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When water fails: Economic considerations of water scarcity on food, energy and the environment (Part 2 of 3)*

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*This is the second of three posts related with the potential effects of the current California’s drought. In this one we will talk about consequences on food production, energy and the environment. Take a look at the first post here.

Water as an energy consumer

Energy is needed to pump, treat, transport, heat, cool and recycle water. According to the California Energy Commission 54 TWh of electricity and 4,284 million therms of natural gas are consumed annually in the entire water cycle. These amounts represent 21 and 32 percent of the state’s total use respectively.

Whereas environmental and agricultural sectors account for the vast majority of total water consumption, urban water end-uses are responsible for 58% of total water-related electricity and 98% of total water-related natural gas consumption. Furthermore, urban water supply and treatment, and wastewater treatment accounts for nearly 20% of water-related electricity use. Meanwhile agricultural supply, treatment and end-use account for an additional 22% of all water-related electricity consumption (CEC, 2005).

Table 1: California water and water-related energy use per sector (in percentage).

Table 1: California water and water-related energy use per sector (in percentage).

As described above, spatial variations in precipitation and water demands across California necessitated the creation of huge water conveyance systems that are now some of the largest single user of electricity in the state. For example, the State Water Project consumed an average of 7.81 GWh of electricity per year between 2005 and 2009 (more than 3% of the state’s total electricity consumption), although during this period, it also generated 4.99 GWh of hydropower per year. Despite the high energy intensity of these conveyance systems more energy is used every year to pump groundwater locally to supply water.

Taking all those facts into consideration, and given that urban water use is the principal water-related energy user (Fidar et al., 2010), we might expect that urban demand management policies to reduce residential water consumption per capita during drought through attitudinal changes would result in a decrease in water-related energy use. A significant proportion of residential water savings will come from outdoor reductions, and given that outdoor water is unheated, the reductions in water-related energy will not be as large as might be expected from Table 1. Savings in indoor water use will translate directly to a significant reduction in residential energy use, and as is shown by (Escriva-Bou et al., ongoing research) a 5 percent reduction in indoor water use in a single-family home translates to a 7 percent reduction in water-related energy and a 2 percent reduction in total household energy use. It should also be noted that overall residential energy use would increase during periods of high temperatures because of greater air conditioning use (Scanlon et al., 2013).

In the agricultural sector, as surface water becomes limited, an increase in energy use from pumping groundwater on those farms that have the ability to switch their water source must be expected. Although only studied during a short range of time, between 2006 and 2012 non-residential electricity consumption for two of the most important agricultural counties in California —Fresno and Tulare— shows that electric consumption is inversely proportional to precipitation (Figure 5). In 2014, this is likely to be exacerbated because the drought is more severe than previous ones. The same trend should be expected if high-value croplands and urban utilities buy water through the market increasing water transfers: again those agricultural users that are able to switch between water sources will sell surface water and energy use will increase due to greater groundwater pumping.


Figure 5: Non-residential electricity use in Fresno and Tulare counties.

The final consequence that we would to point out is that delta exports to the Central Valley and Southern California will be reduced. Therefore the State Water Project (SWP) and the Central Valley Project (CVP) will reduce their energy consumption. As we mentioned previously, the SWP is the largest single user of electricity, thus a considerable amount of energy will be saved.

Water as an energy source

California produces roughly 70 percent of its electricity from power plants located within the state or plants located outside the state but owned by California utilities, whereas 30 percent is imported from the Pacific Northwest and the American Southwest. On average 54% of within-state electricity production is natural gas-fired, 16% comes from hydropower, 15% from nuclear plants, 6% from geothermal, and the remaining 9% is shared between renewables —wind and solar—, coal, biomass and other sources (CEC, 2014).

Most of these energy sources need water in different ways. Whereas hydropower is completely dependent on water availability, it consumes only a negligible part through the reservoir’s evaporation. Thermoelectric power plants, including natural gas and nuclear plants, heat is removed from the cycle with a condenser using cooling water (Torcellini et al., 2003). Even though thermoelectric generation accounts for ~40% of water withdrawals and 3% of freshwater use in the US (Scanlon et al., 2013) and thus competes directly with other freshwater users in California, most generators use saline water and so are thus unaffected by water scarcity.

