This paper explores the potential and limitations for Southern California water markets using an economic-engineering network flow optimization model, CALVIN. CALVIN is used to estimate how a market would affect overall Southern California water use, to preliminarily assess the economic benefit of more flexible water allocation policies, and to explore the characteristics of an ideal market. Results from CALVIN suggest substantial economic and reliability benefits exist for implementing water market or other transfer mechanisms and these benefits could be achieved with relatively little reallocation of agricultural water. An ideal water market in Southern California would reduce more costly urban water shortages, reducing demand for increased imports from outside of Southern California. Additionally, substantial economic benefits could accrue from expanding some conveyance and storage facilities, particularly the Colorado River Aqueduct and conjunctive use storage capacity. Conveyance Capacity Expansion Most canal capacities in the Southern California system did not have high shadow values (>$100/af-month) under an ideal market scenario. The only facility with significant shadow values in terms of expected and present value is the Colorado River Aqueduct (CRA). CRA water is delivered to the Coachella Valley urban area and all of MWD (Central, Eastern and Western MWD, and SCDWA). Figure 10 shows the shadow values associated with the CRA operating under an ideal market. For the majority of the 72 year hydrologic period, the net benefit of expanding the CRA is $300/af. In the '87-'92 drought, however, shadow values increase to $700/af-yr. Scarcity of up to 62 taf occurs during drought, incurring residential scarcity costs throughout MWD. The economic value of increasing the capacity of the CRA has an average annual value of $398/af-yr and a present value of $13,300/af-yr, at a 3% real interest rate and very long life span. More direct conveyance between the Colorado River and the SDCWA (via the All American Canal), a "Tijuana Canal," has been contemplated as an alternative delivery route for Colorado River water to SDCWA. Since the route would divert Colorado River water at a more southern point than the CRA, this diversion's salinity will be significantly higher, with an additional water quality cost estimated at $79/af (Newlin 2000). The shadow values for a small Tijuana Canal (Figure 10) parallel CRA shadow costs, with the difference from water quality costs ($178/af for the CRA versus $257/af for a Tijuana Canal). The Tijuana canal would provide moderate marginal benefits outside of drought periods and much larger economic benefits during droughts, with an average annual benefit of $318/af. Conclusions and Future Improvements Considering the limitations of this modeling approach and water marketing, the following conclusions can be made from the CALVIN results for Southern California. In the future, more specific and reliable information can be derived with improvements to the CALVIN approach. Conclusions 1. Sub...
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