29 August 2008

Dunce CAP

I'm not a fan of big water projects -- especially subsidized Federal projects. So, it's no surprise that I would not like the CAP.

But, as we all know, instincts are useless in a fight with numbers,* so it helps to have some, and "Cadillac Desert Revisited" [PDF] delivers:
To alleviate Arizona’s dependence on groundwater, the federal government subsidized construction of the Central Arizona Project (CAP) to import water from the Colorado River. In exchange for the subsidy, Arizona reformed its groundwater law to eliminate common-property pumping and to ban groundwater mining after the year 2025. We build a model of water resource development in which imported water is a capacity constrained backstop. The model is applied to quantify the welfare effects of alternative CAP construction dates and Arizona groundwater laws. We reach two general conclusions. First, CAP was completed 86 years too early, in 1987, at a deadweight loss of $2.612 billion. Ironically, construction in 1987 yielded lower surplus than never constructing CAP. Second, the political exchange of reform for subsidy introduced a greater loss ($2.612 billion) than it corrected ($0.810 billion). The exchange was worse than doing nothing at all.
Bottom Line: 87 years early and $1.8 billion in the hole. Howdya like dem apples?

* Don't bring a knife to a gunfight.

1 comment:

Anonymous said...

customers (ag) petitioned / committed to the project but CAP never signed any deals so when it came time to collect payment, they balked and said the only way to get them to use CAP water was to price at the cost of groundwater. So, it immediately CAP didn’t recover costs from low repayments or lack of customers. The cities stepped in to recharge the water as a semi-solution. Still lots of lots money wasted.