Everything You Need to Know About California Water Pricing

California is the #2 rice grower in the nation, with 22% of US production.

There is a debate growing in California about whether crops like almonds (that use a lot of water) should be allowed.  But all that authoritarian command and control debate about "allowing" certain activities is unnecessary.  Just raise prices to some sort of supply and demand matching level (it is a bit awkward to do this because there is not a true free market in water supply but any attempts have got to be better than the current absurdly low prices).  Then the almond growers themselves, and the rice growers, and the golf courses, and everyone else will decide if they can still operate in CA or not.  No politicians' commands necessary.

Raising prices also creates a secondary benefit over government-imposed rationing -- it provides incentives for people to seek out and invest in new sources of supply.  Desalinization, any one?

  • chembot

    But "it's not fair!" (TM) The people with the mansions and the golf courses will hog all the water and the poor huddled masses shall now be dirty as well because they can't afford to wash themselves or cook their food.

    Class warfare is ugly and I agree with the idea that I would rather see resources rationed to their most marginally productive use, but as they say, the optics on this one is bad. It is sad to say, but as with many countries around the world it appears that people would rather have the appearance of fairness rather than the availability of the actual resource. The hoarders and and the rich will simply be called the "haters of mankind" and be bullied to divest themselves of the perceived ill gotten loot.

  • J_W_W

    It baffles me that California isn't much much more interested in desalination. They literally have access to the largest source of water on the planet right in front of them. At the very least, they should stop spending on high speed trains and put that money into desalination.

  • FelineCannonball

    There's a debate over whether almonds should be "allowed"? Not by anyone with any power. The 0% allotment from federal projects (and slightly higher in state projects) is because there is simply no water.

    No doubt California needs to revisit water rights and develop systems to make it more fungible. Surface water "rights" in some places allocate 500% of the average flow. Groundwater is priced solely by the cost of drilling and pumping -- the definition of les affaire -- which in this case means 150 cubic kilometers of the public resource have been flushed into the ocean over the years. In the long term the sustainable groundwater bill will eventually force local basins to put a cap on total withdrawals (to match recharge) and if they're smart they'll make it a cap and trade type system and let the water flow were the market dictates. This won't screw cities. They pay more for water than any farm. It probably won't hurt almonds either.

    The effective price of water has risen a lot, albeit unequally for farms. Because of this what's been cut the last few years is rice, corn, barley, wheat, cotton, hay and alfalfa. People are still planting almonds, drought or no drought. It's one of the few crops making money.

  • Seekingfactsforsanity

    California is now a paradise lost with its big liberal government, big wasted taxes. It's resources are being consumed by countless nonproductive programs and nonproductive bureaucrats with fat salaries and fat pensions. With a population that has nearly quadrupled since 1950, with businesses being shackled with outrageous regulations and taxes, California soon will need more than just water to survive. They will soon be screaming that the federal government save their ass by taking resources from other states and redirecting them to California.

  • Matthew Slyfield

    "Just raise prices to some sort of supply and demand matching level"

    Actually, this isn't necessary, just charging actual costs with zero profit would be enough. I have read that the federal water projects that bring water to southern CA from out of state cost around $200 per acre-foot to operate. I have also read that the farmers claim that they can't afford more than $20/acre-foot.

  • bigjohn1

    The really idiotic bottom line of water usage in California is that of all the water used for all purposes only about 10% is used by urban areas. Almost 80% is used by Agriculture and the rest by industry and other users. Fact #1 - even if all cities went totally dry, there would only be 10% less water used in California. Fact #2 - Almost half of all water used by Agriculture is used by two crops in California which are Rice and Alfalfa. Both of these crops are very water intensive and should be grown where it actually rains on a regular basis. This is all because of the idiotic way California prices its water distribution which is obviously all caused by purely political decisions in Sacramento.
    Thank you Coyote for bringing up this important issue.

  • DirtyJobsGuy

    Go to the Persian Gulf and you will see many combined power and water (desalinization) plants. Helps if you have nearly free fuel (natural gas) locally. Prices are kept low by the various emirs and Princes. The desert Southwest's problem (including California) is not just supply pricing but water infrastructure. Despite all the talk about droughts, a couple of years back there was so much snow melt that the power market was swamped with hydroelectric generation. Many natural gas fired power plants that normally run summers did not run well into July. Water is one of the few "renewable designated" resources that is storable in reservoirs and in reinjection to below ground aquifers. Many power plants in California that use waste agricultural runoff for cooling are required to clean and reinject part of that water to the aquifer. No matter how high you raised the water price, if the green fanatics will not let you build adequate storage from surplus years you will not increase supply. Most big users are scarcely big wasters since they can afford to put in efficient management systems. City sewage systems almost all sell their grey water to industrial users, etc.
    Oh, by the way you probably won't be able to do desalinization in CA due to the Cal. Coastal Commission's opposition to drawing any seawater out of the pacific for industrial cooling or other use (disturbs the fish and other ocean critters supposedly).

