with 🎙️ Ellen Bruno, Extension Economist @ UC Berkeley
💧 The Department of Agricultural and Resource Economics at UC Berkeley leads research and outreach on economic and policy issues relevant to California’s agriculture and natural resources.
What we covered:
🌱 How the Sustainable Groundwater Management Act is a challenge and an opportunity for all the Californian water users
🧮 How when reducing water allowances, some approaches are more efficient than others
💰 How the price of Water influences its uses – and to which extent
🧮 What the price elasticity of water demand actually is, and how of inelastic good water is
🍏 How water trading and groundwater markets could better market failures and smoothen the transition towards water restrictions
🍏 How markets are not perfect, yet can be the best tool in a given context
🧮 How if you’ve invested in a crop, a bottom-line calculation enables you to determine the threshold at which it’s profitable to stop watering it and let it die
🔬 How research happening in universities shall be leveraged into practical knowledge
🤔 Which levers can influence a water market, and how pertinent that influence actually is in the Californian example
🚰 How the groundwater tariffs in place in Coachella enable to artificially replenish the water table
🚜 How agricultural and urban users have slightly different behaviors when it comes to water and how to leverage it
🍏 How water market experiments are rolled out, and who shall best be participating in this trading
🍏 How to measure the (positive) impact of a water market compared with the status quo
🎤 The specificities of Water Management in Coachella, resemblances, and differences with Israel & Australia, farmers doing what’s best for business, why groundwater is better suited to trading than surface water… and much more!
🔥 … and of course, we concluded with the 𝙧𝙖𝙥𝙞𝙙 𝙛𝙞𝙧𝙚 𝙦𝙪𝙚𝙨𝙩𝙞𝙤𝙣𝙨 🔥
Teaser: Groundwater Trading
🔗 Have a look at Ellen’s website – (you might even discover some cool jazz music! 🎵)
🔗 Come say hi to Ellen on Linkedin
is on Linkedin ➡️
Infographic: Groundwater TradingInfographic-Ellen-Bruno-UC-Berkeley-Groundwater-Trading
Quotes: Groundwater TradingQuotes-Ellen-Bruno-UC-Berkeley-Groundwater-Market-California-Water-Trading
Table of contents
- What we covered:
- Teaser: Groundwater Trading
- Infographic: Groundwater Trading
- Quotes: Groundwater Trading
- Quiz: How does Water Use evolve when Price goes up?
- Full Transcript:
- A postcard from Berkeley
- Introducing: Ellen Bruno
- How to Correct Water Market Failures?
- How Groundwater Trading would provide 36% better outcomes
- Coachella: an interesting Case Study for Groundwater Management
- Concept: The Price Elasticity of Water Demand
- What are the ideal conditions for Groundwater Trading to be beneficial?
- How would groundwater trading work in practical steps?
- How to measure the impact of a Groundwater Market?
- How to apply Coachella’s Groundwater best practices to the entire California?
- Extending California’s Use Case to Israel & Australia
- Further Research
- Rapid fire questions:
- Other Episodes:
Quiz: How does Water Use evolve when Price goes up?
These are computer-generated, so expect some typos 🙂
Get Season 2's Summary!
Antoine Walter: Hi Ellen, welcome to the show.
Ellen Bruno: Thank you. Thanks for having me.
Antoine Walter: We have a fascinating topic today, which is a follow-up from something we’ve been discussing on the podcast in the past. But right before, you know, I have some traditions here and I’d like to open with a postcard and you’re sending today a postcard from a place I don’t know at all.
What can you tell me about Berkeley, which I wouldn’t know by now?
A postcard from Berkeley
Ellen Bruno: Well, yeah, UC Berkeley. It is California is a land grant university. I don’t know if you know that as part of the mission of the university. In addition to teaching and research, there’s also a public service component, which is relevant to the job that I’m in.
As an extension economist, I focus on public outreach. So in this role, I, UC Berkeley, I do economics research and I also conduct extension public outreach, where I try to connect to the research that’s happening at the university that I’m doing to stakeholders, particularly in California that could potentially benefit from the research.
And that’s one of the cool things about being at a land grant university, like UC Berkeley,
Antoine Walter: what kind of stakeholder can that be?
Ellen Bruno: Uh, it depends on what sort of research you’re doing. I personally focus on water resource economics. And so all of the stakeholders that I think about and work for are water related stakeholders.
