The role of economics in transboundary restoration water management in the Colorado River Delta

Water Resources and Economics 8 (2014) 43–56

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The role of economics in transboundary restoration water management in the Colorado River Delta Rosalind H. Bark a,n,1, George Frisvold b, Karl W. Flessa c a

Research Scientist, Ecosystem Sciences, CSIRO, Brisbane, QLD, Australia Department of Agricultural and Resource Economics, University of Arizona, Tucson, AZ, USA c Department of Geosciences, University of Arizona, Tucson, AZ, USA b

a r t i c l e in f o

a b s t r a c t

Article history: Received 20 December 2013 Received in revised form 22 October 2014 Accepted 27 October 2014

In fully allocated rivers, providing restoration flows requires water transfers from incumbent users. Such transfers are often contested and are complicated within federal rivers and international rivers. In this paper, we investigate ecological restoration flows in the Colorado River Basin, a basin that spans seven U.S. states, two Mexican states, and contains significant estuarine and wetland ecosystems. Our investigation of a one-time pulse flow for the Delta illustrates the potential of fundamental economic concepts (opportunity cost, marginal analysis, and Pareto-improving compensation) in developing restoration options. Specifically, through the quantification of trade-offs from water transfers, provision of guidance on how to affect such water transfers at least-cost to society, and the identification of “win–win” opportunities. For instance, we find that whole-basin scale management not only enables transboundary financial and water transfers but also supports creative options for water resources management such as the utilization of transboundary storage. We discuss new opportunities within the U.S.–Mexico Treaty framework that support transboundary restoration and the tension between this readiness to cooperate and competition for low cost water transfers. & 2014 Elsevier B.V. All rights reserved.

n

Corresponding author. Tel.: þ44 1865 715 425. E-mail address: [email protected] (R.H. Bark). 1 Current address: CCEP, University of Leeds, Leeds LS2 9JT, UK.

http://dx.doi.org/10.1016/j.wre.2014.10.006 2212-4284/& 2014 Elsevier B.V. All rights reserved.

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1. Introduction In a recent compilation of case studies, Garrick et al. [1] provide an introduction to the jurisdictional and governance challenges of water resource planning and management in transboundary rivers worldwide. Here, our focus is on the economic challenges of ecosystem restoration in transboundary rivers. Existing water resource management frameworks face challenges in allocating water to uses that reflect contemporary water values such as allocations for indigenous uses [2,3] and to the environment [4]. Water in the western United States, the focus of this paper, is allocated through prior appropriation (first in time, first in right) [5] and reallocated through markets, where they exist, and in some rare cases through political processes. We explore how economics can provide answers to two fundamental questions that underpin allocating water for restoration to assist decision makers in water resource management decisions. Q1 asks if water is to be re-allocated, what are the most cost-effective water sources and how can we improve the design of mechanisms to affect that re-allocation (e.g., economics of water transfer mechanisms, economics of transboundary water management)? Q2 asks if there is a value-based case for water to be allocated to restore basin ecosystems (i.e., do the benefits exceed the costs of allocating water for restoration)? These economic concepts of cost-effectiveness and opportunity cost, Paretoimproving compensation and benefit-cost analysis are basic yet fundamental to the transboundary restoration debate. Q1 about cost-effectiveness is an important factor in the political feasibility of a policy option. Least-cost water transfers are important to secure politically, because water transfers between different users can be contentious [6] and would likely be more so if they are seen to be wasteful. Economics also has an immediate role in the positive analysis of what would happen if water were reallocated, in answering the normative question, Q2. There is a case for water to be re-allocated if benefits outweigh costs, and if there is some mechanism for winners to compensate losers. To illustrate how economics can be used to answer these questions we investigate water allocation for ecosystem restoration in the Colorado River Delta (the Delta). The Delta restoration is illustrative more generally as the Colorado River is fully allocated and therefore restoration requires reallocation among current users. Furthermore, as an international transboundary river, this reallocation may be across borders and the benefits can accrue to users and non-users on both sides of the border. We next introduce the legal background and recent history in the basin, followed with discussion of methods, and then a discussion of the role of economics and some lessons learned that might transfer to other situations. 1.1. The Colorado River Basin The Colorado River is a transboundary river basin that crosses state and national boundaries. A body of interstate compacts, an international treaty, court decisions and federal policies known collectively as the “Law of the River” regulate river flow across the U.S.–Mexico border (see [7]). Politically, the Colorado River Basin is divided into an Upper Basin (Wyoming, Colorado, Utah, New Mexico and a small portion of Arizona), a Lower Basin (Arizona, California and Nevada), and Mexico (Fig. 1). The Colorado River Compact of 1922 allocated 7.5 million acre-feet (MAF) (9.25  109 m3)2 per year each to the Upper and Lower Basins, but effectively obligates the Upper Basin states to provide 7.5 MAF (9.25  109 m3) to the Lower Basin states. The Compact did not allocate a specific volume to downstream Mexico. The later 1944 Water Treaty committed the U.S. to supply 1.5 MAF (1.85  109 m3) of Colorado River water per year to Mexico. Treaty language notwithstanding, the Colorado River does not usually provide a total annual flow of 16.5 MAF (20.35  109 m3) to meet all these entitlements. Directly measured annual flow in the past 100 years has averaged 16.4 MAF (20.02  109 m3) [8] and paleohydrological studies show that the long-term average annual flow during the past 500 years is 15.2 MAF (18.78  109 m3) [9]. Regardless of the exact 2 We use acre-feet throughout this paper for U.S. readers who are familiar with this unit of measure. Metric volumes are provided in brackets.

