Tuesday, September 24, 2013

An Illustration of How Regulatory Assurance Under the BDCP is Risk Shifting, Not Risk Reduction

Bettina Boxall's article in Monday's LA Times is excellent. 

While most of her article is about the likely cost shift of the tunnels from agricultural to urban ratepayers, she may have also clarified the mysterious "note to readers" in Chapter 8 of the BDCP that suggests taxpayers might have to pay even more for BDCP environmental benefits.

Project backers are also broaching the possibility that federal and state taxpayers may be asked to buy water from irrigation districts upstream of the delta in the San Joaquin and Sacramento River basins to increase flows through the delta and out to San Francisco Bay. 
Whether that program would be a part of the tunnel proposal or stand alone is unclear. But either way, it would make the tunnel project more attractive to users because it would — at public expense — essentially increase the volume of water they could take from the delta and still meet endangered species protections. 
Cowin called the idea "very conceptual at this point." The reasoning behind public water purchases, he said, is that if the planned habitat rehabilitation work doesn't sufficiently boost the delta's imperiled native fish populations and more flows are needed through the delta, federal and state funding could be shifted from restoration to water purchases.
My initial interpretation of the "Note to Readers" was that it opened the door to taxpayers paying for the tunnels, but that appears to be the wrong interpretation. The response of Dr. Meral to questions in public meetings and this passage suggest that it means that taxpayers would agree to pay for even more habitat or water flows from upstream sources if needed to achieve BDCP recovery goals and comply with the ESA. This is due to the regulatory assurances in BDCP limiting additional contributions of water or money from the water contractors.

So this conceptual idea is a nice illustration of how the BDCP reduces regulatory uncertainty for the water contractors by increasing regulatory uncertainty for taxpayers, upstream water users, and the environment. And that transfer of risk is why I have not included any value for regulatory certainty in statewide benefit-cost analysis. If you want to count the value of this risk reduction benefit to the contractors, you also have to value the cost of the risk increase to upstream interests, taxpayers, the environment and the Delta. The BDCP economic studies released this summer do not provide this balanced assessment.

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