So I think primarily of like managers of water utilities or irrigation districts, it could be farmers as well, who are using water directly. But since I work on sort of policy questions, I think of my stakeholders more so as those who might. Right. Policy implement policy. So the water managers at the local level, or even state level policy makers as
Advising California’s Water and Agricultural Policies
Antoine Walter: well.
So what’s the aim to that extent, is it to share the best practices of whatever you’ve developed in the research and to then translate it into facts and actual policies or actions or whatever?
Ellen Bruno: Yeah, it’s to benefit Californians, right?
And then there’s this other component too, where. We want to be conducting research that is relevant, right? So we want to learn from stakeholders. What are the needs of the people, and so that we can be doing relevant research as well
Introducing: Ellen Bruno
Antoine Walter: regarding your personal path.
How did you arrive to that position you’re in today? What brought you to that special field? I would say at the intersection of the water world, the agricultural world and the economy?
Ellen Bruno: Well, growing up, actually, my mom worked as a manager of a water utility, and so I was always interested in water issues. And then in college I was studying economics and took one class on the economics of ocean resources.
And I just thought I was so cool. This sort of tragedy of the commons in our fisheries and how we could use. You know, really some of the environmental problems that we see in the world and including in water issues are often times where the market is failing, but
And so I just thought this was so cool in school. And, you know, since agriculture is one of the biggest users. Is the biggest user of water. It’s a natural fit. If you’re interested in water issues to think about ag in that sense,
How to Correct Water Market Failures?
Antoine Walter: it’s pretty interesting that you mentioned the market failing there, because I found that to be kind of a red thread in the various publications I’ve read from you because you’re, you’re addressing how to correct those market failures to identify them and then to correct them.
So I guess that makes for a smooth transition towards our deep dive today, which would be about. water markets.
Water markets are a topic. The last time we’ve touched on it on that microphone, it was with Scott Hamilton and we were covering how markets and water markets somehow failed Australia and how they went to an extreme, which had some bad consequences on the Murray-Darling river basin.
And when I was reading your papers, you actually cite that case as one example of something which didn’t go exactly right. Nevertheless, your full papers and the series of three papers on the topic show that it’s not the only outcome. So I’d like to investigate how water markets can be beneficial so that we have the two sides of the story and that maybe we identify what can be done differently to have a better outcome than what we’ve seen in, in Australia.
And to that extent, my first very simple question is simple is maybe not the right definition, but why do you think that markets can be beneficial when we have on the other end of the scopes some bad examples?
Water Markets can ease the transition towards restricted uses of Groundwater
Ellen Bruno: Oftentimes when I’m thinking about water markets and water trading, which I’ll use interchangeably, it’s in a context where we need to restrict the amount of water use that’s being used relative to the status quo.
Who are using it and by facilitating trade, by having a market, you know, in theory, we can get to this allocation of a scarce resource that maximizes the benefits to society. That’s what the market will do for us in theory.
And so. When thinking about, okay, there are some clear positives to implementing them. There can be these voluntary trades that will benefit both parties involved, but there are several ways that, you know, it could go wrong. As we’ve seen in Australia. And in other environmental markets, there are several different ways they can sort of break down.
Market Power can decrease the efficiency of Groundwater Trading – but it’s still better than the status quo
And in the paper you’re referring to, I think particularly about market power, which is just one element that is one form of market imperfection. And so that’s whenever. A market participant or a group of market participants can influence the market price. They have enough sort of control in the market that they can influence the price.
And you know, all these things that economists love about markets really come out when a market is super competitive and you have. It drives down the price.
And so it’s all really relative to what baseline we’re considering.
How Groundwater Trading would provide 36% better outcomes
Antoine Walter: I’m going to give just from the top of my head, the number which stood in your research, which I’m still impressed with
What you were showing is that compared to the status quo. Putting a market would be 36% better when it comes to water uses.
And with regards to this market power, you just mentioned you were studying if I’m right, two different types of market power, the first where. The buyers have the power, the second where the sellers have the powers. And in both cases, I think the reduction of the efficiency was about 11%. So that means that even in that scenario, you’re still better than the status quo.
So even in a rigged market, somehow rigged, you’re in a better situation than today. So, it’s a win-win.
Ellen Bruno: Right, right. You know, of course,
We want them to be as competitive as possible, but even in the presence of market power, we’re still finding that there are benefits from allowing the trade because when you have a curtailment, like the one we study in this paper, it’s hard to really nail that, to sort of get that allocation.