As is shown in Figure 6 hydropower generation has fallen significantly during previous drought events, averaging 28.12 TWh in drought years versus 41.51 TWh/year in non-drought ones during the last three decades. Accounting for differences in comparative costs of electricity generation obtained from Klein (2010), hydropower has a levelized cost of $70.04 /MWh whereas the potential substitute, Advanced Combined Cycle (CC), would cost $114.36 /MWh, thus the average loss amounts to $593 million /year.

Another potential concern is if decrease in hydropower generation have a direct effect on electricity prices. As Figure 6 also shows, the relative share of hydropower as a proportion of California’s total energy generation has been decreasing, meaning that any effect on electricity prices will be relatively small because of the reduced dependence on hydropower.


Figure 6: Total in-state power generation plus imports (electricity consumption) vs. hydropower generation.

Water and energy as food inputs

Although California’s economic growth is today more reliant on other sectors, its agricultural output remains the highest in the U.S. and this sector, which accounts for 80 percent of total water withdrawals, is highly competitive in the international agricultural market. Nowadays the agricultural sector generates 1.3 percent of the Gross State Product (GSP) and employs 6.7 percent of the state’s private sector labor force (AIC, 2013). These are statewide aggregate data, but if we focus on agricultural regions such as the Central Valley, the share of the gross production and agricultural labor market is much larger for some counties, and more importantly, is usually correlated with poorer regions which are home to more vulnerable inhabitants. Therefore, while the potential impacts on the agricultural sector may not significantly impact the state’s economy as a whole, the effects in these agricultural regions will be intense.

As we have noted previously, water scarcity will have direct consequences on food production inputs:

i.         Water shortages could reduce sources available for crops, meaning that if no alternative water source exists, the producer will have to apply less water, decreasing yields, switch to a less water-consumptive crop which is likely to be less profitable, or reduce the area planted for a year.

ii.         If the producer has an alternative water source, they will get additional water but with an increase in production costs because of the energy required to pump groundwater or alternatively because water must be purchased through a water transfer scheme. Both situations will lead to a decrease in total profits ceteris paribus.

Extrapolating these local implications to a statewide scale, a drought would result in reduced total revenues and agricultural GSP, and the labor market will be damaged, especially in regions dependent on agricultural. Howitt et al. (2011) estimated that $370 million was lost in gross revenue as a result of the 2009 drought, implying 7,500 job losses.


Figure 7: Agricultural labor force and agricultural gross state product.

California agriculture is driven by the interactions between technology, resources and market demands (Medellin-Azuara et al., 2011). Technological improvements are reflected by the increasing linear trend of agricultural GSP, whereas the variations above and below this trend are dependent on international market prices —because only a few California crops have market power— and resource availability.

For all those reasons, it is very difficult to foresee the effects of the present drought on overall agriculture revenues but it is certain that it will increase production costs as water becomes expensive during times of shortage and more energy is used to pump from the aquifers. Final effects on net revenues will depend largely on prices determined by the international trade.

Regarding food prices, there will not be any effect on the internationally traded market goods such as grain, rice or corn because California is a price taker, and in the California-specific crops such as berries or nuts the effects will be uncertain because of the many other variables involved, but ceteris paribus an increase in prices would be expected that reflects the increase of input costs.

Water, energy, food and the environment

Direct consequences of water scarcity on the environment are obvious: as a water-stressed region, traditional economic demands will try to get as much water as they can, thus environmental flows will compete with other uses and it is expected that aquatic species will be severely damaged. However, because of California’s unique water system configuration where the Delta plays a main role as a water hub and is susceptible to the effects of salinity (Knowles and Cayan, 2002, 2004) even in driest years it has to remain a minimum runoff in order to maintain salty water far away from water exports sources in the south delta. This economic positive effect of environmental flows will definitely help to prevent rivers running dry, even during drought periods, but there will still be negative effects on aquatic habitats that should be taken into consideration to minimize future species losses.

