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Development of a Coupled Hydrologic and Economic-Trading Model to Evaluate Water Trading and Water Markets in Southern Idaho

Project ID: 5330
Principal Investigator: Allyn Meuleman
Research Topic: Water Marketing
Funded Fiscal Years: 2006, 2007 and 2008
Keywords: None

Research Question

This proposal will address the question of how Reclamation should best meet changing agricultural and urban water demands in the Boise Valley, Idaho. Reclamation operates the Boise Project which supplies water to 164,000 acres of agricultural land in the valley. However, Boise is also the seventh fastest growing metro area in the country, and water availability is a major concern of urban planners. This shift in water demand from agriculture to urban use has put great pressure on Reclamation to increase reservoir storage in the basin. However, the prospects for increased storage are extremely limited.

The alternative is to encourage water trading between agricultural and urban sectors--and ultimately water marketing. However, many proposed water trades are opposed because they disrupt existing water supply relationships among irrigators. Through hydrologic and economic modeling, this study will develop agricultural to urban trading scenarios which facilitate water marketing and also preserve existing water supply relationships.

Need and Benefit

The Boise Valley, which encompasses Ada and Canyon Counties of southwestern Idaho, has incurred significant population growth in the last two decades. Between 1990 and 2000, the Boise metropolitan area was the seventh fastest growing metro area in the country. A Water Use Assessment and Forecast study, funded by Reclamation in 2001, estimated that Domestic, Commercial, Municipal and Industrial (DCMI) water demand in the Boise Valley would grow by 74 percent, to between 75,000 to 125,000 acre-feet, by the year 2025. Residential growth in the valley is expected to consume over 21,000 acres of agricultural land by the year 2020.

The role of water markets is to facilitate the efficient transfer of water within and between economic sectors. The efficiency of a water market is reduced, however, by four circumstances:

* The presence of economic externalities associated with current water use

* High "transaction costs" to transfer water from one use to another

* Water prices which do not reflect the actual supply and demand for water

* Institutional preferences for certain types of water use

Although all four circumstances play a role in the Boise Valley, the presence of economic externalities resulting from third-party hydrologic impacts of water trades is believed by most economists to be the main impediment to water markets in Idaho.

Beginning in 1915, Reclamation's operation of the Boise Project caused major changes in the hydrology of the Boise Valley. As a result of intensive surface water irrigation, the ground water level in the Boise Valley increased. Over the next 75 years, the water table in the valley rose on average more then 25 feet, and in some areas of the valley over 100 feet. Reclamation's operation of the Boise Project created a complex network of water supply dependencies involving ground water and surface water users. New ground water pumpers and drain water users became dependent on existing surface water diverters to recharge the aquifer each year, and to sustain ground water discharge to drains. (Reclamation and others have water rights on drain return flows in the Boise Valley.) Water trades which are likely to alter the form, place, and timing of existing water use in the valley, are invariably opposed by third-parties (sometimes including Reclamation) because they threaten to disrupt this supply relationship.

Reclamation water managers need to know how surface water and ground water supplies of the Boise Valley can be conjunctively managed in order to accommodate future changes in agriculture and urban water demand. In particular, Reclamation managers need to know how to minimize the adverse hydrologic and economic impacts to third-party water users that may result from water trades between agricultural and urban users. Coupling of hydrologic and economic-trading models would provide much needed understanding.

A conjunctive hydrologic model and an economic-trading model for the Boise Valley are being developed by the University of Idaho in cooperation with Reclamation and the Idaho Department of Water Resources. The hydrologic model describes the hydrologic consequences of land use change from agricultural to residential and urban use. The economic-trading model optimizes trades between potential trading entities in order to maximize the total economic benefit from water use.

Integrating these two models via a common water demand and supply database will enable Reclamation managers and other water planners to identify (and quantify) third-party hydrologic and economic impacts, which are the main obstacles to water trading in the Boise Valley.

Contributing Partners

None

Research Products

Bureau of Reclamation Review

The following documents were reviewed by experts in fields relating to this project's study and findings. The results were determined to be achieved using valid means.

Modeling Spatial Water Allocation and Hydrologic Externalities in the Boise Valley (final, PDF, 1.4MB)
By Robert Schmidt
Report completed on February 11, 2009

Spatial water allocation model development involves linking spatial elements of a conjunctive hydrologic model with those of a partial equilibrium economic model. The hydrologic model describes the spatial distribution of surface water and groundwater interactions. The partial equilibrium economic model simulates distributions of surface water and groundwater among suppliers and demanders which maximize the economic utility of water use (as measured by the sum of consumer and producer surpluses)
Keywords: hydrologic model partial equilibrium economic model

This information was last updated on April 19, 2014
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