The Economics of Water: California Groundwater and the Water Footprint Network

Water is our most important resource. How do we quantify and measure it? With economics of course! This episode is a crash course into the wild world of water economics.

In this episode you will learn all about the economics of groundwater and get a snapshot of what is happening in California from Dr. Ellen Bruno. Dr. Bruno is an Assistant Professor at UC Berkeley where she focuses her time on understanding and developing market solutions to tackling this water economics issue.

You may have already heard about carbon footprints but we talk all about water footprints in this episode too! You will hear from Dr. Lara Wöhler from the Water Footprint Network all about how to calculate your own water footprint. Also get ready to be shocked at how much water it actually took to produce some of your favourite tasty treats and commonly used everyday things!

Can't wait? Check out their Water Footprint Calculator here! and you can Look Up the Water Footprint of common Items here.

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Transcript

David Evans: 0:31

I sure enjoy drinking water infrastructure and indoor plumbing, it improves my quality of life tremendously, is not something that you hear very often. But really, it should be. It's really something that I take for granted for sure. And I'm sure many of you do. And as soon as you're without it, yeah, you really miss it. It is an absolute privilege. And the one thing that boggles my mind when I stopped to think about this is this is such a valuable resource having this water right at our doorstep, right in our kitchens right in our bathrooms. But how in the world is it this cheap? Today, we're gonna dip our toes into the crazy fascinating, sometimes boring, but really important in the world of water economics. My goal today is for you to be so stoked about calculating indirect water usage and products and for monitoring and managing groundwater usage. not sold on that yet. Well stay tuned. I'm sure we can get there. All today on the what are we doing podcast? water we doing? And how can we do better? Your one stop shop for everything water related from discussing water, its use and the organisms that depend on it for all the global issues that you really never knew all had to do with water. I'm your host, David Evans from the aquatic biosphere project. And I just want to ask you something. What are we doing? And how can we do better? Water economics is a branch of environmental economics. And it might be quite different than what you think of when you think of economics. I mean, typically you think of supply meets demand, then that's what finds the price point for, let's say, a cell phone or a shirt. But unfortunately, water is very different than these other types of commodities. You can't just manufacture more water, or expect it to replenish from where it came. It's interesting because it's actually easier in the third world countries to provide everyone with cell phones, then with safe drinking water. Another reason that water economics is so confusing, is because it's not only surface water, lakes, rivers, streams that you have water in. We're also using water from deep below the ground groundwater. And we're not only using water for sanitation, drinking, we're using it for food production, oil and gas, textiles. Everything we do uses water. So we need it for everything. Water economists actually study how we are sharing these resources. And if we are using them to their full potential, that is if we are using them in the most efficient way possible. Now, what does that mean? Well, let's ask an economist.

Dr. Ellen Bruno, UC Berkeley: 4:25

Let me try to explain like, you can think of groundwater as this common resource where nobody owns it, yet everyone has access to it. And one person's use of it means that there's less for everyone else now and in the future, right. It's this dynamic resource. And so it's not just today's pumpers. But tomorrow's pumpers.

David Evans: 4:48

This is Dr. Ellen Bruno. She's an assistant professor of Cooperative Extension at UC Berkeley in the Department of Agricultural and Resource Economics.

Dr. Ellen Bruno, UC Berkeley: 4:57

And so what that means is I get to do fun applied research, but instead of classroom teaching, I do public outreach. So I try to do research that's meaningful to the California Public. My specialty is on water resources, and particularly in agriculture. And so I study water policies both proposed and implemented and potential water policies and what that might mean for Californians,

David Evans: 5:22

Dr. Bruno studies groundwater, and I like to think of groundwater as a bucket that's not refilling, as soon as you take some water out, it means there's less water for everyone in the bucket. But it also means that the water level has dropped. And that means that it's harder for everyone to get more water out. It just means it's further and further away from the surface. The way that economists talk about this is they say there's higher costs for everyone to access this resource now. So for example, if I take water out of our shared bucket, then now it's cost you that potential water. Now you can't access that because I've taken it out. So this is what economists might call a negative externality. Wait, why am I explaining this? Dr. Bruno, can you can you just take over,

Dr. Ellen Bruno, UC Berkeley: 6:12

I'm using this term costs, like pretty broadly, it includes higher energy costs from pumping the groundwater from below. But it can mean other types of costs as well, including like degraded groundwater quality or depleted streams, because in some cases, the groundwater and the surface water are interconnected. And if you pump groundwater right next to the stream, it's going to come out of the stream. So that can hurt the fish or other, you know, groundwater dependent ecosystems. And so, ideally, you're thinking about all these potential costs, because they're all important. And they're all, you know, negative externalities, and sort of leading to what we might call this tragedy of the commons kind of situation,

David Evans: 6:51

my listeners are sick of hearing me talk about that.

