11 May 2015

Supply-side solutions waste your money

Better for oil or milk than water...
Some people are suggesting that California's drought be "solved" by building a pipeline to Alaska or shipping water in by rail. These ideas, while feasible from a technical perspective, are a terrible idea economically.

First, let's ignore the environmental cost of pumping water up and down hills or fueling trains.

Now, let's just consider cost, i.e., 100 tanker cars carrying about 34,500 gallons (each) would bring just over 10 acre-feet of water. Under normal conditions, farmers would be willing to pay about $50/af or $500 in total for the water. But there's a drought, so let's assume they would pay $1,000/af, or $10,000.

Now, the cost of shipping water from a wet place to California is about 3 cents/ton/mile by tanker and 0.4 cents/ton/mile for a pipeline.[1] Using a distance of 750 miles from Seattle to Sacramento and a weight of 8 pounds/gallon,[2] we're taking about a cost of $324,000 for the train and only $43,000 for a pipeline delivery.

So, that's a pretty heavy cost for delivery of something "worth" far less.

Besides the other alternative -- dragging bags of water behind barges[3] -- it seems that the cheaper supply-side alternative is desalination, which only costs about $2,000/af. Given California's dire need for water now and the 20 year process of getting a desalination plant built, it seems that bags are the way to go -- from a supply perspective.

On the demand side, of course, you can get water "for free" by raising prices so that people use less outside on lawns, leaving more for indoor use. When it comes to agricultural irrigation, you can "free up" water by facilitating markets where buyers can pay sellers $1,000/af  (delivery included when they share canals, groundwater or rivers).

Bottom Line: Most "solutions" to drought and shortage fail the basics of economics. Hopefully politicians check their real facts before spending YOUR money.

  1. Lots of people are saying "if we can waste $80 billion on a high speed rail, why not build a pipeline to Washington State." That's false logic if you step back and consider that both projects are a terrible idea.
  2. It's around here that we are reminded how great the metric system is, i.e., one car with 131,000 liters (131 m^3, each weighing one ton) means each train that weighs 13,100 131 tons.
  3. The cost from Humboldt to SF or SD ranges from $550 to $2500/af. The cost on a train or trucks is probably lower (but getting a train over the coastal range?)
H/T to RM