Tracking the use of a resource and charging for its marginal cost promotes conservation, and agriculture can embrace this by implementing metering technology.

This article is a part of the Water for Agriculture Theme. For more articles in this category, click here.åÊ

When the amount of a resource being demanded is metered and recorded so suppliers can adjust prices accordingly, prices accurately reflect the marginal cost of supplying that resource and signal to consumers the relative scarcity of that resource.

For electricity, regular electric meters are standard in developed countries. By 2020, most if not all electricåÊmeters in developed countries will be ‰ÛÏsmart,‰Û or be able to report on electricity consumption at a high rate to provide near-real-time information.åÊHowever, smart wateråÊmeters have limited distribution, and many connections, including those in statesåÊthat areåÊfacing drought, such as California,åÊare notåÊmeteredåÊat all. This means a lack of up-to-date information for the water sector, where innovation and investment on metering have been stagnant for years.

At first glance, the water sector might seem healthy, as the public market for overall impact investing looks to grow steadily in the coming years (1). According to a report from The Nature Conservancy, JP Morgan Chase, and others on impact investing, development financial institutions (DFIs), which provide most of the capital for this market, are projected to invest 50 percent more in 2014-2018 than they did in the five years prior, when they invested $21.5 billion. The majority of the capital provided by the DFIs, $15 billion, was in water conservation.

However, this isn’t necessarily a good thing. DFIs typically ‰ÛÏinvest in sectors or countries that would otherwise be unable to attract capital,‰Û according to a report in Forbes.

So the generosity of DFIs to water conservation efforts hides a problem: Private investors have little interest in getting involved in water conservation. Only 11 percent of the $1.9 billion in private impact investment in 2014-2018 went to water conservation.

The U.S. in particular exhibits this lack of investment, as venture capital investment in water companies from 2007 to 2012 has been wildly inconsistent; the number of worthwhile deals for any given quarter is seemingly random (Figure 1).

A lack of private interest suggests there are fundamental issues to overcome with water metering, particularly in the U.S. For example, the report from The Nature Conservancy and JP Morgan Chase notes that the fragmented nature of the U.S. water industry, with many suppliers that are subject to varying, complex rules, dissuades investment because it is hard for projects to increase in scale. But it also says that an even more pressing problem is that water simply isn’t profitable, because its price isn’t tied to the marginal cost of supplying it.

This is of vital importance, because water scarcity will become a major issue for many of the most productive agricultural states: Nearly three-quarters of irrigated land in the U.S. is contained within the 17 ‰ÛÏWestern‰Û states (2), but recent predictions suggest that majority of Western states will experience the worst droughts since the Medieval Ages in the late 21st century.

One way of promoting interest in water conservation and technology is by accurately tracking how much water we use; metering water usage allows suppliers to set the price of water according to its marginal cost, which makes saving water (and making technology to help others do so) more profitable. Water meters are not the complete answer. But monitoring water usage with meters, just as the energy sector has done, will help provide a stronger footing for investment.

Currently, more than 30 percent of the U.S. is experiencing at least moderate drought, which is a historically high amount (Figure 2). Moreover, given the recent predictions of ‰ÛÏmegadroughts‰Û in the Central Plains and Southwest, the percentage facing ‰ÛÏextreme‰Û drought will most likely grow later in the century. As the state currently facing the most severe drought, California is important to look at in order to understand how the projected future droughts should be handled.

California is entering its fourth year of ‰ÛÏexceptional‰Û drought (Figure 3). A continual lack of rainfall has brought the Sierra Nevada snowpack, which provides about a third of California’s water, to historically low levels, including 5 percent of its historical average in April. That month, in a move that effectively crystallized the reality of the drought for Californians, Gov. Jerry Brown issued an executive order to cut urban water use by 25 percent. Californians, to varying degrees, have begun to respond: water use in April decreased by 13.5 percent, an åÊimprovement, but far from the 25 percent mandate.

The executive order does not impose the 25 percent reduction on agriculture, which accounts for 80 percent of the human water use in California. Brown has defended this decision by saying that farmers are already suffering: Even without the cuts, California farmers are projected to leave more than half a million acres of land unseeded in 2015, 7 percent of the California’s irrigated farmland. This is troubling because California ranks first in the U.S. in the production of many staples, and produces 95 percent or more of the nation’s plums, artichokes, pistachios, broccoli, kiwis, and walnuts.

However, because agriculture is the dominant user of water, in the absence of strict water cuts other methods must be used to conserve water and accurately track its use. One key method is to use water meters.

Urban water meters are already on their way; a 2004 law requires that all urban connections in California be metered by 2025. But there is no such law for farms. In 2009, California passed the Water Conservation Act which, along with ordering urban suppliers to increase efficiency 20 percent by 2020, requires that large agricultural water suppliers begin to measure and report the volume of water delivered to customers, and implement water rates based on the volume of water used.

But metering the water supplied by utilities is only part of the solution, because utilities are not the only sources of water for farmers. That’s because during drought years, groundwater collected through private wells on farmland, which the utilities can’t meter, can account for half of the water consumed in California. Between 1977 and 2010, according to the state Department of Water Resources, California farmers drilled close to 42,000 wells to supplement their water use for irrigation. The only way for the government to guess at how much water is being drawn by these wells is by estimating how much water the crops with these wells need, and subtracting the water that utilities are delivering. With the lack of data on well water, the resulting guesses can be extraordinarily inaccurate.