Dr. Ellen Bruno, UC Berkeley: 6:56

Good, so they're already familiar with it.

David Evans: 7:00

All right, in case you need a quick refresher on the tragedy of the commons, cue the sad music here. This is the concept of an open access resource that everyone has access to. And without any rules or regulations that you need to follow. Everyone just acts in their own self interest. And it makes sense to go and take as much as you can, because if I don't get it, then someone else will. This has led to a lot of the problems, honestly, that we've talked about on the podcast, the tragedy of the commons is really a race to the bottom, a race to catch the last Atlantic cod off the coast of Newfoundland, before they close the fishery, the race to shoot the last American bison before, we're not allowed to shoot anymore. The Race to the last drop of groundwater. Sorry for the sad soliloquy. So Dr. Bruno, when we find ourselves facing a tragedy of the commons situation, what can we actually do?

Dr. Ellen Bruno, UC Berkeley: 8:02

In this kind of situation, we would want to correct those negative externalities, it's what economists would call a market failure. And one of these times where we would want to intervene, because in the absence of intervention, we're getting an outcome. That's that's suboptimal for everyone. And so one option for that is putting an explicit price on the water. And this sort of tax, if it's set, right could correct for these issues by making the groundwater more costly and causing pumpers to sort of internalize the negative costs they're imposing on others, and incentivize them to pump slightly less. But it could also be achieved in a different way by for example, setting a cap on how much groundwater could be pumped and allowing trade of the groundwater within that cap. And that's an indirect way of imposing a higher price on that groundwater. And that could, in theory, you know, be designed in such a way that you achieve an equivalent outcome.

David Evans: 8:57

So Dr. Bruno has been talking really just about groundwater so far. And that's because it is a kind of this unregulated area within California, in California, about 80% of all of the water used across the entire state is used only for agriculture. The rest of the 20% is for urban areas drinking water, and residents use. Now all of this water, where does it come from? So it's a mix of surface water and groundwater. And it changes every year based on how much rain, how much water there are actually in that surface water area. So we make up the difference with groundwater. And it averages out to about 40% of all of the water use across the entire state every year is from groundwater. That's a lot.

Dr. Ellen Bruno, UC Berkeley: 9:45

It's pretty interesting. In the state of California, where you have a bunch of the population in the southern part of the state, you have agriculture primarily in the center of the state. And that's separate from where the precipitation falls. So most of our precipitation falls in the form of snowpack in the Sierra Nevadas, which is not where we're demanding the most of the water and also at a different time of year if we think about how agriculture is, you know, happening in the summer, and we get the bulk of our precipitation falling between December and March. So we've kind of engineered our way out of this disconnect through like this big system of canals and reservoirs that we've built. As the snowpack runs off, when it warms up in the springtime, we're capturing that water in reservoirs, and then moving it around the state and canals so that agriculture can get the water in the summer. And you know, the thirsty Los Angeles population can continue drinking water all year round.

David Evans: 10:48

Isn't it wild how much effort and planning it must take to actually get all this water to where it needs to go when it needs to get there, make sure that we have enough of it for everyone. So it really only makes sense that there are costs that are associated with that, that need to be covered by the agricultural producer. So if you're a farmer in California, you have to pay for that water so that you can irrigate your crops with it. And the price for the surface water can vary widely across the year, depending on how much water is available, and how far away you are from the mountains that it actually comes from. So the question that jumps to my mind is, are farmers actually trying to plant crops that don't need as much water? Because how are you supposed to know how much water there's going to be next year and how expensive it's going to be?

Dr. Ellen Bruno, UC Berkeley: 11:39

Farmers are still adapting to changing water prices, when you're looking at the agricultural landscape and looking at changes in it over time. It's very hard to say how much of that is due to changing water prices? Because agriculture Yeah, as adapting to all sorts of market forces, like probably more so the price of the crops that they're growing, and California crops are shipped all over the world, like these are global markets. And they're driven by a global supply and demand forces I have working on on one study, and we've been studying how water prices are affecting California agriculture, like specifically from this this question of land use. And we're just looking at a very small area on the California coast. But it's this really unique setting where we observe a price increase that we can sort of credibly separate from the other economic forces that are affecting land use, we've observed that farmers do in fact shift to their crop mix in response to a rising water price. And this is intuitive if we assume farmers are profit maximizers, and they're going to adjust their operations in response to higher prices, than we would expect them to shift crops, you know, to growing ones that yield a higher profit per acre foot of water required to grow those crops. But yeah, like I said, when you're looking at sort of statewide, or, or nationwide, you know, on these bigger scales, there's so many other forces driving the crop choice that it's really hard to tease out, you know, what's happening due to like changes in the water landscape.