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Fig. 1. Colorado River Basin. Source: U.S. Bureau of Reclamation, 〈http://www.usbr.gov/lc/images/maps/CRBSmap.jpg〉.

magnitude of the shortfall, demand for water already exceeds the river’s supply [8]. Decreased flow under likely conditions of climate change will only make the discrepancy between entitlements and annual flows worse [8]. To date, deliveries have not been shorted due to the Upper Basin’s less-than-complete utilization of its allocation and the ability to store 60 MAF (70  109 m3) in the river’s reservoirs. The 1944 Treaty also expanded the scope of the bi-national International Boundary Commission to include administration of the provisions of the Treaty and changed its name to the International

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Boundary and Water Commission (IBWC). The Treaty empowers the IBWC to issue rules, known as Minutes. Minutes, unlike formal Treaty amendments do not require, in the case of the U.S., formal ratification by the Senate. Rather, Minutes are put into place if neither government expresses disapproval within 30 days of the Minute’s signing. In practice, Minutes are formulated and negotiated with the participation of the two central governments. A physical infrastructure regulates the availability and transport of transboundary water. The Hoover Dam, completed in 1935, forms Lake Mead, and provides reservoir storage, flood control, power generation and regulates downstream flow to the Lower Basin States. The completion of Glen Canyon Dam, in 1963, formed Lake Powell, providing the Upper Basin States with the reservoir capacity to assist them in meeting their annual obligation of 7.5 MAF (9.25  109 m3) to the Lower Basin States, thus allowing them to utilize their allocation. With the exception of a few El Niño years (generally high precipitation years in the basin) in the 1980s and 1990s, water delivery to Mexico has not exceeded the U.S. treaty obligation of 1.5 MAF (1.85  109 m3). Mexico has no reservoir capacity, which significantly reduces its flexibility to temporally manage water resources. Morelos Dam, on the international boundary, is a diversion dam; it serves to divert most of Mexico’s allocation through canals to cities and agriculture in northwestern Mexico. In Fig. 2, the dark grey indicates irrigated agriculture. The Colorado River from Morelos Dam is dry as indicated by the dashed white lines in Fig. 2. The growth of irrigated agriculture in the Mexican portion of the Delta, coupled with the growth of Mexican cities such as Mexicali and Tijuana (supplied with Colorado River water via aqueduct), has resulted in a comprehensive conversion of the landscape. Riparian and wetland habitats are 10% of their original extent, and the river’s estuary, in the northern Gulf of California, has been largely eliminated [10]. The remaining semi-natural habitats rely on agricultural wastewater, treated and untreated effluent, and “system inefficiencies” such as unlined canals and orders for water later refused by farmers [11]. Nevertheless, the remnant riparian, wetland and estuarine habitats sustain endangered species of birds and fish, and support migratory birds along the Pacific Flyway [12–14]. The Mexican government, in recognition of the ecological value of the area, has designated a large portion of the lower Delta as a Biosphere Reserve, including the Ciénega de Santa Clara, which is listed in the international Ramsar Convention on Wetlands as a “wetland of international importance”, (Fig. 2). Non-governmental environmental groups on both sides of the border, such as Pronatura, the Sonoran Institute, the Nature Conservancy and the Environmental Defense Fund actively support conservation and restoration efforts, and work to provide water for the natural ecosystems of the Delta. The 1944 Treaty makes no mention of the environment as a user of international waters regulated by the IBWC. The first formal recognition of environmental needs and values of the river’s natural habitats in the Delta came with the 2000 signing of Minute 306 [15], a conceptual Minute that established a task force to advise the IBWC regarding ecological restoration and environmental needs. Minute 316, signed in 2010 [16], authorized the first use of transboundary water for environmental purposes during a trial operation of a U.S. desalination plant [17]. Environmental water was delivered to the Ciénega de Santa Clara to replace water diverted to the desalination plant that would have otherwise reached the wetland. Minute 317, signed in 2010 [18] established a Consultative Council to consider identifying water for environmental purposes and crucially, a conceptual framework for cooperative actions. The above Minutes were forerunners for Minute 319, signed in November 2012 [19]—a comprehensive Minute that details how Mexico will share in any future shortages and surpluses in Colorado River water as well as a set of temporary agreements that: (a) stipulate U.S. financial support for improvements in Mexico’s irrigation infrastructure in exchange for water; (b) allocate Mexico reservoir storage in Lake Mead, U.S.; and (c) permit Mexico to use part of its Lake Mead stored water for a pulse flow intended to benefit hydrologic and environmental conditions in the Delta [20]. The pulse flow is entirely “Mexican water” stored in Lake Mead because of Minute 318 [21], which permitted Mexico to store water in the U.S. that it was unable to use following a magnitude 7.2 earthquake in Baja California, Mexico.3 The Minute 319 pulse flow (which was released in March through May 2014) at 105,392 AF (130  106 m3) is small, compared to the 260,000 AF (320  106 m3) needed to sustain the present-day

3

The 2010 earthquake damaged irrigation infrastructure in the region and with it irrigators’ access to water supplies.