Right. So that, you know, it’s the best possible use of the resource.
Coachella: an interesting Case Study for Groundwater Management
Antoine Walter: Two of your papers focus on Coachella. Right? So on the Coachella Valley Basin, which I’m sorry, it’s a French point of view, but to me, Coachella is, the famous music festival
Ellen Bruno: The music festival of course!
Antoine Walter: See? what’s special about Coachella, which made you take that one as a study example?
Ellen Bruno: Sure. Well, there’s sort of two elements to it in picking this area. One is just, it was important for me to pick a study area in California because California has some new groundwater policy underway. And so by having a study region in California, it was making the research more policy relevant in terms of the sustainable groundwater management act that the.
Pass at the end of 2014, requiring basins throughout the state to reach groundwater sustainability, but focusing on the Coachella valley in particular within California was largely due to data reasons. So for the most part in California, I mean many places, groundwater isn’t metered. And so it isn’t monitored in how much is being extracted.
And then on top of that, it’s rarely priced. So groundwater, pumpers will pay whatever it costs to extract the groundwater from below. Like those electricity. Costs from their pump, but it’s not like the irrigation district is charging an explicit price for that water on top of those pumping costs. And so
It’s very hard to look at any data and try to get a sense of what does that demand curve look like when prices don’t even exist? How can you sketch out a relationship between quantity and price? And in Coachella, they happen to have a price in place because they do some groundwater, a special groundwater program where they charge prices to the irrigators in the region.
And so I was able to work with that irrigation district to look at their data on prices and quantity, and try to use that to tease out a relationship about the groundwater demand.
How is Groundwater charged in Coachella today?
Antoine Walter: How does that work in practice? How do they measure the water, which is pumped from the groundwater and how do they charge it?
Ellen Bruno: they’d have meters on all the Wells in Coachella, which has makes them somewhat different from the majority of groundwater in California. And they charge a flat volume metric fee for the groundwater that’s pumped. So on average in our sample set it’s about $64 per acre foot. And so that’s a flat per acre foot fee, regardless of how much you pump and you know, the district bills according.
How the charges are financing Groundwater Replenishment
Antoine Walter: What I found interesting in that scheme is the way that that money is used. Can you maybe explain us what this money, which they charge is used for?
Ellen Bruno: Yeah. In this region, they do some artificial groundwater replenishment because they’ve been really proactive in managing their groundwater. So they have these fees and then use those revenues in order to carry out this artificial replenishment to try to keep the storage levels high in their aquifer.
Antoine Walter: So that means that somehow that loop is closed. The uses of ground water serve as a way to replenish the groundwater. So it’s kind of, of a reuse loop with the nature in between, but still a reuse loop.
Ellen Bruno: Yeah. And I don’t know that much about, you know, how. When they implemented this price sort of how it was perceived amongst the farmers who are being charged.
But I would imagine that that sort of argument is helpful. It’s like we’re paying into this, but we’re going to get out the benefits as well. We’re going to use the money to recharge the aquifer and close the loop amongst those who are paying into the program.
Concept: The Price Elasticity of Water Demand
Antoine Walter: I actually need you to make, a muggle stop, just because for the next steps of our discussion, there is a concept which I’ll need you to define, which is price elasticity.,
honestly, I read your first paper and I thought, you know, I’m going to understand it.
And then I thought, okay, that was a stupid move. Let’s go back to Wikipedia, have a look at what price elasticity means. I went into that. I read it and then I re-read your paper. And all of a sudden I understood it. So let’s just set the scene for everyone. Can you define price elasticity?
Ellen Bruno: Sure. Absolutely. So in my paper, I’m looking specifically at the price elasticity of demand for water.
And so it’s the same idea. That’s the price elasticity. It is a parameter that characterizes this relationship. It tells us how sensitive we are to a change in price.
So, for example,
And so this is important when we’re thinking about. Sustainability policies for water. If, for example, suppose a regulator wants to encourage a certain amount of conservation of water, and they want to set a price in order to do that.
Water is an inelastic good
Antoine Walter: What’s interesting is that I’ve been discussing water tariffs and water price on that microphone with many guests in the past.
And I have to admit, we’ve all said a lot of stupid stuff because I really thought, you know, it was that direct. You put your prices 20% higher and people would reduce their consumption by at least 20%, which means it would be an elasticity of one, but still. It would be quite okay-ish with the preconception I had.
And your results are totally different. What did you find?
