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

Andre DozierAlex MaasDale Manning

CSU Water Center Faculty Fellow Funding

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

CSU Water Center Faculty Fellow Funding

Andre DozierAlex MaasDale Manning

Storage, Markets, and the Inter-temporal Allocation of Horsetooth Water

CSU Water Center Faculty Fellow Funding

Andre DozierAlex MaasDale Manning

Water Allocation in the Western United StatesIncreasing 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

Research QuestionsDoes 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?

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

Model Setup2 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

InstitutionsRestricted 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 timePerfect market

Users trade water to equate the marginal benefit across uses

With storage, reservoir manager makes storage decision to equate marginal benefit over time

Water availabilityStochastic inflows of water,

based on historic inflows With storage:

Optimal release schedule Solved using stochastic dynamic

programmingNo storage:

Water use equals inflows in a given year Marginal benefit not equal across time

Results: Release DecisionSame rule for both institutions

(for this case)

Results: Total Value of Water

*Value of within year storage not accounted for**Only Horsetooth water considered

Present Value of Water** (millions)

 No

Storage Storage

10% Increas

e in Storage

Trade $212.4* $214.30 $214.40

No Trade $154.90 $157.60 $157.60

Results: Total Value of Water

Present Value of Water (millions),Decreased Mean Inflow by 10%

 No

Storage Storage

10% Increas

e in Storage

Trade $208.30 $210.30 $210.40

No Trade $147.60 $151.00 $151.00

DiscussionTrade and storage increase value

of waterGains 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

Ongoing workTheoretical model of optimal water

storageExpand 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 waterDistributional impacts

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)

Thanks…

1957

1960

1963

1966

1969

1972

1975

1978

1981

1984

1987

1990

1993

1996

1999

2002

2005

2008

2011

0

50,000

100,000

150,000

200,000

250,000

300,000Agriculture

M & I

Acre

-ft

Share Ownership

C-BT Water Use

Water consumption over time with and without storage

C-BT Water Use

• Agriculture still receives more water despite change in ownership

0

50,000

100,000

150,000

200,000

250,000

300,000

350,000Agricul-tureM & I

Water Deliveries

Quota (Storage) DecisionPercent of 310,000 acre-ft of

water to releaseNovember and AprilConsiders:

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

C-BT TimelineYear 0 Year1

N D J F M

Leftover water eligible for ACP

O A M J J A S O N

Year 2

Quota Decision

1 (%)

Quota Decision

2(%)

Deadline to declare ACP

Lose remaining ACP

Horsetooth Reservoir

020000400006000080000

100000120000140000160000180000

Horsetooth Reservoir Contents (acre-ft)

Source: Northern Wa-ter

1957

1961

1965

1969

1973

1977

1981

1985

1989

1993

1997

2001

2005

2009

2013

0

20

40

60

80

100

120Annual C-BT Quota

Perc

ent

Back

1957195

9196

1196

3196

5196

7196

9197

1197

3197

5197

7197

9198

1198

3198

5198

7198

9199

1199

3199

5199

7199

9200

1200

3200

5200

7200

9201

10

10,000

20,000

30,000

40,000

50,000

60,000

70,000

80,000

90,000

Total Water "Traded" to Agriculture

Storage and Inter-temporal EfficiencyStorage allows for optimal water

use across multiple yearsIncreases 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