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Fig. 2. Lower Colorado River and Delta. Source: Authors.

riparian corridor, according to scientific estimates [12]. It is far smaller still than the 10 MAF (12  109 m3) that arrived each spring in the era before upstream dams and diversions. The Minute 319 agreement is in force until December 31, 2017, at which time it may be renewed. Renewal depends on the successful outcome of the Minute’s many inter-locking components, including the provision of water for the environment. Water, infrastructure investment, and the capacity to store water have direct monetary value to the parties to this agreement. The benefits accruing from environmental enhancement of the Delta is less easily monetized. Next, we investigate the opportunity costs of environmental flows and potential benefits. 2. Materials and methods Economics has a role in an assessment of environmental flows to both estimate the opportunity costs of allocating water to Delta restoration and in measuring some of the potential benefits of increased flows. We note at the outset that there may be an argument that the water made available for the pulse flow under Minute 319 had zero opportunity cost, as it is water that would otherwise

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Table 1 Lower Basin State and Mexican Colorado River water use by user and use type, 109 m3. User/use

Agriculture

Imperial irrigation district Central Arizona project Metropolitan water district Palo Verde irrigation district Colorado River Indian reservation Coachella Valley water district Southern Nevada water authority Yuma County water users association Welton-Mohawk irrigation district Yuma Mesa irrigation and drainage district Mexico Minute 319 pulse flow Total Lower Basin State (LBS) uses % of LBS allocation Total Mexico % of Mexican allocation

3.25 0.79 0.00 0.55 0.40 0.40 0.00 0.29 0.30 0.15 1.50 0.00 6.13 66% 1.50 81%

Municipal

Environmenta

1.24 1.36

0.33

0.35 0.13 2.93 32% 0.35 19%

0.13 7%

Source: USBR. a One time event.

have flowed to the sea. However, once the water was stored [21] it could have been used for other purposes. Stored water provides some water security (through raising Lake Mead lake levels, see [7]), hydroelectricity and recreation benefits to the U.S. [22]. If environmental flows were to continue after Minute 319 expires, a new source(s) of water would need to be found. As the largest water use in the Basin (Table 1), a possible source(s) of water is from increases in efficiency and transfers from (low value) irrigation users. 2.1. Water re-allocation: Costs 2.1.1. Opportunity costs The most likely source(s) of water for ongoing Delta restoration would be transfers from current irrigation uses because such uses tend to have lower marginal values than urban demands for household consumption or for commercial production. One measure of the opportunity cost of water transfers for Delta restoration could be the physical quantity of crop production (or its gross sales value) that would be foregone by reducing water available for irrigation. Empirical estimates suggest that – for small changes – agricultural output losses from reduced irrigation applications could be small at the regional level. Several studies have found yield elasticities with respect to water applications to be quite low. Making use of an extensive U.S. Department of Agriculture survey, Moore et al. [23] estimated production functions from farm-level data for 13 irrigated crops in the 17 Western States and found, “The output elasticities of irrigation water are highly inelastic for every crop, indicating that reductions in water supply would have relatively small effects on crop production (p. 16).” For example, they found that for alfalfa (one of the major water users in the U.S. West) the yield elasticity with respect to water ranged from 0.138 to 0.145 depending on the functional form of the estimated model (quadratic vs. Cobb–Douglas). This means that a onepercent reduction in water use would reduce alfalfa yields by less than 0.15%. Similarly low elasticities were calculated for other crops: cotton (0.115–0.126), sorghum (0.112–0.115), wheat (0.082–0.083), corn (0.064–0.070), sugar beets (0.055–0.064), and barley (0.014–0.020). In a study of Imperial Valley wheat, irrigated with Colorado River water, Antle and Hatchett [24] found even smaller output elasticities. Empirical findings of Schneider and Howell [25] and more recently of Knapp and Schwabe [26] also suggest U.S. irrigators may reduce water applications significantly with little loss of yield. Studies outside the U.S. have found similarly low yield responses to water reductions. Estimating production functions for winter vegetables in Israeli agriculture, Just et al. [27] estimated low water