Ellen Bruno: Yeah. So:
So much less than that one-to-one ratio that you just suggested. And, and we think this is kind of intuitive actually, because water is a required input to production.
Antoine Walter: Yeah. Explained that way, absolutely. But what’s surprising to me is something I read in your summary paper where you’re reviewing both the urban and the rural side, I mean, I understand for the farmer for sure. If he doesn’t water his crop, the crop dies. He’s lost everything he’s invested in.
So there’s a sunk cost element, but in cities, I mean, there’s these three liters per day, which we have to drink, which we cannot negotiate. But aside from that, everything else can be delayed, can be reduced, can be managed. And out of all the studies you, you cite in your bibliography, which goes over almost 20 years of research.
Price Elasticity of Water Demand is different between urban and agricultural users
There’s only a couple of studies, which show an elasticity, which is above one, meaning that all the others show that you have very low impact of consumption when you’re playing with the price. How’s that possible in cities as well?
Ellen Bruno: Well, yeah. When thinking about the sensitivity to price of urban residential water users, I think it’s also important to keep in mind that.
For example, that outdoor water use is a huge portion of urban and residential water use. That is much more elastic than that component. That is essential. That’s actually relatively small within that.
And then the other thing I want to mention is that.
Think about the crops that are being grown on the agricultural side is going to affect that elasticity and make a different in different places where you have a different mixture of.
Being grown or a different climate. That’s interacting with this as well. And same on the urban side, there are different factors that changes over time. This, this sensitivity, isn’t something that’s fixed in time. And so we might do our best as a researcher to try to estimate it because we really want to know that information for designing good policy, but it’s an elusive parameter.
That’s not the same everywhere. And so that in part explains some of the variation that we’ve found when we’ve looked at all these past studies,
Our behavior towards groundwater can change over time
Antoine Walter: actually that element that you mentioned of the change over time is pretty spectacular. When you look at the various graphs, you’re showcasing for Coachella because. you have this Wide array of data over 16 years, and there are three districts and each of them has its own price, which is raising all the time. So the price is never decreasing. it went relatively, constantly up over the 16 years. And if you look at the seasonal peaks of consumption and you still try to look at the trends, the trend goes down, which means water is always more expensive.
and there’s always less use. Do you see that as just a sign that there’s less water in California or do you see that as a long-term impact of the price evolution?.
Ellen Bruno: Yeah. I mean, it’s so hard to say from looking at the raw data that you’re talking about. Right. I mean, when you look at that groundwater extraction data it’s yeah.
This squiggly mess. Right. And then you see some things, like there’s a clear seasonal pattern and you’re like, yeah, that makes sense. You’re irrigating in the summer and less in the winter and that sort of thing, but it’s. It’s hard to draw any conclusions when looking at that data that something is, is causing whatever you’re seeing.
And, you know, trying to take tools from econometrics to try to isolate that one signal. And so. It is encouraging that when you look at the raw data, you know, you see prices are trending upward and you see extraction is trending downwards in the way you might anticipate given that signal.
But just looking at the data, you can’t really conclude that anything is caused by something else. Yeah.
Does Groundwater Pricing impact crop choices?
Antoine Walter: I guess it’s my non-scientific mind because there’s causality and causation, and it’s hard to say which one is which one I get you, you mentioned the crops. You mentioned how various crops would lead to various uses of water.
I was wondering there as well, who’s the chicken, who’s the egg. Do you decide on the type of crops you use so that you’re a bit more flexible with water or is it the other way around because if you’re not sure to get the water? Well, you adapt your crops.
Ellen Bruno: Yeah. That’s a great question. That I’m not sure that, you know, the research I’ve done can really speak to that.
I would imagine. That expectations about future water availability definitely play into planting decisions on farmers, but I’ve also heard sort of anecdotally that there are other factors that are much bigger drivers of crop choice. And this is not something I’ve studied specifically, but for example, world market forces of what’s driving crop prices and you know, those sorts of expectations on what crops will be profitable are bigger factors.
Maybe some of the uncertainty related to the water supply
Antoine Walter: on the crops I had that discussion with Scott Hamilton about the Australian case. And he was saying that the big water traders were using almond trees because almond trees can afford not to be watered. So you get a higher elasticity to that extent
What’s the impact of Industrial players on Groundwater Use in California?
there was something special about your study, which surprised me, honestly, I was reading your summary paper and it was showing that there is a much lower proportion of industrial water in the United States already then globally in terms of percentage of use and much wider urban uses of water as well compared to the world’s use there.In a nutshell, the ratios are pretty different compared to the usual 70, 20 10, you see in the rest of the world, but with that specific example of Coachella and California, It sounds like there is no industry.
