Economic Impacts of Climate Change On Agricultural Water Use In California

Publication Number: CEC-500-2005-054
Publication Date: March 2005
PIER Program Area: Energy-Related Environmental Research
California Climate Change Center Series # 2005-015

The executive summary, abstract and table of contents for this report are available below. This publication is available as an Adobe Acrobat Portable Document Format Files. In order to download, read and print PDF files, you will need a copy of the free Acrobat Reader software installed in and configured for your computer. The software can be downloaded from Adobe Systems Incorporated's website.

---

Executive Summary

Climate change in California is a source of growing concern; the various impacts it will have on the state's agricultural industry could be potentially damaging. Major economic impacts are likely to be manifested through the state's water system.

This project's objective is to assess the economic costs associated with potential changes in the reliability of supply for water users in various parts of the state. Previous research on water use in California has generally used data gathered from broad geographic aggregates. This research differs in that it gathered and analyzed data from individual water districts; which is necessary, because there is considerable heterogeneity among different water districts in California with regard to water source, the nature and age of water rights, the operational costs, finances, price structures, and other terms of service.

To assess the impacts that climate change in California is likely to produce, with regard to the existing mismatch between both where and when rains falls and where and when people need to use water, researchers at the University of California, Berkeley, are conducting a broad spectrum of studies on the California water system, including six main components:

1. determining the existing reliability (degree of certainty) of the water supply for various irrigation districts and urban water agencies around the state;


2. conducting an econometric analysis, which will measure the economic consequences of differences in supply reliability and ultimately will be used to develop economic loss functions for changes in agricultural water supply reliability caused by climate change;


3. conducting an econometric analysis based on cross-section and time-series data on urban water use for urban water agencies in California to estimate demand functions for water, which will determine the demand elasticities that will be used to project future urban water demand in areas of new urban growth in California;


4. projecting future agricultural and urban water demand and supply in California in the absence of climate change;


5. assessing how climate variability and change will impact the reliability of water supply for urban and agricultural water agencies in California by evaluating alternative models to estimate the impact of climate change on water supply; and


6. assessing the economic consequences of the future changes in supply reliability for California's urban and agricultural water users as a result of climate change. The research reported here focuses on the first and second of these components.

To measure water supply reliability, researchers collected data on several variables, including water deliveries for project districts spanning 20 years, water rights information, water source information and electricity use data related to groundwater pumping. To measure the economic value of reliability, they collected land value, water price, water transfers for many years, and cropping by districts. These data are illustrated in Section 2 of the report.

Section 3 focuses on an econometric analysis of how climactic variables and access to surface water are capitalized into farmland values among different irrigation districts in California, and how farmland values would be affected by climate change. The results are highly consistent with the agronomic literature on the effect of growing degree-days on plant growth. The average magnitude of change in farmland value due to a potential decrease in water availability appears to be larger than that caused by an increase in temperature. This finding suggests that the impact on the availability and reliability of water supply may be the crucial pathway by which climate change affects California agriculture.

Obviously, this analysis does not incorporate the effect of every variable associated with climate change. The study focused primarily upon two variables—temperature and water supply—and excluded others that were believe to be less influential. Variables excluded from this analysis that may nevertheless have important moderating impacts include reduced evapotranspiration and carbon fertilizing associated with rising carbon dioxide levels. In addition, changing technology and policy variables, such as mandated efficiency standards, may impact the future demand for water. However, this analysis may indirectly incorporate the effect of these variables, to the degree that farmers and landowners anticipate their influence on the market for agricultural land.

---

Abstract

This report - Economic Impacts of Climate Change on Agricultural Water Use in California - describes part of a broad spectrum of studies of the California water system that are being conducted to assess the impacts of climate change on urban and agricultural water agencies.

Study topics include methods for measuring the economic value of water supply reliability to water users in California, and methods for projecting changes in supply reliability caused by climate change.

This report describes preliminary work on the first topic. To measure water supply reliability, researchers collected data on several variables, including water deliveries for project districts spanning 20 years, water rights information, water source information and electricity use data related to groundwater pumping.

To measure the economic value of reliability, they collected land value, water price, water transfers for many years, and cropping by districts.

The project found that the average magnitude of change in farmland value due to a potential decrease in water availability appears to be larger than that caused by an increase in temperature.

This finding suggests that the impact on the availability and reliability of water supply may be the crucial pathway by which climate change affects California agriculture.

---

Table of Contents

Preface

Abstract

Executive Summary

1. Introduction

2. Agricultural Water Supply, Cropping Patterns and Land Values

3. The Value of Water Supply Reliability to California Agriculture: A Preliminary Analysis

4. Conclusions

5. References


Appendix A. Sensitivity Checks


List of Figures

Figure 2-1: Water Source Variability in San Joaquin County

Figure 2-2: Variability of Surface Supply by User Group

Figure 2-3: Surface Water Deliveries by District in the San Joaquin Valley

Figure 2-4: Groundwater Depth in the Central Valley

Figure 2-5: Districts Involved in Water Transfers to Urban Areas

Figure 2-6: Frequency of Water Transfers

Figure 2-7: San Joaquin Valley Cropping Patterns

Figure 2-8: Agricultural Land Values Reported in Central Valley Water Districts (dollars per acre)

Figure 3-1: Sample Locations in California


List of Tables

Table 3-1: Descriptive Statistics

Table 3-2: Hedonic Regression of Farmland Value ($ per acre)

Table 3-3: Average Impact of Different Uniform Increases in Temperature on Farm Values (dollars per acre)

Table A-1: Sensitivity of Coefficient Estimates to Different Model Specification