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output elasticities for eggplant (0.079), bell peppers (0.046), onion (0.051), melons (0.050), and tomatoes (0.037). Evidence from a recent, extended drought in the Murray–Darling Basin, Australia found that in response to a 67% reduction in water availability, the price unadjusted value of output fell about 14%, suggestion an elasticity of approximately 0.2 [28]. This is larger than the U.S. and Israeli examples, but still relatively low, especially considering that this was not a small, marginal change, but a substantial reduction in water availability. A 2012 analysis that used a multi-region, multi-commodity quadratic programming model, [29] simulated the effects of reducing irrigation water supplies by 25% in Southern Mountain (SM) states (Arizona, Nevada, Utah, Colorado, and New Mexico) and simultaneously by 5% in California (to represent a 25% reduction in Southern California). Under a scenario where irrigators could only fallow land in response to the water supply shock, losses to SM irrigators were $65 million (from a reduction of 2.4 MAF; 2.93  109 m3). When irrigators were allowed more adjustment flexibility, i.e., through changes in crop mix, deficit irrigation, shifting to dryland crops (where possible), and input substitution, losses were much lower, at about $15 million. This suggests a water opportunity cost to SM irrigators ranging from $27/AF ($22 per 103 m3) under fallowing, down to $6.25/AF ($5.12 per 103 m3) with more flexible adjustments. The analysis suggested that most of the reductions in water use and agricultural production would come from the types of crops grown in Central Arizona. This is the region with the most junior water rights (under the prior appropriation system) in the Lower Colorado Basin and thus is the first to lose access to water if a shortage were declared [7]. Higher value fruit and vegetable crops of the kind grown along the mainstem of the Colorado River would see minimal changes in acreage and output. These results suggest that the priority of water rights assigned in the Lower Colorado will facilitate adjustments to water shortages in the least-cost way, should a shortage occur. For our purposes, the study identifies the lowest value water on the U.S. side of the basin and estimates irrigation losses resulting from a large water supply cutback. The U.S. Bureau of Reclamation’s (USBR’s) Final Environmental Impact Statement (EIS) for [30] estimated that a 1 MAF (1.23  109 m3) shortage of Lower Colorado irrigation water would reduce personal income of Indian and non-Indian irrigators in Arizona by roughly $22 million if irrigators fallowed land in response to the shortage. This suggests an average opportunity cost of fallowing of $22/acre-foot ($18 per 103 m3). The implied loss in personal income per AF of water shortage is in line with Frisvold and Konyar’s results [29]. Further the USBR estimated the price Arizona irrigators would be willing to pay at the margin to avoid fallowing. They estimated values ranging from $17 to $45/AF ($14–36 per 103 m3) for wheat across several Arizona counties and values of $24–$26/AF ($19–21 per 103 m3) for central Arizona counties. For upland cotton, values of marginal additional water ranged from þ$71/AF to  $46/AF (þ$58 to $37 per 103 m3); negative returns to cotton production were estimated for Yuma County cotton production. According to the most recent U.S. Census of Agriculture [31], 67% of Arizona farms specializing (i.e., with 450% of their gross farm income) in oilseeds and grains had negative cash farm incomes. Another 19% had net incomes that were positive, but less than $5000. About 41% of farms that specialized in cotton production had negative cash farm incomes, while 3% had incomes that were positive, but less than $5000. For farms specializing in hay and other crops, 59% had negative farm incomes, while 27% had positive farm incomes below $5000. The high proportion of field crop producers with negative or very low incomes is relatively robust across Census years. This suggests that, in any given year, for many farms the opportunity cost of water (at least at the margin) is small if not negative. This raises the question of why farmers would irrigate crops when there appear to be negative returns to doing so. One reason is that actual returns can easily fall short of expected returns in response to price changes and yield losses from pests, diseases, etc. Second, because of prior appropriation water rights in the West, there is an option value in continuing to put water to “beneficial use” (i.e., to irrigate). Failure to use all of one’s water allocation can in principle lead to a loss of future water rights in perpetuity. Irrigating a crop with negative returns may thus be thought of as purchasing an option to maintain rights to future water use. It costs the many farms operating just above the break-even point (i.e., positive, minuscule farm profits) virtually nothing to maintain this option. Because the cost of maintaining the option is negligible, the value of this option may also be quite low. This is an empirical question, however.

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2.1.2. Irrigation water price discovery: Shadow prices and fallowing contracts The shadow value represents the dollar value irrigators are willing to pay for an extra unit of water. Two studies estimate this value on either side of the border. In the Mexicali Valley of Baja California and the San Luis district of Sonora, Mexico there are 22 irrigation modules. In 2010, 16% of the entire area was planted in alfalfa, 12% in wheat, and 56% in cotton [32]. A single irrigation module, ID 014, has approximately 63,000 ac (25,495 ha) under alfalfa and 44,000 ac (17,806 ha) under cotton. Both are relatively high water use and low value crops. Land rental rates in ID 014 vary from $19 to $148 per acre ($47 to $366 per ha) depending on soil quality [33]. Medellín-Azuara [33] calculated the shadow value of water in ID 014 ranges from $19 to $47/AF ($15 to $38 per 103 m3) depending on location. Water for the environment could also be obtained from U.S. irrigators, for example, from low water security Arizonan irrigators [29]. Schuster et al. [34] calculate net returns to water (NRTW) in Arizona irrigation districts using farm budget analysis. In the period 2002–2006 the NRTW for durum wheat in Yuma County, Arizona were $42 per AF ($34 per 103 m3) of water consumed rising to $78 per AF ($63 per 103 m3) of water consumed in the period 2005–2009. For the same periods the NRTW for upland cotton was  $55 and  $60 per AF ( $45 and $49 per 103 m3) of water consumed (all in 2011 USD). In the Mexicali Valley the NRTW for durum wheat in the period 2007–2008 was $112 per AF ($91 per 103 m3) of water consumed and for cotton the NRTW in the period 2008–2009 was $21 per AF ($17 per 103 m3) of water consumed (all in 2011 USD). These NRTW results [34] are within the range reported by Medellín-Azuara [33]. Furthermore, they provide evidence for Medellín-Azuara et al.’s [13] propositions that: (1) in some cases (on economic grounds) transboundary (i.e., U.S.) water might be a source for environmental flows; (2) there are fallowing opportunities within the Mexicali Valley; and (3) the shadow value of irrigation water can change over time with input prices and crop prices. A water transfer mechanism would need to be flexible to manage these factors and provide incentives for irrigators to participate while keeping costs low. Another method for price discovery north of the border is to report prices that irrigators have accepted to fallow their crops. In the Lower Basin, there have been a small number of fallowing contracts. For example, under the cancelled 2004 Reclamation Pilot program, three offers were received from Arizona irrigator Entitlement Holders, one at $150 per AF, $250 per AF, and $750 per fallowed acre4 ($122–$203 per 103 m3 and $303 per fallowed hectare). Under the 2006–2007 Reclamation Pilot program with Metropolitan Water District of Southern California (MWD) (and the Palo Verde Irrigation District, PVID), the U.S. Bureau of Reclamation agreed to pay MWD (for PVID water) $170 per AF ($138 per 103 m3 [35]). This compares to an approximate $144 per AF ($117 per 103 m3) paid by MWD to PVID farmers for water under a separate 35-year agreement5. Under the Quantitative Settlement Agreement, water is transferred from Imperial Irrigation District (IID) to the San Diego County Water Authority for municipal use and is transferred to provide freshwater flows for the Salton Sea. Offer prices for fallowed water are announced annually and individual irrigators can place bids to fallow. Offer prices have risen from $60/AF in 2004 to $125/AF in 2014 (from $49 to $101 per 103 m3). In each year irrigators have offered to fallow more land than that required, indicating that the fallowing program is over-subscribed and that the water could actually be obtained at lower prices. In Arizona, the Central Arizona Project (CAP) recently entered into a fallowing agreement with the Yuma Mesa Irrigation District, where participating irrigators will receive $750/acre ($303/ha) to fallow land [36]. A maximum of 1500 ac (606 ha) will be fallowed per year and the program is expected to result in water savings of 9000 AF annually (1.11  103 m3), costing $125/AF ($101 per 103 m3). One interesting aspect of this agreement is that the CAP will not use the water immediately. Rather, water will be stored in Lake Mead to prevent lake levels from falling enough to trigger a shortage declaration