So it’s like negligible or is there really no industry
Ellen Bruno: at all?
At all? No. I mean, I don’t know the statistics for California in particular, but there’s definitely some industrial use in California, but I think that the urban residential and the agricultural use gets a lot more attention in the literature. For two reasons.
One, because they are the larger water users. They just get studied more. But also for data availability, I don’t know of good data sources on industrial water use and it makes it harder to conduct these types of micro level economic studies.
Antoine Walter: The reason why I’m asking is that it makes the case somehow simpler.
You have two main users and you can play with one and with the other. So I just was wondering if, this was a simplification or if it was actually a state of the local market?
Ellen Bruno: Yeah, no, I, I think it is a simplification, but one that’s very, it’s, it’s pretty, um, I don’t know, well accepted because of its reflection of the real world.
What are the ideal conditions for Groundwater Trading to be beneficial?
Antoine Walter: So now really for the muggles. For a market to be beneficial here. The key parameter, if I understand your body of work right is you need to have heterogeneity. You need to have various elasticity, various demands, various users. And that way you can have this kind of triggers, which activate some and don’t activate some others.
So it means you must avoid at any cost to have like a monoculture of one type of stuff at one specific place, because that would mean, an elasticity of zero, is that right?
But yeah, if we had big differences in demand across different users and it’s combined with how much water those users have.
So it’s like a little bit tricky to explain, but if you, you know, if you have somebody who has very little water. And needs it really badly. And somebody else who has a ton of water and doesn’t need it very much, or doesn’t value it very much, then that’s like the ripe situation to have benefits from trading between these two.
But you could imagine other combinations where that incentive goes away. The more homogeneous you are, the less benefits you would get from having a market.
The importance of Willingness to Pay in Groundwater Trading
Antoine Walter: But so the ideal situation is kind of a scattered situation with a lot of different cases and not like, like single big players, aside from the aspect of rigging the market, it’s really about having various needs and readiness to pay.
And I think you defined that as the willingness to pay.
Ellen Bruno: Right, right, right, right. So the demand curve, the price elasticity, the marginal willingness to pay. These are all like interrelated terms that are sort of describing similar things. But yeah, it’s sort of, if I’m given a certain allocation, I have 10 acre feet of water and I, my willingness to pay for that 11th acre foot of water, that additional unit, if that’s really high and your Antoine, your willingness to sell your last unit is really small.
There’s going to be benefits from us trading, that unit I would gain and you would gain. And so we need that to exist.
How would a Groundwater Market actually look like?
Antoine Walter: how would a market actually look like if I recall right here, your research, you say that the basis would be to have an allocation and that this allocation shall be as close as possible to the real needs or the target needs.
So that you marginally trade is that right?
Ellen Bruno: Yeah. Right. So
And we live in a very dynamic environment that even a really well-informed manager would have a hard time keeping up with the changing world we live in. But so
Right. And so that’s why the, the market mechanism, that’s where the market mechanism comes in. We can give any allocation and if we could facilitate trade and every individual knows how badly they want the water or how much they’d be willing to sell it for, then we can arrive at that allocation.
Antoine Walter: I’ll put that comment in the fridge because it’s something I noted as well in your research. And I have an example to discuss with you, but I’ll come back to that one.
How would groundwater trading work in practical steps?
How would the market look in practice? I would imagine that the farmers would be in that market for themselves, but how is it on the Urban side of things?
Is it the municipal utility, which is trading in the name of the individual users? Or do I, if I don’t want to water my lawn decide to trade my urban water to my neighbor farmer?
Ellen Bruno: Right. Yeah. When we’re thinking about ag to urban trade, it’s much more likely that
but the irrigation districts and the water utilities serve as, as intermediaries. And we have seen trades like this happen in practice at this district level.
Antoine Walter: Where did you see these examples?
Ellen Bruno: There have been some trades like in Southern California amongst some of the irrigation districts that receive water off the Colorado river. I can follow up with you on, on some more information, if you’d like about these sort of district level trades,
Antoine Walter: for the case of Coachella here, for example, we would have these three different sub-areas of the Basin.
How would it look like for Coachella?
