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Storage, Markets, and the Inter-temporal Allocation of Water in Colorado

Storage, Markets, and the Inter-temporal Allocation of Water in Colorado. Andre Dozier Alex Maas Dale Manning. CSU Water Center Faculty Fellow Funding. Storage, Markets, and the Inter-temporal Allocation of Colorado-Big Thompson Water. Andre Dozier Alex Maas Dale Manning.

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Storage, Markets, and the Inter-temporal Allocation of Water in Colorado

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  1. Storage, Markets, and the Inter-temporal Allocation of Water in Colorado Andre Dozier Alex Maas Dale Manning CSU Water Center Faculty Fellow Funding

  2. Storage, Markets, and the Inter-temporal Allocation of Colorado-Big Thompson Water Andre Dozier Alex Maas Dale Manning CSU Water Center Faculty Fellow Funding

  3. Storage, Markets, and the Inter-temporal Allocation of Horsetooth Water Andre Dozier Alex Maas Dale Manning CSU Water Center Faculty Fellow Funding

  4. Water Allocation in the Western United States • Increasing urban population • E.g., 45% increase in Colorado by 2040 (Colorado.gov) • Economists have demonstrated gain to water trades (E.g., Young, Colby, Howe) • We consider within- and across-year water allocation • Storage increases the effectiveness of markets • Balances marginal benefit and cost across time • Water consumption smoothed over time

  5. Research Questions • Does inter-annual storage increase the value of water over time (and by how much)? • How do water allocation institutions affect optimal storage and water value? • Are some institutions better suited to respond to a changing climate?

  6. Colorado-Big Thompson Project (Horsetooth Reservoir for now) • C-BT determines annual quota of water • Horsetooth gets ~38% • Average inflow of ~87,188 acre-ft per year • Average storage ~90,000 acre-ft

  7. Model Setup • 2 water users with parameterized benefit functions (quadratic) • Agriculture • Municipal and Industrial • Central reservoir manager • 1 release decision per year • Water Allocation (with and without storage) • Free market • Restricted trade given 1957 rights (or high transaction costs that prevent trades) • 50 time periods

  8. Institutions • Restricted Trade: • Ownership is fixed and no lease market • Each user type owns and uses a fixed proportion of total water • With storage, reservoir manager makes storage decision to equate marginal benefit over time • Perfect market • Users trade water to equate the marginal benefit across uses • With storage, reservoir manager makes storage decision to equate marginal benefit over time

  9. Water availability • Stochastic inflows of water, based on historic inflows • With storage: • Optimal release schedule • Solved using stochastic dynamic programming • No storage: • Water use equals inflows in a given year • Marginal benefit not equal across time

  10. Results: Release Decision • Same rule for both institutions (for this case)

  11. Results: Total Value of Water *Value of within year storage not accounted for **Only Horsetoothwater considered

  12. Results: Total Value of Water

  13. Discussion • Trade and storage increase value of water • Gains from trade across users large compared to inter-annual storage • Water trading with 10% less water produces 40% more value than no-trade and current water supply

  14. Ongoing work • Theoretical model of optimal water storage • Expand model to C-BT (west slope) storage • Account for infrastructural constraints, hydrology/externalities • Incorporate annual carryover program (ex post individual banking) • Incorporate more detailed climate projections • Time-varying benefits of C-BT water • Distributional impacts

  15. Other water research (since seed grant) • General equilibrium impacts on rural-urban water transfers in the west (Manning, Goemans and UN-Reno team) • Economic impact of groundwater pumping policies (Manning, Goemans, and Suter) • Agricultural output • Other sectors • Multi-state management of the Ogallala High Plains Aquifer (Kelly, Waskom, Manning, Goemans, Suter, teams from UNL,OSU,USGS, and USDA)

  16. Thanks…

  17. C-BT Water Use

  18. Water consumption over time with and without storage

  19. C-BT Water Use • Agriculture still receives more water despite change in ownership

  20. Quota (Storage) Decision • Percent of 310,000 acre-ft of water to release • November and April • Considers: • Water in C-BT reservoirs • Water in non-C-BT reservoirs • Snowpack, projected run-off, soil moisture • Input from water users • Average Quota: 75% Quota graph

  21. C-BT Timeline Year1 Year 0 Year 2 Leftover water eligible for ACP Lose remaining ACP Deadline to declare ACP J J N S O A J A M F M O N D Quota Decision 1 (%) Quota Decision 2 (%)

  22. Horsetooth Reservoir

  23. Back

  24. Storage and Inter-temporal Efficiency • Storage allows for optimal water use across multiple years • Increases the effectiveness of markets • Balances marginal benefit and cost across time • Water consumption smoothed over time • “Storage or Markets” (Goodman 2000) • We investigate their interaction

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