of Prescott and the Town of Prescott Valley. The basic conclusion of the Pollack report is that failure to build the Big Chino Pipeline at an estimated cost of $174.8 million dollars would result in a total lost economic impact to the two communities of over $15 billion dollars.
A major concern is that this report is inadequate for decision-making. It represents an optimistic upper bound not likely to be achieved. The report does not include adverse possibilities. Although it may represent a first attempt to get into the ballpark, it is way out in left field and not near home plate. View Document.

Response to Pollack Report: Danforth

An August 2008 study entitled "Big Chino Water Ranch Project Impact Analysis, Prescott & Prescott Valley, Arizona" prepared by Elliott D. Pollack & Company commissioned by the Central Arizona Partnership, presents a methodology to illustrate the costs of not completing the Big Chino Water Ranch pipeline project and applies that methodology to quantify the fiscal and economic impacts of that project. The Report incorporates a large number of major analytical shortcomings that result in estimates of fiscal and economic impacts which are grossly overstated and largely irrelevant to the current citizens of Prescott and Prescott Valley. View Document.

Big Chino Water Ranch Project Impact Analysis

Elliott D. Pollack & Company was retained by Central Arizona Partnership to perform an impact analysis of the BCWR project. The analysis involved a number of tasks including identifying reasonable forecasts for community population growth; comparing these forecasts to scenarios of growth if water supply is restricted by the Assured Water Supply Rules; illustrating the opportunity costs of not developing the pipeline; and quantifying the results of the analysis. All dollar figures are in 2008 dollars. Following is a summary of the results:
The City of Prescott was granted an Assured Water Supply Designation of 14,822 acre-feet in 2005. As of the end of 2007, the City estimated that 1,700 acre-feet remained available for allocation to new development. Without any importation of water, the City of Prescott can build an estimated 4,857 residential units, or support a population of 10,686 people. This population will be reached by 2014. The Town of Prescott Valley has the water rights to more than 5,000 acre feet and estimates they could issue about 17,000 residential permits. This would support an additional 40,000 people and would constrain growth past 2031. However, it is important to note that the limitations that will first exist in the City of Prescott may temporarily push new residential development to the Town of Prescott Valley.
If the City of Prescott and the Town of Prescott Valley are unable to issue additional permits, and the communities are no longer able to grow, they would incur lost economic activity as well as a significant impact on government revenues. With no additional residential homes, the demand for commercial will also be limited. These impacts are calculated over a 25-year impact period.View Document.

Tragedy of the Commons

Seminal essay by Garret Hardin addressing the necessity of social control of shared public resources. View Document.

Policy Options for Water Management in the Verde Valley

The water of the Verde Valley, both in the ground and flowing at the surface, is a natural resource that is critical to the regional economy, environmental sustainability, and quality of life—but the Verde River faces unprecedented threats from over-allocation, development, and lack of cohesive water management. This report presents the results of three related initiatives designed to examine possible futures for the Verde and provides information for stakeholders and decision makers regarding the Verde Valley's water resources, its economic value, and possible tools for sustainable water management.
Our analysis included modeling the effects of growth on river flows and on the regional economy. Population growth and development in the basin, if not mitigated, are likely to cause further decrease in the summer base flow in the Verde River. Decreases in the Verde River's flow have already been observed, and further reductions could have harmful side effects on the region's economy and could lead to federal intervention in local water management to maintain habitat for endangered species. View Document.

Verde River Economic Development Study - Summary

To identify ways of increasing the public's engagement in the health of the river, the VREDS study explores the connection between sustainable economic development in the study area and a healthy Verde River. It also suggests ways to strengthen that connection and therefore increase the value of a perennial river to the Verde Valley's residents. A third goal of this report is to examine whether an organization whose mission is to educate the public about water, the river and river-based economies might increase the likelihood of conserving the Verde River as a healthy perennial stream in the Verde Valley. Finally, VREDS was tasked to determine where additional investment in the Verde River could be applied most effectively and efficiently. View Document.

Verde River Economic Development Study – Full Report

The objectives of the VREDS research are to identify existing scientific data and social research, ecosystem services and management practices and current conditions that inform us about and identify the nexus between a healthy river and sustainable economic development strategies and practices. This investigation focused on:
Determining the feasibility of establishing the economic value of the Verde River in the study area;
Determining whether an investment of additional resources in the Verde Valley might positively impact sustainable economic development and, thereby, lead to and sustain a healthy Verde River;
Determining the most efficient and effective methods to educate the public and its policy makers about the value of the river and its relationship to sustainable economic development of the Verde Valley; and
 Assessing the practicality of creating and supporting an organization whose mission would be to implement recommendations of this and other WFF-funded studies. View Document.