Each of them being an irrigation lot somehow, and they would trade in the name of the ones connected to their facility with the local utility and water would flow to its best use. So that’s the theory of it?.
Ellen Bruno: So, if you’re just talking among the agricultural users in the Coachella valley, you could set up a market so that individual farmers could trade with each other.
And this is something that is. In development and other areas in the state, as I mentioned, there’s this groundwater legislation, the sustainable groundwater management act, and so
And if you’re just doing it within, among the individual farmers, Especially with groundwater. It makes it easier. Cause essentially
But yeah, when we start asking this question of like, how would this actually work? And we’re talking about connecting urban users with ag users, that’s when you really need this, like intermediary. Irrigation district or water district to facilitate those transfers at the district level, because you know, with residential water use, it’s not connected in the same way it’s treated, it’s priced differently.
Antoine Walter: I’ve noted in your various research and bibliography. That you take, the depth of the groundwater and the energy needed to pump up the groundwater as a proxy to know how much water is present in the groundwater and how accessible is it? Do you also leverage some kind of hydrological modeling to try to understand how big is the reservoir?
How much can you play with it? How does it really flow? Because I guess those bassins don’t exist just because people wanted to have that shape. It must have. Underground or overground reality, which makes it a cohesive group of water courses or ground water.
Ellen Bruno: Yeah. Like you’ve mentioned I’ve. So I’ve taken sort of output from hydrologic models and use that in my research, things like estimates of the depth to the groundwater table or information about how connected.
How easily water flows, laterally. And similarly to you, Wikipedia in the price elasticity, I have to go Wikipedia. What is like, you know, store activity. Transmissivity like all these hydrology terms. Um, and thankfully I have. Several friends that are hydrologists that I can call up and be like, I’m looking for a parameter that does this.
And I say it in plain English. And they’re like, oh yes, this is the transmissivity of the aquifer. I’m like, oh, thank you. And, and it’s a really important part of this type of research is being able to, you know, incorporate the good groundwater hydrology and the understanding and development of these different instruments.
But I’ve, I’ve just used sort of very surface level like metrics to try to, um, I, yeah, the hydrology is not modeled in a very sophisticated way in these models that I’ve been working with to study trade it’s really parameterizing them with these economic parameters of like how sensitive we are to changes in price and things like that.
How to measure the impact of a Groundwater Market?
Antoine Walter: I’ve spoiled the result of your research by saying, that you have , this number of 36% better use of water compared to the status quo with a market, but what does it exactly describe this 36 percents? How better is it? What shows you that it’s better?
Ellen Bruno: I’m going to take us back to the example I tried to use earlier where say I’m growing almonds and I have very little water.
My sort of baseline allocation is super, super small. And so I need, I would pay a lot for water to keep my almonds alive and say, you happen to fallow your fields this year, and you have an allocation of water that you would sell for. Not that much, you would be willing to sell it. So say you would sell it for $10 per acre foot, and I’d be willing to buy it for something much higher than that.
And say, we settle in the middle, you know, the difference there between what you’d be willing to sell it for and what I be willing to pay for it is this surplus that we’re measuring. That’s the benefit of if we trade, we both gain. If we land anywhere in the middle on the price we sell between the two of us, we’ll both benefit the difference between what we’d be willing to buy and what we actually bought it at.
And so that’s what we’re capturing. Benefits from trader gains from trade. And I’m, I’m putting it in percentage term when we give those sort of headline results, because it’s just a little bit easier to understand relative to, you know, we had a curtailment and you’re not allowed to trade. You know, the benefits from the resource are going to increase by the 36%.
A groundwater market equilibrium could see agricultural water become 70% more expensive
Antoine Walter: I’m staying with the percentage and you’re showing that if you’re letting the market play its game and water flow to its best use, The market would reach an equilibrium, which is 70% higher than the current price of agricultural water. But wouldn’t that be a problem at some point? If you raise the prices by 70% for farmers?
Ellen Bruno: That price is like that that’s the, the equilibrium price in the market. And so it’s important to keep in mind that the trades in the market are voluntary. Right. And so: if you assume that, you know, farmers are. Smart business, people who are going to do what’s in the best interest of their bottom line.
Right. And so by allowing the market to exist, all you’re doing is allowing for voluntary, beneficial trades to occur. No one would participate if it wasn’t in their best interest.
And so even if you see the price going up, that’s water being traded that otherwise wouldn’t have been. If the market didn’t exist and we’d be in a situation where those people would be worse.
