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Energy, backstop endogeneity, and the optimal use of groundwater

Author

Listed:
  • James Roumasset

    (University of Hawai‘i at Manoa & University of Hawai’i Economic Research Organization)

  • Christopher Wada

    (University of Hawai’i Economic Research Organization)

Abstract
To meet the growing demand for freshwater, many regions have increased pumping of groundwater in recent years, resulting in declining groundwater levels worldwide. A promising development is technical change regarding groundwater substitutes such as desalination and wastewater recycling. However, because these technologies are energy intensive, optimal implementation also depends on future energy price trends. We provide an operational model for the case of reverse-osmosis seawater desalination. In an application to the Pearl Harbor aquifer in Hawaii, we find that allowing the cost of desalination to increase at an average annual rate of 2.4 percent over the next century results in a substantially steeper efficiency price path for water. The higher prices decrease optimal groundwater extraction and induce a slower head drawdown over a longer period of time, delaying the transition to desalination by over 30 years. Because the rise in energy costs exacerbates efficiency losses from under-pricing, any delay in implementing efficiency pricing will cause either a greater future increase in prices or the need for rationing. Reforming prices sooner rather than later may be more politically feasible, given that consumers may be more amenable to a gradual rise in prices today than, say, a sudden doubling or tripling of prices ten years from now. With this foundation, we outline a research agenda for extending the framework to other groundwater substitutes and for adaptation to climate change.

Suggested Citation

  • James Roumasset & Christopher Wada, 2014. "Energy, backstop endogeneity, and the optimal use of groundwater," Working Papers 201417, University of Hawaii at Manoa, Department of Economics.
    • Handle: RePEc:hai:wpaper:201417
    as

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    File URL: http://www.economics.hawaii.edu/research/workingpapers/WP_14-17.pdf
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    References listed on IDEAS

    as
    1. Darrell Krulce & James A. Roumasset & Tom Wilson, 1997. "Optimal Management of a Renewable and Replaceable Resource: The Case of Coastal Groundwater," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 79(4), pages 1218-1228.
    2. Chakravorty, Ujjayant & Leach, Andrew & Moreaux, Michel, 2012. "Cycles in nonrenewable resource prices with pollution and learning-by-doing," Journal of Economic Dynamics and Control, Elsevier, vol. 36(10), pages 1448-1461.
    3. Roumasset, James A. & Wada, Christopher A., 2012. "Ordering the extraction of renewable resources: The case of multiple aquifers," Resource and Energy Economics, Elsevier, vol. 34(1), pages 112-128.
    4. Fischer, Carolyn & Salant, Stephen, 2012. "Alternative Climate Policies and Intertemporal Emissions Leakage: Quantifying the Green Paradox," RFF Working Paper Series dp-12-16, Resources for the Future.
    5. Phoebe Koundouri, 2004. "Current Issues in the Economics of Groundwater Resource Management," Journal of Economic Surveys, Wiley Blackwell, vol. 18(5), pages 703-740, December.
    6. Farzin, Y Hossein, 1984. "The Effect of the Discount Rate on Depletion of Exhaustible Resources," Journal of Political Economy, University of Chicago Press, vol. 92(5), pages 841-851, October.
    7. Chakravorty, Ujjayant & Roumasset, James & Tse, Kinping, 1997. "Endogenous Substitution among Energy Resources and Global Warming," Journal of Political Economy, University of Chicago Press, vol. 105(6), pages 1201-1234, December.
    8. Basharat A. Pitafi & James A. Roumasset, 2009. "Pareto-Improving Water Management over Space and Time: The Honolulu Case," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 91(1), pages 138-153.
    Full references (including those not matched with items on IDEAS)

    Citations

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    Cited by:

    1. Nathan DeMaagd & Michael J. Roberts, 2020. "Estimating Water Demand Using Price Differences of Wastewater Services," Working Papers 202019, University of Hawaii at Manoa, Department of Economics.
    2. James Roumasset & Christopher Wada, 2014. "Groundwater Economics without Equations," Working Papers 2014-8, University of Hawaii Economic Research Organization, University of Hawaii at Manoa.
    3. Nathan DeMaagd & Michael J. Roberts, 2020. "How Will Climate Change Affect Water Demand? Evidence from Hawai‘i Microclimates," Working Papers 2020-2, University of Hawaii Economic Research Organization, University of Hawaii at Manoa.
    4. Nathan DeMaagd & Michael J. Roberts, 2020. "How Will Climate Change Affect Water Demand? Evidence from Hawaii Microclimates," Working Papers 202020, University of Hawaii at Manoa, Department of Economics.

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    More about this item

    Keywords

    Dynamic optimization; endogenous backstop; groundwater management; water-energy nexus;
    All these keywords.

    JEL classification:

    • Q25 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Renewable Resources and Conservation - - - Water

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