David Evans: 13:12

So yes, the price of water does have an effect. But it's one effect. There's many other complicating effects. So it's really hard to figure out what's having the biggest influence on what's being planted, but it is there it is there. So what if you are a farmer that needs a lot of water to water, your crops? Are you just going to be planting crops and then not sleeping at night, because you're so worried about how much the price could increase, and then you're not going to make a profit off of those crops. That's why there's a new financial instrument that California has started, the first of its kind in the world to help protect California farmers from the volatile water market.

Dr. Ellen Bruno, UC Berkeley: 13:55

I think it was in December of 2020, the CME Group launched the world's first futures market for water. And what this is, is a financial instrument that's intended to help farmers like Buffer water price risk. So it's really about risk. And it's essentially a form of insurance. And it's it's different than, you know, what we've been talking about so far in terms of a market for the physical water. So as we all know, the American West has always been plagued with oscillating periods of dry and wet years. And this creates, you know, variability in the price of water from year to year. And so it makes sense water users are naturally facing a certain amount of risk and uncertainty. So this financial instrument is intended to help them reduce this risk associated with the price. And so in a futures market, participants can trade contracts that lock in the sale of a commodity on a specified future date, at a price that you set today. And so it gives you that assurance that you're gonna get it in the future at a certain price that you know, you're going to be good with, and that helps with planning, for example, and if you're particularly when you're thinking about, Okay, do I want to plant a almond orchard that can be productive for 20 to 30 years, you know, what's the price of water gonna be in 10 or 20 years.

David Evans: 15:23

So no water features does not mean that you have to go out and purchase all the water you're going to need in 30 years right now, it's not going to save you that much money. I mean, hopefully. And really, it only locks you in at that price, it doesn't mean that there's going to be truckloads of water showing up your doorstep in 30 years, water futures was really designed for agriculture and planning for the future. Because agriculture uses a lot of water to be able to produce everything it makes sense. But everything we do, or buy, uses water in some way as well. Have you ever really thought about how much water goes into random products that you would buy on a daily basis? Or every once in a while? Like, how much water does it take to make a mug or the headphones that I'm wearing? Or the t shirt that I'm wearing? How much water does it take to make a t shirt?

Dr. Lara Wohler, Water Footprint Network: 16:16

For t shirt of 250 gram we estimate about 2500 liters of water footprint. So that's an insane amount of indirect water use along the production chain? Yeah.

David Evans: 16:30

Well, thankfully, I had Dr. Laura on speed dial so I can ask her that question. This is Dr. Laura Waller. She's part of the Water Footprint Network team that helps to coordinate this work and coordinate water footprint calculation. She also does this on the side of doing her own postdoctoral research, looking at how pharmaceuticals from livestock and from humans affect water bodies as well. Okay, I may have gotten a bit ahead of myself here. Dr. Laura, do you mind just explaining what a water footprint is.

Dr. Lara Wohler, Water Footprint Network: 17:00

So basically, in the water footprint is an indicator of freshwater use. And I think if we usually think about water use, what comes to our mind is the direct water use. So the water we use in our everyday life for let's say showering, cooking, flushing the toilet, etc. But what we do with the water footprint concept is not only account for the direct water use, but also the indirect water use. So that is basically accounting for all the water that is incorporated or used in products or for the production of goods and services along the entire supply chain.

David Evans: 17:41

You might be familiar with the term carbon footprint. And this is very, very similar to the water footprint and what the Water Footprint Network is trying to calculate for each product. So carbon footprints how much carbon is being released to be able to allow you to buy a t shirt or a pencil or take a flight somewhere. And then water footprint is how much water is indirectly used to be able to let you buy that T shirt pencil or to take a flight. All right. Dr. Laura, do you mind just walking us through an example of what kind of indirect water use we're talking about when you say indirect water use and how do we get up to number of 2500 liters.

Dr. Lara Wohler, Water Footprint Network: 18:21

Take an example of let's say a t shirt that I'm buying here in the Netherlands where I'm located. So first, the cotton would have to be produced. And we got to use Pakistan where the cotton is slanted and also irrigated. So water is used during the cotton production. And let's say once the cotton is grown, it's been transported to China where the fabric is produced. And maybe also we want to have a color t shirt. So there's also some dyeing of the fabric, some water pollution taking place, then maybe the t shirt or the fabric is produced to Turkey where it's actually tailored. And then from Turkey, it comes to the shop where can buy it in the Netherlands, in all those production processes. And also for the transport this water being used and or polluted, let's say. So by accounting for the water footprint, we are actually looking at all these steps and adding up the water that is used along the supply chain.