Could Groundwater Trading be enforced in California?
Antoine Walter: You mentioned at the very beginning that you’re advising policies that you’re trying to have this applied research element.
So you demonstrate how the water market would be beneficial to everybody. And how based on the voluntary based trading that you just described. There sounds to bevery limited if any drawbacks, so what’s the next step. Are you advising the authorities to actively enforce it and to put water trading in place?.
Ellen Bruno: Part of why we did this research was because questions about the sustainability of groundwater are at the forefront of water issues in California. So there are basins that are trying to figure out how do we cut back on groundwater use? How do we bring our base in, into sustainability? How do we do this in a way that minimizes the economic harm for those who depend on the resource?
And so. You know, this is one instrument. One way we could do that, that could ease the transition into a situation where we’re cutting back on the groundwater resource. It’s not going to be for everyone. And for every location, you know, there’s definitely. Push back to some of these concepts and that’s totally fair.
And this is just a study that it comes with limitations, right? As a researcher, you know, of course I don’t have all the information and I have to make a large simplifying modeling assumptions, but hopefully this will I, the goal is to provide information to those that are interested in developing a market to see potentially what’s on the table.
Antoine Walter: The groundwater policy you were referring to is that 2014 regulation?.
Ellen Bruno: Yes. So it passed in 2014, but it’s got a very long time horizon because the start of it was okay. Let’s form groundwater agencies. So that took a couple of years and then it’s, let’s come up with a plan to how we’re going to reach sustainability and then 20 years for actually reaching sustainability.
So even though it passed in 2014, it’s very much ongoing.
How to apply Coachella’s Groundwater best practices to the entire California?
Antoine Walter: But from the list of specificities, we’ve seen about Coachella. There is the fact that groundwater is priced actually, which is already pretty different if I get it right from other places. And then on top of this being priced, it’s priced differently by sub-regions within the Coachella basin.
And then there’s this potentiality of the water market, but without jumping to the highest level of the ladder, maybe there are in between steps. Like you’re showing how this pricing of groundwater is a good start, right?
Ellen Bruno: Yeah, absolutely.
And so even though I’m using Coachella as an empirical setting to study a market, it might not be the best. Thing for Coachella because they already have prices. If that makes sense. But I use Coachella as the empirical setting because they had these prices. So we could actually try to sketch out the demand curve that we need.
If we wanted to study a question about markets, but in theory, you could get to the same outcome by either prices or a quantity market. Like one follows the other. Imagine setting a price, people respond to the price and you reach a, an amount of extraction as a result. Alternatively, you could set a cap like we don’t want any more than X amount of extraction on this basin.
You allocate that among users and facilitate trade. It would reveal a market price that in theory should be equal to that optimal tax.
Extending California’s Use Case to Israel & Australia
Antoine Walter: Let me open the fridge and take the question I had put there. actually in your summary paper, in the annual review of resource economics, you’re showing how, what you’re investigating for California might be applied to other places in the world, which have similar settings and you’re citing Australia and Israel.
And you just said , some minutes ago, that there’s this central planning, this perfect ideal case doesn’t really exist because allocations can never be absolutely perfect. And therefore you need a market and it looks like Australia follows that advice and they have a market trading, but let me use the other example, which is Israel . And you know that Israel has grown as, as a socialist country at the very roots of it.
And we were discussing all of that with, Ravid Levy here on that microphone. He was explaining how. , in Israel, the water belongs to Israel, not to any particular user. So the country owns all the water and gives every year new allocations to everyone. So you’re saying that their Ideal World, which is based on this yearly allocaitons, which are supposed to be perfect.
Isn’t that perfect. And they would benefit from putting a water trading in place.
Ellen Bruno: Even if you have a central planner determining the allocation in every year in order to get that allocation. Quote unquote, right? From the perspective of maximizing the benefit beneficial use of the resource to all of society.
That’s what I mean by getting the allocation, right?
That’s what you would need to know to set that allocation. Right? According to my definition, over.
Antoine Walter: Sorry, I didn’t want to trick you in, but it was interesting to me because it’s actually the farthest extremes to answer the same question. Just to close that deep dive. I’ve seen that in the work you’re currently doing, you’re working on leak reduction as the most cost effective. urban water management tool.
So how far are you with that research?
Ellen Bruno: We’re going through the peer review process right now, and the publication should come out shortly and I’ll, I’ll send it your way. It’s an exciting paper that compares the cost effectiveness of various urban water management tools. And we find that yeah, correcting leaks in the pipes of the distribution systems of water utilities is low hanging.
