Optimization of environmental water purchases with uncertainty

Hollinshead, S. P.; Lund, Jay R.

doi:10.1029/2005wr004228

Cited by 22 publications

(15 citation statements)

References 13 publications

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“…Option trades allow buyers and sellers to agree to a transfer before they know how much water will be available for the coming year, and incremental payments are made to the seller until the buyer's decision deadline (Hollinshead and Lund 2006). The state ran a small options bank in 1995, and the Metropolitan Water District of Southern California successfully implemented single-year options with Northern Sacramento Valley rice farmers in 2003 .…”

Section: Developing More Sophisticated Water Transfer Mechanismsmentioning

confidence: 99%

Adapting California’s water management to climate change

2011

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California faces significant water management challenges from climate change, affecting water supply, aquatic ecosystems, and flood risks. Fortunately, the state also possesses adaptation tools and institutional capabilities that can limit vulnerability to changing conditions. Water supply managers have begun using underground storage, water transfers, conservation, recycling, and desalination to meet changing demands. These same tools are promising options for responding to a wide range of climate changes. Likewise, many staples of flood management-including reservoir operations, levees, bypasses, insurance, and land-use regulation-are available for the challenges of increased floods. Yet actions are also needed to improve response capacity. For water supply, a central issue is the management of the Sacramento-San Joaquin Delta, where new conveyance, habitat investments, and regulations are needed to sustain water supplies and protect endangered fish species. For flood management, among the least-examined aspects of water management with climate change, needed reforms include forward-looking reservoir operation planning and floodplain mapping, less restrictive rules for raising local funds, and improved public information on flood risks. For water quality, an urgent priority is better science. Although local agencies are central players, adaptation will require strong-willed state leadership to shape institutions, incentives, and regulations capable of responding to change. Federal cooperation often will be essential.

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Section: Developing More Sophisticated Water Transfer Mechanismsmentioning

confidence: 99%

Adapting California’s water management to climate change

2011

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“…Greater interconnections, water grid managers, inter-sectoral trade and option trades can potentially enhance the capacity to adapt to climate change uncertainty. With option trades, in particular, buyers and sellers agree to a transfer before they know how much water will be available for the coming year and incremental payments are made to the seller until the buyer's final decision deadline (Hollinshead and Lund, 2006). 14 The Charter is to be supervised either by the economic regulator or the Auditor General's Office (Productivity Commission, 2011).…”

Section: Changes To Bulk Water Procurementmentioning

confidence: 99%

Institutional Reforms to Enhance Urban Water Infrastructure with Climate Change Uncertainty

Ananda

2014

J of App Econs and Policy

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Climate change adds another layer of uncertainty to the complex issue of urban water infrastructure provision. Current institutional configurations surrounding infrastructure investments are deemed inflexible and ill‐equipped to deal with climate uncertainty. This paper evaluates the regulatory and planning frameworks surrounding the urban water infrastructure provision in Victoria. Regulatory inflexibility, lack of clarity in the objectives of the water agencies and opaque supply augmentation policies constrain water businesses from making flexible infrastructure decisions. Future reforms need to focus on clarifying roles and objectives of water agencies, removing barriers to supply augmentation options including inter‐sectoral transfers and a regulatory model that embeds flexibility in infrastructure decision processes.

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“…This presents a potentially cost minimizing strategy for managing the impacts of drought on urban water supply, industrial water use or high value agriculture. Option contracts may be particularly appealing since they remove the uncertainty of water availability in a market or bank [ Jercich , 1997; Howitt , 1998; Michelsen and Young , 1993; Gomez Ramos and Garrido , 2004; Lund and Israel , 1995; Hollinshead and Lund , 2006; Characklis et al , 2006]. In this paper we will simulate the purchasing of water through an option contract when available water supply is below that necessary to satisfy a static demand.…”

Section: Drought Year Water Supply Augmentation Through Option Contractmentioning

confidence: 99%

“…An alternative to markets and banks is an option contract for the exchange of water for compensation in drought years [ Lund and Israel , 1995; Jercich , 1997; Howitt , 1998; Michelsen and Young , 1993; Gomez Ramos and Garrido , 2004; Hollinshead and Lund , 2006; Characklis et al , 2006]. The contract is negotiated between two parties to an acceptable price and provides the confidence and reliability of a certain exchange when needed.…”

Section: Introductionmentioning

confidence: 99%

Managing hydroclimatological risk to water supply with option contracts and reservoir index insurance

Brown¹,

Carriquiry

2007

Water Resources Research

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[1] This paper explores the performance of a system of economic instruments designed to facilitate the reduction of hydroclimatologic variability-induced impacts on stakeholders of shared water supply. The system is composed of bulk water option contracts between urban water suppliers and agricultural users and insurance indexed on reservoir inflows. The insurance is designed to cover the financial needs of the water supplier in situations where the option is likely to be exercised. Insurance provides the irregularly needed funds for exercising the water options. The combined option contract -reservoir index insurance system creates risk sharing between sectors that is currently lacking in many shared water situations. Contracts are designed for a shared agriculture -urban water system in Metro Manila, Philippines, using optimization and Monte Carlo analysis. Observed reservoir inflows are used to simulate contract performance. Results indicate the option -insurance design effectively smooths water supply costs of hydrologic variability for both agriculture and urban water.Citation: Brown, C., and M. Carriquiry (2007), Managing hydroclimatological risk to water supply with option contracts and reservoir index insurance, Water Resour.

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Optimization of environmental water purchases with uncertainty

Cited by 22 publications

References 13 publications

Adapting California’s water management to climate change

Adapting California’s water management to climate change

Institutional Reforms to Enhance Urban Water Infrastructure with Climate Change Uncertainty

Managing hydroclimatological risk to water supply with option contracts and reservoir index insurance

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