The indirect effects of water scarcity will depend on the variations of energy use associated with water use, and their consequent greenhouse gas (GHG) emissions. Summarizing the variations on water-related energy production and consumption mentioned above the main effects on GHG will be:

i.         An increase in GHG emissions due to the substitution from hydropower to thermoelectric electricity generation is expected, and using an emission factor of 499.1 g CO2e/kWh (Spath and Mann, 2000) it would result in an average 6.68 millions of tons of CO2e per year accounting to the difference between average hydropower generation in normal and drought-period years, that it will have an economic value of $75.75 million given the current price of the GHG allowances.

ii.         If urban water use decreases following the demand-side management policies that will be implemented, a reduction in urban water-related energy use and greenhouse gases would be expected, that could be significant, considering that that most of the state’s water-related energy consumption is associated with urban uses, especially heating water. Escriva-Bou et al. (ongoing research) have quantified water-heating related CO2 emissions in single-family homes as 9.3 percent of total per capita GHG emissions, thus saving indoor water uses represents a way to significantly reduce GHG.

iii.         Finally, expected increase in groundwater pumping to substitute surface water shortages will lead to an increase in GHG emissions that should be directly related to the food production sector. The same effect would be expected in urban water utilities which have the ability to shift from surface water to groundwater sources. In the literature reviewed I do not find reliable data to assess this factor, thus it is a field that should be explored.

The variation of GHG emissions related with the water cycle is at least very symbolic since water systems in arid and semi-arid regions are increasing their vulnerability with global warming (Hartmann et al., 2013).



AIC (2013) The measure of California agriculture. Highlights. University of California, Davis. Agricultural Issues Center. Available at Accessed 21/4/2014.

CEC (2005) California’s Water – Energy Relationship. Prepared in Support of the 2005 Integrated Energy Policy Report Proceeding. California Energy Commission. November 2005. CEC-700-2005-011-SF.

CEC (2014) Energy Almanac. The California Energy Commission. Available at Accessed 21/4/2014.

Escriva-Bou A, Lund J, Pulido-Velazquez M (ongoing research) Modeling residential water, energy, carbon footprint and costs in California. University of California Davis.

Fidar A, Memon FA, Butler D (2010) Environmental implications of water efficient microcomponents in residential buildings. Sci Total Environ 408:5828-5835.

Hartmann DL, Klein Tank AMG, Rusticucci M, Alexander LV, Brönnimann S, Charabi Y, Dentener FJ, Dlugokencky EJ, Easterling DR, Kaplan A, Soden BJ, Thorne PW, Wild M, Zhai PM (2013) 2013: Observations: Atmosphere and Surface. In: Climate Change 2013: The Physical Science Basis. Contribution of Working Group I to the Fifth Assessment Report of the Intergovernmental Panel on Climate Change [Stocker, T.F., D. Qin, G.-K. Plattner, M. Tignor, S.K. Allen, J. Boschung, A. Nauels, Y. Xia, V. Bex and P.M. Midgley (eds.)]. Cambridge University Press, Cambridge, United Kingdom and New York, NY, USA.

Howitt RE, MacEwan DJ, Medellin-Azuara J (2011) “Droughts, Jobs and Controversy: Revisiting 2009.” Agricultural and Resources Economics Update 15(6): 1-4.

Klein J (2010) Comparative costs of California central station electricity generation. California Energy Commission. Final Staff Report. January 2010.

Knowles N, Cayan DR (2002) Potential effects of global warming on the Sacramento/San Joaquin watershed and the San Francisco estuary. Geophys Res Lett 29.

Knowles N, Cayan DR (2004) Elevational dependence of projected hydrologic changes in the San Francisco Estuary and watershed. Climatic Change 62:319-336.

Medellin-Azuara J, Howitt RE, MacEwan DJ, Lund JR (2011) Economic impacts of climate-related changes to California agriculture. Climatic Change 109:387-405.

Scanlon BR, Duncan I, Reedy RC (2013) Drought and the water-energy nexus in Texas. Environ Res Lett 8.

Spath PL, Mann MK (2000) Life cycle assessment of a natural gas combined-cycle power generation system. National Renewable Energy Laboratory. U.S. Department of Energy.

Torcellini P, Long N, Judkoff R (2003) Consumptive water use for U.S. power production. National Renewable Energy Laboratory. U.S. Deparment of Energy. December 2003.



Author: Alvar Escriva-Bou

Civil engineer and resource economist focused on water and energy management. Researcher at the Public Policy Institute of California. From Fortaleny, València.

One thought on “When water fails: Economic considerations of water scarcity on food, energy and the environment (Part 2 of 3)*

  1. Pingback: When water fails: Economic considerations of water scarcity on food, energy and the environment (Part 3 of 3)* | Not Just Water

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