The result of all of this is that no one knows how much water California is actually using. But California isn’t the only state whose water use remains a mystery. For example, in a 2013 U.S. Geologic Survey report on irrigation water use in humid New England and mid-Atlantic states, it is mentioned that ‰ÛÏof the states in the study that require reporting of irrigation water use [some states have confidentiality agreements preventing dissemination of site-specific irrigation water use], only Georgia requires metering. Data from other states are unmetered and, at best, the water use is estimated by the pumping capacity of the irrigation system multiplied by the hours of operations, which is usually not well tracked.‰Û

If water meters aren’t present, then providers can’t measure how much water is being used per user. This forces them to charge cheap, flat rates for water that do little to incentivize conservation.

Water in the U.S. is incredibly cheap compared to prices worldwide; residents in Australia use roughly the same number of gallons per day, and yet the price of water is nearly twice as high (Figure 4). Furthermore, urban water users pay a pretty penny compared to many farmers; for example, farmers in the Imperial Irrigation District in California pay $20 per acre foot (3), or about 6 cents for a thousand gallons.

The combination of high per capita water usage and inconsistent use of metering creates problems when it comes to pricing water. Markets operate best when price is set at the marginal cost of an item, or the cost to produce the last unit of that item. But for water districts without water meters, the one millionth gallon of water costs a farm the exact same amount as the first gallon; the scarcity of the resource isn’t factored into its cost.

Because water is cheap, price doesn’t function as an effective disincentive to overuse water. As of 2008, 48 percent of farmers in Western states use gravity irrigation systems, which are incredibly inefficient. By simply flooding the field, a farmer can get water evenly to all the crops, but as the water sits a large proportion of it evaporates and never gets used.

Modern irrigation systems, which use careful placement of drips and precise timing schedules to maximize uptake, can reduce agricultural water use significantly; i. If such systems were applied to all the irrigated land in California, water use in the state would be reduced by 17 percent or more, according to the Pacific Institute. But installing irrigations systems is expensive, and if subsidies are provided for farmers to buy irrigation systems instead of the water price being raised, farmers may actually use more water because the irrigation systems allow them to water more land, land that before was not being watered.

The lack of disincentives also means that calls to get a better handle on water consumption may fall on deaf ears. As of May 2014, almost half of the 55 largest agricultural water districts subject to the 2009 Water Conservation Act in California had yet to turn in their reports on water usage.

The other problem with cheap water is that it provides little incentive for innovators to enter the water sector. Because water users don’t often pay the full cost of their water, due to the lack of metering, they have little incentive to install water-saving technologies. And because there is little incentive to install new technologies, investors don’t feel a need to put money into designing them. Between 2000 and 2013, the clean energy sector (4) received $139 billion in total investments; water receivedåÊ$8 billion, or less than 6 percent of the clean energy sector’s total, over the same span.

The two sectors are in completely different leagues. In 2014, the water sector received $110 million in private venture investments, which is the best year so far for the sector. Compare that to the single biofuel company Cool Planet, which gathered $100 million in March alone. Interest in investing in water has been stagnant for decades, without any upward trends (Figure 5).

Finally, watching a resource meter dial move toward the bigger numbers encourages people to conserve that resource; for example, installing meters in Fresno, California, along with volume rates, cut water use by 17 percent in 2012.

The energy sector has laid out the path to conservation for the water sector to follow, and it all starts with metering. There are signs of progress; in California, Gov. Brown recently signed the Sustainable Groundwater Management Act, the first legislation of its kind, which will require communities to collectively keep track of the groundwater they use.

But California is simply the first in line to face the need to encourage interest in the water sector. Drought as or more severe than what currently afflicts California is seemingly on the horizon for many of the states that provide this country with the food it needs.

Alec Drobac is a senior physics major at Middlebury College in Vermont. He hopes to pursue a career as a theoretical physicist, potentially in the field of astrophysics or cosmology. Originally from California, he is particularly concerned with water usage and conservation, as well as the advancement of technology in agriculture.

References:

1. As defined by the JP Morgan Chase and The Nature Conservancy report, ‰ÛÏimpact investment‰Û denotes investments ‰ÛÏintended to return principal or generate profit while also driving a positive impact on natural resources and ecosystems ‰ÛÒ specifically, decreased pressure on a critical ecological resource and/or the preservation or enhancement of critical habitat.‰Û
2. The 17 Western States include Arizona, California, Colorado, Idaho, Kansas, Montana, Nebraska, Nevada, New Mexico, North Dakota, Oklahoma, Oregon, South Dakota, Texas, Utah, Washington State, and Wyoming.
3. An acre-foot is a standard measure of water use used in the US. It is the amount of water needed to flood an acre of land with water 1 foot deep, and is roughly 326,000 gallons.
4. The ‰ÛÏclean energy‰Û sector encompasses solar, wind, geothermal , nuclear, hydroelectric, and biomass energy production (i.e., renewable energies), as well as energy storage, efficiency, and smart grid implementation (Source: Hamilton Project).