4 The offers were from Chemehuevi Indian Reservation, Colorado River Indian Reservation (CRIT), Yuma Auxiliary Project Unit B, Cibola Valley Irrigation & Drainage District and Yuma Mesa Irrigation & Drainage District (YMIDD), respectively. 5 This figure is found by estimating the number of acre-feet of water saved per acre of land. The MWD-PVID program sought to enroll a maximum 26,500 ac (10,724 ha) of land to conserve a maximum 111,000 ac feet (1.36  106 m3) of water, or 4.2 ac feet per acre. The $144 per acre-foot price ($117 per 103 m3) is calculated by dividing the $602 per acre payment by the application rate of 4.2 ac feet per acre.

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for the Colorado (which in turn, could trigger even larger reductions in allocations to the CAP). This agreement, as with Minute 318 [21] illustrates that one could use the infrastructure of the Colorado Basin to acquire water at one time for use at another time. A lesson for Delta restoration is that water might be bought in years when water can be acquired more cheaply and stored to deliver future pulse flows, including a larger pulse flow. In summary, the data show that the shadow prices for irrigation water in the Mexicali Valley and Arizona are lower than the price paid for irrigation water under fallowing contracts in the United States. An explanation for the difference is that fallowing contracts incorporate explicit payments to mitigate third party adverse economic costs. Secondly, there is evidence that irrigators are willing to participate in fallowing contracts, perhaps because they provide an alternative income generating option [37].

2.2. Water transfer: Benefits There is limited research that has estimated the values people hold for the Colorado River Delta ecosystems, the intended beneficiary of reallocated water. However, we know these values exist as demonstrated in Minutes 316–319. We provide three estimates. In their study Medellín-Azuara et al. [13] calculate the shadow value of environmental flows secured for a scenario with minimum average flows (40  106 m3 annual base flow and a 320  106 m3 pulse flow every four years, see [12]. We note that this scenario has more water than the 130  106 m3 made available for the pulse flow in Minute 319 [19]). The shadow value is calculated at $50 per 103 m3 ($62/AF). The results include a trade-off curve with the shadow value of different water sources for environmental flows on the y-axis and average monthly environmental flows to the Delta on the x-axis. If greater environmental flows than the scenario assessed were required, water scarcity would rise in the Mexicali Valley, which would make alternative inexpensive transboundary flows more attractive. Decision makers could use the trade-off curve to assess indicative costs of various environmental flow options and to identify a potential portfolio of water sources. The implied benefits of a transfer for the environment can be demonstrated by the willingness to pay (WTP) of water purchasers. There are two such estimates. First a consortium of non-governmental organizations (NGOs) under the “Raise the River” campaign is raising $10 million for the Colorado River Delta Water Trust6 to transfer 158,000 AF (194  106 m3) of water to restore 70 mile (113 km) and 2300 ac (931 ha) of riparian habitat in Mexico. The second purchaser is the U.S. government which under the Minute 319 agreement [19] has set aside $21 million to fund irrigation infrastructure upgrades in the Mexicali Valley to conserve water, of which, a total 124,000 AF (153  106 m3) of Mexican water will be transferred to the U.S. In the grey literature, Kerna’s University of Arizona Masters Thesis [38] is one of the few studies that estimates visitors’ WTP to visit five water-dependent recreation sites in the Colorado River Delta. She uses the contingent valuation method where the hypothetical scenario is one where environmental water flows are guaranteed to support the Delta ecosystems and the payment vehicle is an entrance fee. A total 584 surveys were used in the logistic regression analysis. Ninety-eight percent of the visitors were from Mexico; 2% were from the U.S. The estimated median WTP of US$13 at the two privately owned sites along the Hardy River, Mexico (less than the US$20/day entry cost), and US$7 per person for visitors at the three public access sites, two of which are Colorado River sites and the third the Ciénega de Santa Clara, the largest off-channel wetland in the Sonoran Desert and a significant habitat on the Pacific Flyway for migratory birds. This research provides some insight into positive values held by actual visitors to the sites, but unfortunately, for our purposes the environmental flow volumes are neither quantified nor specified. There is a need for a study: (1) with a larger, more representative sampling frame; (2) with respondents from both sides of the border; (3) for users and non-users of the Delta; that (4) specifically links WTP to environmental flow volumes. The results of such a study could then be used to compare benefits to restoration costs. 6

See 〈http://raisetheriver.org/about/index.html〉.

