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Water Economics Prof. David Sunding

Water Economics Prof. David Sunding. Used to Useful: Economics. Prof. David Sunding UC Berkeley November 13, 2009. Water Supply. At present, recycled water is a relatively small part of world’s water supply Global installed capacity: 50 million m 3 /d

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Water Economics Prof. David Sunding

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  1. Water Economics Prof. David Sunding

  2. Used to Useful: Economics Prof. David Sunding UC Berkeley November 13, 2009

  3. Water Supply • At present, recycled water is a relatively small part of world’s water supply • Global installed capacity: 50 million m3/d • Actual output is around 60% of capacity • Would take three years to fill Hoover Dam • Installed capacity of desal is around 40 million m3/d • What economic fundamentals explain where we are and drive change in this market?

  4. Water Allocation • Most water customers pay for conveyance, treatment, distribution, but nothing for the water itself • How then is water allocated? • Variety of legal allocation schemes around the country • Riparian Doctrine • Prior Appropriation Doctrine

  5. Water Allocation • Allocation rules are problematic • Hard to keep pace with a dynamic economy • Reserve large quantities for relatively inefficient uses • Hard to accommodate environmental needs • Exacerbates scarcity by concentrating shortage on certain users

  6. Environmental Concerns • Traditional surface water diversion projects are increasingly controversial • Unlikely to be much more dam construction around the world • Recycled water and desal can take pressure off riparian ecosystems and replenish local aquifers • Seawater intrusion

  7. Water Pricing • US water customers pay relatively little for water (0.5% of household income)

  8. Water Rates and Finance • 2002 GAO study concluded that 29% of drinking water utilities were not covering full cost of service (40% of wastewater utilities) • One-third deferred maintenance due to insufficient funding, had more than 20 percent of pipelines nearing end of useful life, and lacked basic plans for managing capital assets • Also a lack of adequate financial planning

  9. Rate Trends • True that US customers pay relatively little for water • Yet, prices are rising • In 2007, a 6.1% increase in water and sewer rates • Dramatic increases in certain regions (e.g., Southern California) caused by scarcity

  10. MWD Rates vs. Cost of Desalinated Water

  11. Private Investment • Recycled water development projected to grow rapidly around the world • Current spending on construction: $2.4 billion • In 2016: $8.4 billion • Around 1/3 of all reuse projects are privately financed • Proportion should increase as size and complexity of projects grows

  12. Achieving Sustainability • A sustainable water sector is • Mindful of environmental externalities • Robust to fluctuations in precipitation • Supportive of economic growth • Financially sustainable • Development of recycled water is consistent with a vision of urban water sustainability

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