David Evans: 19:19

So that's how you would calculate a water footprint for a T shirt. But you can also do this for lots of other things. You can calculate your own water footprint for a day, or a week or a year. Or you can do it for a city or you can do it for a country. Now you might be thinking, well, water is renewable, right? So why does it matter? I mean, with a carbon footprint, you don't want to produce more carbon dioxide, because that would be worse for climate change. That makes sense. But water is renewable. It's good. It's gonna come back right in the cycle. Am I missing something here?

Dr. Lara Wohler, Water Footprint Network: 19:53

I do agree with that. Yeah, from a physical standpoint, of course, what is a renewable resource and it doesn't get lost from the planet, right. But that doesn't mean that the availability is unlimited. So my colleagues found out that around 4 billion people on our globe are faced with severe water scarcity yet at least one month a year. So then actually makes sense to look at to how much water resources to be appropriate to the different uses for human consumption, let's say. And that's, I think, where the water footprint can be a very useful tool and seeing, okay, this is actually the water of use in this region for this specific purpose. And maybe there's even conflicting purposes in a region where water is scarce already. So it does make sense to to assess water scarcity, and was to use even the waters. Yeah. in physical terms, renewable? Yes.

David Evans: 20:56

Yeah, I mean, that's really important context. And how would you know, unless you're actually spending all of your time calculating water footprints. The good news is, though, you can actually go onto the water footprint networks website and look up all of the different water footprints for anything you can basically buy in a grocery store, or 1000s of different products. So definitely go and check that out. The water footprint concept is catching on, it's actually being implemented by some really large companies, and even countries looking at their entire water footprint. You can even go onto the water footprint networks website to calculate your own water footprint. Now, the one place where we're missing this link directly to consumers is, as you've probably guessed it by now, labels, how can we convey all of these different environmental indicators to consumers, but the products they're buying without providing too much information? It's just all too much. So that's still where we're at. But the Water Footprint Network is trying hard to make sure that that becomes a reality. So I guess the final question really is, is a water footprint? always a bad thing?

Dr. Lara Wohler, Water Footprint Network: 22:05

Yeah, I would say it's not at all always bet. Really depends on the context. So of course, I could say if I'm choosing between products, and then they have a significantly different water footprint. Yeah, it's likely better to choose the one with the lower water footprint. However, I would say, you would always have to look at the context. And I could say, Yeah, well, it's definitely not a wise idea to buy products that are very water intensive from regions that are deserts. And we're really only through artificial irrigation. So I think there's a some kind of common sense logics behind it.

David Evans: 22:52

Absolutely. What's that old saying? Context is king. Okay, I'm 95%. Sure I just made that up. So next time you go shopping, I hope that you spend a couple of seconds to think about how much water was actually used to create these products, or food items that I'm buying right now. And let alone how much water was used, but how much ground water was used. Let's start talking about that as well. Maybe one day that would be on the packaging. And maybe you have a brilliant idea on how to integrate that in. So it's not just another symbol that's being thrown at us when we go shopping these days. Thank you so much for tuning into today's episode all about the economics of water, a big topic that we've just taken a little slice of today. Thank you so much to my guest, Dr. Ellen Bruno and Dr. Laura Waller for coming onto the podcast and talking about their really fascinating piece of this large economics puzzle. To learn more about what Dr. Ellen Bruno researches, you can check out her website at Ellen dash bruneau.com. And to learn more about Dr. Laura's work and the Water Footprint Network, check out their website at Water Footprint dot o RG. Be sure to check out their water footprint calculator. It's super cool. And they have so many other resources all about what everything you can imagines water footprint actually is. I'll leave links in the show notes to all of these great websites. But hey, are you interested in more their deep dive episodes with both Dr. Ellen and Dr. Lara will be coming out soon. I'm the host and producer David Evans. And I just like to thank the rest of the team specifically Paul Polman, Lee Burton, and the rest of the aquatic biosphere board. Thanks for all of your help. And to learn more about the aquatic biosphere project and what we're doing right here in Alberta telling the story of water, you can check us out at aquatic biosphere.ca. And we also have launched our new media company, a b n aquatic biosphere network, which you can find at the public place dot online and search for the aquatic biosphere network channel where we will actually be posting all of the video episodes that we're going to be creating this year. So tune in. They will be out for the next little while but very excited to start sharing video content as well as our interviews If you have any questions or comments about the show, we'd love to hear them. Email us at conservation at aquatic biosphere.org. Please don't forget to like, share and subscribe. Leave us a review. It really helps us out. Thanks and it's been a splash