Thursday, May 31, 2012

First Impression of the new PPIC water economics report

It's good.  Really, I mean it.

They have brought in some very solid new economists that were not part of their earlier reports, and they acknowledge that some key facts have changed since their 2008/2010 report endorsing a peripheral canal that I have criticized so much over the years.  Most importantly, these facts include the ever increasing cost of new conveyance, as well as better understanding of the real costs of earthquake interruptions, and an increasing understanding that urban water demand is declining due to the combination of conservation and slower growth.

This report contains no statement that a peripheral canal or tunnel is the best choice for California's economy, a statement that has been made in previous PPIC reports written by the smaller UC-Davis based group.  In fact, it even has a more accurate statement of the what the previous PPIC/Davis studies actually found  (see page 15).

Past PPIC research has shown that a peripheral canal would be the best option to meet the "coequal goals" of water supply reliability and ecosystem health (Lund et al. 2010) Today, options have multiplied—from a canal to a tunnel to two tunnels—and cost estimates have increased significantly. In 2008, official estimates for new above-ground conveyance ranged from $4 billion to $9 billion (California Department of Water Resources 2008). By 2012, as attention has shifted to building tunnels, cost estimates have increased to roughly $14 billion—not including the costs of financing and added operational expenses. With cost estimates growing, the question arises: Are the benefits of new conveyance great enough to justify the expense?
They are describing their previous report as evaluating the co-equal goals, not cost-benefit analysis, which is how one correctly determines if a canal/tunnel is the best economic choice.  This is an important point.  In a blog post last fall, I discussed the conflicts between the co-equal goals and cost-benefit analysis as analytical frameworks.

I am focusing on this one issue, because the Delta conveyance question is the single most important policy choice facing California at the moment, and PPIC is generally cited as the independent, academic support for building it. 

The vast majority of the report isn't about the conveyance at all, and I generally agree with the discussion and recommendations surrounding these other issues.  I particularly liked that the report led off with some much needed perspective on the importance of water to the California economy, and some optimistic comments about our ability to manage future water scarcity.  Cutting down on the crisis talk greatly improves the quality of discussion on California water issues.

Update June 1:  Buried in footnote 40, the author's confirm that they have not done the analysis to conclude that conveyance is the best economic choice, and that it requires cost-benefit analysis.  Specifically, it says.  "To determine which strategy is best for the economy, the net costs of new conveyance need to be compared to the net costs of implementing alternatives with reduced exports."  Footnote 41 is pretty darn interesting too, and corrects a lingering error in the 2008 PPIC report that said ending Delta exports would cost over 100,000 jobs.  Glad to see it.

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