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In Table 2 we summarize the irrigation water cost (and losses, [29]) data from Section 2.1.2 as well as the WTP estimates for water river restoration.

3. Discussion In our review of irrigation opportunity costs and transfers we provided information to answer Q1 about cost-effectiveness. We show that the opportunity costs of irrigation water are low for small changes in water availability and shadow prices of water vary by crop and are generally lower in the Mexicali Valley than in the Lower Basin States. Some analyses suggest that average opportunity costs are small, even for large reallocations of water. Using values from Table 2 (we restrict our choice to those with positive values) we can estimate the opportunity cost of the pulse flow (130  106 m3, 105,392 AF) ranges from $0.6 million to a much higher $17.9 million. These costs are of the same magnitude as the demonstrated willingness to pay for water for restoration in the Raise the River campaign and the costs expended by the U.S. government to purchase water for the Minute 319 flow ($10–21 million, respectively). The review of opportunity costs raised an apparent contradiction. On the one hand, the short-run opportunity cost of reallocating water from many current irrigation uses is quite low. Yet on the other hand, the option value of water may be high in some cases, i.e., the option to sell irrigation water to cities in the future. Low opportunity costs are evidenced by low transfer rates for short-term agricultural-to-agricultural water leases. For example, a comprehensive survey of Western water transfers from 1987 to 2005, reports that the median transfer price for 178 agriculture-to-agriculture water leases was just $10/acre-foot ($8 per 103 m3); the mean was $29/acre-foot ($24 per 103 m3) [39]. For agriculture-to urban leases the median (mean) transfer price for 189 leases was $40/acre-foot ($32 per 103 m3) ($114/acre-foot, $92 per 103 m3). This suggests that water reallocation for the environment from irrigation on the scale of the Minute 319 pulse flow has low opportunity costs. However, the 320  106 m3 pulse flow recommended by scientists [12] is non-trivial, representing the equivalent of 5.3% of the water applied for irrigation in the Lower Basin States or 21.4% of that applied in Mexico (see Table 1 for totals). This raises the question of whether water-leasing prices (reflecting modest transfer levels to date) really reflect the marginal and average opportunity costs of transferring water on a larger scale. Low opportunity costs were found both in the USBR study [30] that estimated a reduction of agricultural water supplies by nearly four times the amount needed for pulse flows and in the Frisvold and Konyar study [29] that estimated costs of agricultural water supply reductions nine times the volume suggested for the pulse flow. These separate analyses suggest that even the large transfers for pulse flows could be achieved without significant impacts on the Table 2 Estimates of the costs and WTP for irrigation water transfers, $ per 106 m3. Source Irrigation water costs Mexicali [33] Irrigated agriculture losses [29] NRTW: AZ wheat [34] NRTW: AZ cotton [34] NRTW: Mexicali cotton [34] NRTW: AZ wheat [30] NRTW: AZ cotton [30] Fallowing: AZ [36] Fallowing: CA (PVID) [35] Fallowing: CA (IID) Restoration water WTP Raise the River Minute 319 Mexicali [13]