  • irandom419
  • J_W_W

    Thanks for the link. Still kind of depressing that they had to clear lawsuits to proceed.

  • Mondak

    You should have seen the lawsuits too. I live a half mile from the Carlsbad site and it was pathetic. They got sued for everything. And then re-sued for the exact same thing from the same people after changing like one word.

  • Matthew Slyfield

    " This is all because of the idiotic way California prices its water
    distribution which is obviously all caused by purely political decisions
    in Sacramento."

    This is not true. The majority of that water is brought in from out of state by Federal water projects. The federal government has a lot of influence in CA water pricing.

  • skhpcola

    Was your comment supposed to be an effective refutation of @bigjohn1:disqus's claim? Because saying that the water is priced by the federal government, rather than the California government, is a rather weak position, unless you provide some support that the federal government is de facto and de jure in control on the majority of California water supply. Which wouldn't really surprise me, seeing how California leftists knuckle under to the omniscient power of their big-government gods...but still, I find your claim dubious.

  • http://aguanomics.com/ David Zetland

    Desal wouldn't happen if "prices were right". Note that ag water markets and urban water prices are only semi-related (all over the world). I explain the differences (and describe useful economic policies for both) in my book (free DL): http://livingwithwaterscarcity.com/

  • Nik Smith

    Boeing just PATENTED a laser PLASMA SHIELD [1], that Washington Post asked [2] and may AVERT electro-volcanic [3] and other electric disasters, such an expected new Carrington event, as the July 2012 near-miss disaster, that NASA [4] and even Fmr CIA Director constantly warns about!!! [5]

    1. http://www.engadget.com/2015/03/23/boeing-plasma-shield/

    2. “create a SHIELD that powers up or powers down anytime NASA’s early-warning system detects unusual activity.” http://www.washingtonpost.com/blogs/innovations/wp/2014/07/31/extreme-solar-storms-spark-a-need-for-innovation/

    3. Based on the diversion of atmosphere-magma stimulating cosmic rays’ electricity, as we do with spacecrafts and satellites:

    “Explosive volcanic eruptions triggered by cosmic rays: Volcano as a bubble chamber” – Ebisuzaki et al http://www.sciencedirect.com/science/article/pii/S1342937X10001966

    4. http://science.nasa.gov/science-news/science-at-nasa/2014/23jul_superstorm/

    5. https://www.youtube.com/watch?v=iBfALe8X9C8 Boeing PLASMA SHIELD vs devastating geomagnetic super-storms

  • http://web.elastic.org/~fche/ Frank Ch. Eigler

    "... will hog all the water and the poor huddled masses shall now be dirty ..."

    I doubt it.

  • bigjohn1

    "The Federal Government has a lot of 'influence' in CA water pricing"
    Regardless of the "influence" the Feds have and regardless of whether the idiots are located in Sacramento or DC the fact remains our pricing system is completely the cause of the current mal-distribution of water in California. California does not have a shortage of water, it has a distribution issue caused by really bad pricing decisions.
    You can try to ignore reality, but you cannot ignore the effects of reality.

  • Philip Ngai

    You talk about "raising prices" as though the government owned all the water. In fact, many users have rights to the water they use, almost like if the owner of an oil well used that oil to produce a product for sale. Such product would be food in the case of farmers or gasoline in the case of an oil well owner.

    Obviously, it would be desirable if the owner of the resource rights could sell that resource to someone willing to pay a higher price than the owner could get as input to the product he normally sells, if there were such a buyer. It would not be good for society if the government simply reallocated that resource to someone with more political power.

  • John Moore

    In the west, there is a lot of history of water rights, including wars fought over them. You can't just waltz in and change the rules (unless you're Obama, but that's a different story). What may be ideal may not be achievable without either stealing from people, or buying out their property rights at a fair price (my preferred solution). In other words, don't change the rules on the farmers without paying them for the taking that the change causes.

  • russnelson

    They have rights to use, Philip, but not the right to sell their use.

  • Philip Ngai

    Yes, and that's the biggest problem, as the inability to sell their water means Coase's theorem can not operate.

    Of course we should not forget the transaction cost aspect: large quantities of water can be expensive to move.

  • Mara Felsen

    the problem is this: http://www.mercurynews.com/drought/ci_27954116/california-drought-court-rules-tiered-water-rates-violate
    so unless they tie those increased rates in with the cost of providing the service, the court of appeals ruled that the tiered rates are unconstitutional. this happened a month ago.