Coordinating water conservation efforts through tradable credits: A proof of concept for drought response in the San Francisco Bay area

Abstract

Water utilities are increasingly relying on water efficiency and conservation to extend the availability of supplies. Despite spatial and institutional interdependency of many utilities, these demand‐side management initiatives have traditionally been tackled by individual utilities operating in isolation. In this study, we introduce a policy framework for water conservation credits that enables collaboration at the regional scale. Under the proposed approach, utilities have the flexibility to invest in water conservation measures that are appropriate for their specific service area. When utilities have insufficient capacity for local cost‐effective measures, they may opt to purchase credits, contributing to fund subsidies for utilities that do have that capacity and can provide the credits, while the region as a whole benefits from more reliable water supplies. This work aims to provide insights on the potential impacts of a water conservation credit policy framework when utilities are given the option to collaborate in their efforts. We model utility decisions as rational cost‐minimizing actors subject to different decision‐making dynamics and water demand scenarios, and demonstrate the institutional characteristics needed for the proposed policy to be effective. We apply this model to a counterfactual case study of water utility members of the Bay Area Water Supply and Conservation Agency in California during the drought period of June 2015 to May 2016. Our scenario analysis indicates that when the institutional structure and incentives are appropriately defined, water agencies can achieve economic benefits from collaborating in their conservation efforts, especially if they coordinate more closely in their decision‐making.

Expanding the Scope and Foundation of Sociohydrology as the Science of Coupled Human‐Water Systems

“…They find that these socioeconomic factors help explain differences in drought response and postdrought rebound. Similarly, Gonzales et al () observe that the ease and cost of conservation may vary significantly. This motivates them to introduce a water conservation trading scheme and apply the scheme to utility members of the Bay Area Water Supply and Conservation Agency in California.…”

“…Human activities from land use change and irrigation to dam building and water abstraction alter the propagation of drought through the hydrological cycle (Van Loon et al, ). In turn, drought impacts human activities, driving water conservation, shifting withdrawals from surface to groundwater, and prompting creative policy and infrastructure responses (Gonzales & Ajami, ; Gonzales et al, ; Marston & Konar, ; Nelson & Burchfield, ). The papers in this Special Section characterize and quantify both drought propagation and response and the influence of climatic and social factors in shaping these processes.…”

“…Gonzales and Ajami (), Gonzales et al (), and Breyer et al (), in turn, investigate drought responses in urban areas. Gonzales and Ajami () adapt a water demand model from Garcia et al () to assess the impact of changing scarcity awareness on water demand in three San Francisco area water utilities.…”

“…Under conservation trading, utilities that do not meet their targets may purchase credits, and utilities that exceed targets sell credits in an auction. Gonzales et al () find that trading can reduce the costs of conservation by 20% and that coordinate decision‐making increases the benefits for the utilities. Breyer et al () ask how water conservation impacts urban hydrological cycle in a study of Austin, Texas.…”

A Smart Water Grid for Micro-Trading Rainwater: Hydraulic Feasibility Analysis

“…Economists have argued that scarce water can be allocated more efficiently through water markets, rather than through centralized control [40]. Large-scale water rights markets have been operating for decades among utilities and agricultural users [41], and new markets that trade conserved water are emerging as a strategy for demand-side management to create value and new incentives around conservation activities [42,43]. Decentralization of water services is seen as an approach to support a sustainable future for urban water management [44,45], where water can be supplied or treated at small-scale plants, rather than at centralized locations.…”