Antoine Walter: It’s interesting because it’s an empiric thing that everybody would tell you let’s do it. But then in practice, you just see that nobody really does it or in a consistent way. So it’s interesting that if you have a body of research on that, so I’m really looking forward to your paper. I’d be really interested the day, you’re done with that.
That was a fascinating, deep dive. It’s good to see it broken down from muggles like me, that I finally even understood it. , so thanks a lot for that one. If it’s fine for you. I propose you to switch to the rapid fire questions.
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Rapid fire questions:
Antoine Walter: So in that last section, I try to keep the questions short and you can have short answers as well. And don’t worry. I’ll try to not sidetrack too much, but I never can prevent it fully. My first question is what is the most exciting project you’ve been working on, and why?
Ellen Bruno: this one’s hard to answer quickly, but I’ll try. I’ve been doing a study in the Pahara valley, a different basin in California, studying a similar question about how water prices affect agriculture. This time. Looking at land use changes and looking at how land use changes over time. And the reason that it’s really exciting is because within this basin, we have a subset of water users that.
Experienced a price change and the others didn’t and we observed that before and after the price change. And so it’s what economists would call quote unquote, a natural experiment because we couldn’t actually run an experiment where you give some set of farmers, a higher price, and look at how they behave differently from the.
But I sort of stumbled upon a very similar setting and combined with really cool geospatial data on land use. We can see how it drives changes in land use. So stay tuned.
Antoine Walter: And did they behave differently.
Ellen Bruno: That’s what we’re seeing so far. Yeah.
Antoine Walter: Okay. You, you can’t give too much spoiler. I get it. Can you name one thing that you’ve learned the hard way?
Ellen Bruno: Um, so many things I’ve learned the hard way and are still learning the hard way. One of them I would say is interdisciplinary water work, which is super important to this kind of stuff. You can’t think about groundwater economics without understanding anything about groundwater, but I can’t say that I figured it out yet.
I just know it’s hard.
Antoine Walter: As long as Wikipedia has all our backs. We’re good. Is there something you’re doing today in your job that you will not be doing in 10 years?
Ellen Bruno: So hard to predict. I have no idea what I’ll be doing in 10 years. Hopefully a lot of the same stuff. Um,
yeah, maybe let’s go to the next one. I don’t have a good answer for that one.
Antoine Walter: What is the trend to watch out for in the water sector?.
Ellen Bruno: So this is tangential to the water sector, but one thing that I be keeping my eye on is the increased planting of perennial. We’ve seen changes in the crop mix in California over time with increased, you know, nuts and orchard crops.
And I’m not saying that this is a good or bad thing, but it affects the way farmers respond to changes in the price of water. It affects their resiliency in the face of climate change and water supply uncertainty. So it’s something to keep in.
Antoine Walter: If you were a word political leader and you could take a first action to influence the fate of the World’s water challenges?
What would it be?
Ellen Bruno: So as a water resource economist, I think about issues related to water scarcity, right? And water scarcity is made much more complicated by climate change. Climate change. Is affecting our water supply and making it more variable, more unpredictable in many ways, changing it in ways we haven’t fully wrapped our heads around.
And so if I were a world political leader, one of my first actions would probably be to influence climate.
Antoine Walter: On a totally different note. You know, you just destroyed my usual personal answer to that because I’m always saying, you know, we should put the price and the value of water at a level where people start considering it.
But you’ve just destroyed my way of thinking the world, because now I know that it has no influence. So how
Ellen Bruno: you had me, you had me go in deep with thinking bigger picture with this question.
Antoine Walter: And last question. Would you have someone to recommend me to have on that microphone?
Ellen Bruno: Um, man, but there are so many. Water resource economists that I have a lot of respect for. And I think would have a lot of interesting things to say, Brian Leonard, Andrew heirs, Eric Edwards, Nick Haggerty, all early career water resource economists like me that are tackling these issues, but from different angles that I think would have different, interesting perspectives.
Antoine Walter: Very interesting. Well,Ellen, it’s been a pleasure. So thanks a lot. And I stand my case. Whenever you have your paper done on leak reduction, I’d be really, really happy to have you back on the microphone.
Ellen Bruno: I’d love that. Thank you. I’ll share it with you. Thanks for listening to don’t waste water. This podcast was brought to you by GF piping systems.
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