Bureau of Reclamation Banner

Hydro-Economic Model Completion and Technology Transfer

Project ID: 8937
Principal Investigator: Jennifer Johnson
Research Topic: Water Operation Models and Decision Support Systems
Funded Fiscal Years: 2013 and 2014
Keywords: hydrologic, economic, model, partial-equilibrium, benefit cost

Research Question

Reclamation water management planning study outcomes are based in part on benefit-cost ratios calculated in accordance with the Economic and Environmental Principles and Guidelines for Water and Related Land Resources Implementation Studies (P&Gs), using methods outlined in Reclamation's Economics Guidebook. Currently, water management alternative benefits are calculated using a supply management approach. Supply management forecasts agricultural water requirements, calculates a least-cost supply needed to meet those requirements, and prices the new supply to recover costs. Supply management approach to water planning ignores the opposing elasticity of demand, thus failing to calculate the complete economic value of water. The P&Gs are being revised, requiring use of best available science. To calculate a more complete economic value of water, a combined hydrologic and economic modeling methodology, HydroCents, was developed (S&T Project 507). HydroCents applications were created for benefit analysis of water reallocation scenarios involving climate change, new canal lining conservation, and new storage. Through application of these scenarios to the Boise basin, the functionality and applicability of HydroCents was confirmed, including articles accepted for presentation at World Water Week in Stockholm and submitted to the Journal of Hydrology. For the tool to be fully functional for acceptance and use by Reclamation staff, complete typical management scenarios are needed to capture basin-wide net benefits. This final phase of proposed work will capture those scenarios Reclamation encounters during holistic management planning exercises such as WaterSMART Basin Studies. The project also requires completion of a user manual, training, and outreach. How can HydroCents best be finalized for broad Reclamation use in calculating net basin-wide economic benefits, and how can the tools technique be applied to satisfy Reclamation current and future management requirements?

Need and Benefit

In accordance with Federal objectives defined in the current and proposed P&Gs, water resource management alternatives are evaluated in large part on the basis of net costs and benefits. Additionally, as part of a NEPA analysis, the costs and benefits of each alternative must be evaluated through comparison to a no-action alternative.

Cost-benefit analysis involves calculation of net benefits (net benefits minus net costs, or [B-C]) and a benefit-cost ratio (net benefits divided by net costs, or [B/C]). A ratio value greater than 1.0 is a major element in deciding whether a proposed Reclamation water resources alternative meets Federal objectives and should be advanced for further consideration.

The conventional Reclamation approach to water planning benefit calculation is rooted in supply management alternatives (e.g. new reservoir storage). Demand management alternatives (e.g. new water conservation) have been largely ignored. The exclusive focus on supply management creates inherent bias in Reclamation's economic evaluation of the benefits of Project alternatives. Partial equilibrium economic models incorporating water demand-price elasticity have been successfully proven by others to contribute to water resource planning and operations exercises (e.g., CALVIN). Combining a partial equilibrium model with local water demand-price data and basin-specific hydrologic models provides a robust and defensible basis for calculating the benefits of water management alternatives.

The current model also accounts for the basin-wide un-priced benefits of Reclamation Projects that are associated with hydrologic externalities. Positive hydrologic externalities (e.g. incidental aquifer recharge) are common to nearly all Reclamation Projects. They arise when the production functions of surface and groundwater users are interrelated. Work under S&T #507 for the first time provided Reclamation with a quantitative basin-wide cost-benefit analysis of canal lining conservation measures, which included un-priced hydrologic externalities. Combined hydrologic and partial equilibrium models will assist decision makers in identification of the most economically sound alternatives for meeting planning objectives while maximizing net public benefit.

Potential uses for this methodology by Reclamation could extend far beyond water resource management planning. Once technical staff are familiar and comfortable with the theory behind this methodology and application of the HydroCents tool through the proposed training and outreach, future potential uses by Reclamation could lead to Project-level development of operational scenarios or other applications not yet conceived. Reclamation staff from the Mid-Pacific Region have expressed interest in adapting HydroCents for operational use. One potential operational scenario could be developed to inform management which lands would be most economically beneficial to target for fallowing within the Klamath basin could be most cost-effectively fallowed, in response to increased ecosystem water demands.

Contributing Partners

None

Research Products

The first research product will be a report outlining the results of the Henry's Fork case study. All materials developed for the workshops will also be research products.

This information was last updated on October 24, 2014
Contact the Research and Development Office with questions or comments about this page