$ per 106 m

$ per acre-foot3

15–38 5–22 34–63  (45–49) 17 9–40  37–58 101–203 117–138 101

19–47 6–27 42–78  (55–60) 21 11–49  46–71 140–250 144–170 125

52 137 50

63 169 62

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agricultural sector, in terms of either total output or farm incomes. Yet the future option value is likely higher, suggesting that acquiring additional temporary supplies (for a future pulse flow for example) will be relatively affordable, but acquiring permanent supplies (for base flows for example) may be more difficult and is likely to become increasingly costly as urban demands increase in the region. Furthermore, it suggests that it would be more economical to target potential suppliers of permanent flows who have fewer options for converting land or transferring water for urban development. We noted at the outset that if the benefits from transferred water are higher than the cost of the transferred water then there is a potential Pareto improvement. However, in order to implement the water reallocation in contentious situations it may also be necessary to demonstrate that there are mechanisms to compensate losers, i.e., an actual Pareto improvement. Economists often stop when a potentially Pareto improving exchange is found and sidestep the difficulties of compensating losers. The voluntary nature of water transfers envisaged for ongoing ecosystem restoration in the Delta would take the form of Coasian bargaining (at least between the parties negotiating the exchange). However, to secure environmental water in the longer-term, more comprehensive, regional agreements with more parties may also need to address a key political impediment to water transfers resulting from third party adverse economic costs (i.e., from fallowing) [32]. There is opportunity to learn from the design of long-term fallowing agreements in the basin. For example, the 35-year agreement between the U.S. Imperial Irrigation District and Metropolitan Water District of Southern California (IID-MWDSC) stipulates the formation of a special body of economists, the Local Entity, which is charged with evaluating third party impacts and devising programs to mitigate these impacts. Input-output studies were used to estimate the scale of third party impacts. Mitigation programs include the Competitive Grant Program, which in 2013 dispensed US$3 million in grant funding to Imperial Valley residents, non-profits and non-agricultural business owners. This 1988 IID/MWDSC Water Conservation and Transfer Agreement has an additional lesson for the design of effective long-term transfer programs. The agreement has two phases. In the initial phase (the first 15 years), all water transferred to MWDSC is from irrigation forbearance (fallowing of irrigated crops) in the IID. In the second phase, which will begin in 2018 all water transferred to MWDSC will be from water conserved from investment in on-farm and off-farm (distribution system) irrigation infrastructure and other efficiency measures. MWDSC has funded this long-term conservation programme.7 Similarly, in an initial phase irrigators in the Mexicali Valley could be paid to fallow crops. In a second phase, Carrillo-Guerrero’s [40] analysis shows that there is scope for water delivery and irrigator water-use efficiency gains in the Mexicali Valley. Furthermore, Minute 319 [19] already provides a mechanism to invest in Mexicali Valley irrigation water conservation. Investment in delivery infrastructure and farm-level efficiencies could be funded by the Mexican or U. S. government or NGOs or some combination of all three. An alternative to a regional water transfer program could be to secure water through a water trust where water might be donated, leased or permanent entitlements purchased. This already occurs on a small scale with Minute 319 [19] that requires the Colorado River Delta Water Trust (a partnership of NGOs including the Sonoran Institute, Pronatura Noroeste and the EDF) established in 2008 to secure one-third of the environmental flows allocated under the Minute to the Delta (the U.S. and Mexico must secure the remaining two-thirds). Regardless of the water source(s), political support to continue environmental flows beyond the Minute 319 agreement will in part be determined by the ecological outcomes of the environmental flows. Minute 319 (Section 6c,iv) calls for an evaluation of “…the ecosystem response, most importantly the hydrological response and, secondarily, the biological response.” Overall, the question might be, “Have environmental conditions in the Delta improved because of the pulse flow and the base flow provided by Minute 319?” Where, biophysical improvement is a higher water table,8 the successful recruitment of native vegetation (cottonwood, willow and mesquite trees) and improved or more extensive habitat for wildlife, principally migratory and resident birds. 7

See 〈http://www.iid.com/index.aspx?page¼190〉 (accessed 25 November 2013). Hydrology and biology are linked in this setting. A higher water table, even for a brief period, will prompt the germination of the seeds of the native vegetation, will water existing stands of native vegetation, and provide some backwater habitat for waterfowl. 8

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Will the pulse flow make a difference? Teams of scientists from both countries descended on the Delta during the pulse flow, in late March-middle of May 2014 and have set in place monitoring programmes to measure surface flows, groundwater levels and flows, seedling success, and the response of wildlife and existing vegetation. Outcomes from prior excess flows in the 1990s and preliminary assessments suggest that the volumes of water in Minute 319 will result in measurable changes in surface flows and ground water levels, at least for a short time. Surface flows reached all the way to the Gulf of California on May 15, 2014 and some river reaches are likely to retain sufficient ground water long enough to allow seedlings to germinate. Their survival into the next dry year has yet to be determined; however, those seedlings within actively managed restoration areas will likely succeed. Minute 319 is operational for five years. A preliminary report must be completed by the end of 2016 so it can be used in negotiations for the Minute’s renewal, and field monitoring must be completed by the end of 2017. If the pilot is perceived as a success in environmental and sociopolitical terms that will improve the chances of continued cooperation on environmental flows including improved design to maximize ecological and social benefits and to minimise third party impacts. In a cost-benefit analysis, it is also important to look at alternative options. For instance, MedellínAzuara et al. [13] suggest comparing the costs and the benefits of Delta restoration with the costs and benefits of Salton Sea restoration. Choices may also need to be made among restoration priorities within the Delta: are benefits greater per unit water in the wetlands of the Ciénega de Santa Clara, the riparian forests of the mainstem or the estuary in the upper Gulf of California? Alternative restoration plans that involve more or less water and other inputs such as engineering works could also be assessed. The pilot pulse flow and its assessment will provide further information for evidence-based decision making going forward. Decisions are not likely to be made on purely economic criteria. Water transfers across international boundaries will involve additional complexities. Some such complexities may arise from differences in legal systems regarding water in the two counties: water is a states right issue in the U.S. whereas water is a national resource in Mexico. No water market now exists for transboundary trading. U.S. states or Mexico could have objections to a trading scheme, regardless of its potential economic benefits. Other constraints on providing environmental water are sure to arise, such as is enough water available from marginal agriculture? Can environmental groups (as representatives of nature), out-bid the cities in the face of constant or decreasing supply from the Colorado River? The role of science and economics in the decision making process may contribute to durable societal consensus on river management options by injecting more evidence on biophysical understanding of the system, the potential trade-offs and multiple benefits, and design of mechanisms fit-for-purpose. Additionally this pilot restoration event is the outcome of new collaborations that have involved non-traditional institutions (e.g., NGOs and scientists) in the process and provided opportunity for integrating new sets of values and creativity. This transparency of the process may foster political legitimacy, scientific credibility and saliency for decision makers [41] contemplating future restoration activities.

4. Conclusions The Delta restoration event provides some insights into restoration in other basins although we note that it is currently a one shot or pilot restoration program. Managing a transboundary river at the whole-of-basin scale provides opportunities to maximize benefits, minimise adverse impacts and for creative solutions such as using transboundary storage. The volume of water allocated to the Delta pulse flow was an outcome of both scientific information on ecosystem needs and political feasibility. Securing this environmental water per se can also be viewed as a political achievement. Minute 319 explicitly shares the responsibility of environmental flows among NGOs, Mexico and the U.S. and thus provides all parties an equal seat at the table and with this access to the creativity of each, e.g., water trusts. It is also clear how for this program to be renewed ‘success’ must be seen to be achieved. Metrics will focus on monitoring and

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evaluation of ecological response. However, there is also an opportunity to address how best to account for other benefits, such as the increased scientific understanding of how changes in hydrology interact with water-dependent ecosystems and how changes in ecosystem condition and extent influence wildfowl and fish outcomes, community resilience, recreation and tourism. We do not know if the proverbial window of opportunity is closing or opening for water transfers to benefit the Delta environment. Continuing drought, increasing water demand and increased transfers from irrigation to municipal uses might suggest that it is closing. As more water is transferred from agricultural to urban uses, there is movement up the marginal opportunity cost curve for water. Acquiring future water for environmental restoration, particularly permanent supply for base flow as opposed to temporary supplies for a second pulse flow, will become more expensive as more water is transferred out of agricultural use. Transfers for environmental restoration would also likely become more difficult politically if a shortage is declared on the Colorado River. That said, the new willingness of Mexico, the U.S. and U.S. water agencies to consider innovative approaches to water management, might suggest that it is opening; in the medium-term opportunities for low-cost fallowing and irrigation infrastructure investments and transfers in the Mexicali Valley exist. There is also clear evidence that those working to secure environmental flows are innovating, for example through formation of water trusts. They are also learning from creative water management in the basin, (e.g., best practice fallowing contracts and more purposeful use of basin storage). These flexibility mechanisms have value in the ongoing binational management of water resources for multiple uses in times of change.

Acknowledgements Thanks to the Water for Healthy Country (now Land and Water) Flagship, CSIRO and to the Office of the Chief’s Distinguished Visiting Science program. References [1] D. Garrick, G.R.M. Anderson, D. Connell, J. Pittock (Eds.), Federal Rivers: Managing Water in Multi-Layered Political Systems,, Edward Elgar, Massachusetts, 2013. [2] R. Bark, D. Garrick, C. Robinson, S. Jackson, Adaptive basin governance and the prospects for meeting indigenous water claims, Environ. Sci. Policy (2012) 169–177. (19–20). [3] M Finn, S. Jackson, Protecting indigenous values in water management: a challenge to conventional environmental flow assessments, Ecosystems 14 (2011) 1232–1248. [4] D. Garrick, R.H. Bark, J. Connor, O. Banerjee, Environmental water governance in federal rivers: opportunities and limits of subsidiarity in the River Murray of Australia, Water Policy 14 (2012) 915–936. [5] D. Worster, Rivers of Empire: Water, Aridity, and the Growth of the American West, Pantheon Books, New York, 1985. [6] B.G. Colby, R.H. Bark, Inter-sectoral water trading as a climate change adaptation strategy, in: Q. Grafton, K. Hussey (Eds.), Water Resources Planning and Management, Editors, Cambridge University Press, Cambridge, UK, 2011, pp. 743–754. [7] C. Jerla, K. Morino, R. Bark, T. Fulp, The role of research and development in drought adaptation on the Colorado River Basin, in: Q. Grafton, K. Hussey (Eds.), Water Resources Planning and Management, Cambridge University Press, Cambridge, UK, 2011, pp. 423–438. [8] US DOI (2012) Colorado River Basin Water Supply and Demand Study: Executive Summary. U.S. Department of the Interior, Bureau of Reclamation, December 2012. [9] C.A. Woodhouse, S.T. Gray, D.M. Meko, Updated streamflow reconstructions for the Upper Colorado River Basin, Water Resour. Res. 42 (2006) W05415, http://dx.doi.org/10.1029/2005WR004455. [10] L.E. Calderon-Aguilera, K.W. Flessa, Just add water? Transboundary Colorado River flow and ecosystem services in the upper Gulf of California, in: L. López-Hoffman, E.D. McGovern, R.G. Varady, K.W. Flessa (Eds.), Conservation of Shared Environments: Learning from the United States and Mexico, University of Arizona Press, Tucson, AZ, 2009, pp. 154–169. [11] F. Zamora-Arroyo, K.W. Flessa, Nature’s fair share: finding and allocating water for the Colorado River Delta, in: L. LópezHoffman, E.D. McGovern, R.G. Varady, K.W. Flessa (Eds.), Conservation of Shared Environments: Learning from the United States and Mexico, University of Arizona Press, Tucson, AZ, 2009, pp. 23–38. [12] F. Zamora-Arroyo, J. Pitt, S. Cornelius, E. Glenn, O. Hinojosa-Huerta, M. Moreno, J. Garcia, P. Nagler, M. de la Garza, I. Parra, Conservation priorities in the Colorado River Delta: Mexico and the United States, Sonoran Institute, Tucson, AZ, 2005, pp. 103. Available at 〈http://www.sonoraninstitute.org/component/ docman/doc details/ 1307-conservation-prioritie s-in-the-colorado-river-delta.html?Itemid=3〉. [13] J. Medellín-Azuara, J.R. Lund, R.E. Howitt, Water supply analysis for restoring the Colorado River Delta, Mexico, J. Water Resour. Plann. Manage. (2007) 462–471. (September/October). [14] E.P. Glenn, K.W. Flessa, J. Pitt, Restoration potential of the aquatic ecosystems of the Colorado River Delta, Ecological Engineering, 59, Introduction to special issue on “Wetlands of the Colorado River Delta”, Mexico, 1–6.

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