In Part 13 of this series, I reviewed the basic facts of California’s future water deficit as I understand them. Then I outlined 2 scenarios of how California might respond, and developed estimates of how each would affect the California economy. But I felt that both scenarios, while instructive, were probably not realistic representations of what California might actually do. In this post I develop estimates for a third scenario that I think is more realistic.

In developing a 3rd scenario, the most important question to be answered is how much desalination California will pursue. Desalinating water to cover the deficit in urban areas would be first priority, I believe. They consume the smaller fraction of water, economic activity is concentrated in them, and the largest ones are located close to the coast, where the desalination plants would have to be located.

Agriculture is a different story, however. As I discussed in Part 7, it is conceptually possible for California to desalinate sufficient water to cover the entire deficit. Now let’s think about some practicalities. The counties with the largest agricultural output are Fresno, Kern, Tulare, Monterey, Merced, Stanislaus, San Joaquin, Kings, Ventura, and Imperial.

The farming regions of Monterey and Ventura Counties are low-lying and are close to the ocean. The water would not have to be lifted a significant amount, and the pipeline to connect desalinated water into the water distribution system would not have to be excessively long.

The farming region of Imperial County is low lying – below sea level, actually. However, it is cut-off from the Pacific Ocean by the Peninsular Ranges, and it would be very expensive and energy intensive to lift the water over the ranges. The Imperial Valley is only about 80 miles from the Gulf of California. However, the 80 miles belong to Mexico. Thus, the desalination plants would have to be in Mexico, with whom significant conflict already exists over water from the Colorado River. Further, because the Gulf of California is not open ocean, the issue of whether the waste brine could be disposed of safely would become a larger concern.

The remaining 7 counties lie in the southern portion of the Central Valley. All are more than 50 miles from the coast. They are cut off from the coast by the Coastal Ranges except at one point: the San Francisco Bay Delta. We have noted the important role played by the delta in the delivery of water through the California State Water System and the Central Valley Aqueduct. Water coming down the Sacramento River empties into the delta and crosses the delta north-to-south to the Clifton Court Forebay, where it is pumped into the canals and aqueducts that deliver it to the San Juan Valley and Southern California. Theoretically, desalination plants could be located along the shore of San Francisco Bay. Sea water could be delivered to them from the Pacific Ocean through pipelines laid through the Golden Gate. The brine would be returned to the ocean in separate pipelines via the same route. Fresh water would enter pipes that travel into the delta, and eventually to the Clifton Court Forebay. From there, desalinated water would feed through existing infrastructure into the existing water distribution system. The system would not have to be greatly enlarged because the desalinated water would be replacing reduced supply. Many engineering challenges would have to be overcome, but none that seem impossible.

The problems involved in delivering desalinated water to agricultural areas would be political and environmental as much as they would be physical and financial: could the desalination plants be located and designed in such a way that they did not harm sensitive ecological areas? Could they be located in ways that did not harm the beautiful, high-priced coastal areas where they would be located? Could Mexico’s cooperation be secured?

So, the question becomes: would California choose to desalinate enough water to cover only the urban deficit, redirecting currently existing supplies to agriculture? There would still be an agricultural water deficit, resulting in the loss of farms and farm economy, though it would be smaller. Or would California desalinate enough water to cover the whole deficit?

In Part 14 of this series, I noted that estimates say that California can conserve or recycle 4.2 million acre-feet of urban water, representing 17% of the total deficit, but 48% of the urban deficit. I also guessed (and it was little more than an informed guess) that California had the potential to conserve 10% of agricultural water without affecting the economic viability of farms or reducing crop yields. This amounted to 2.8 million acre-feet per year, 11% of the total deficit and 15% of the agricultural deficit. This potential for conservation adds a complication to the question of how much water would California choose to desalinate: would California choose to minimize conservation and emphasize desalination, retaining a freer, less constrained lifestyle? Or would California choose to minimize desalination and maximize conservation, reducing the immense task of developing the infrastructure needed for desalination, with its associated costs, but constraining and degrading the California lifestyle?

If California chooses to desalinate sufficient water to cover the entire deficit, then the costs will be much as I discussed them in Part 5: $25.6 billion yearly. That is roughly equal to 23% of the annual state budget, or 1% of the annual gross state product. But, I believe that California will not do that. It will prove too difficult to build the infrastructure required to desalinate enough water to cover the entire 25.1 million acre-feet deficit I project for the future. It would need to occur at the same time that the world is transitioning away from fossil fuel to renewable energy, which is itself a massive infrastructure program. In addition to the solar farms that will be constructed for the transition away from fossil fuels, building solar farms to power the desalination plants would prove to be too much.

Scenario 3

In this scenario, California will emphasize conservation. That will reduce urban water demand from the current 8.8 million acre-feet to 4.6 million acre-feet. In this scenario, California will desalinate this much water, enough to cover all urban demand after conservation. Future urban water supplies from currently existing sources will be less than they are today, but by desalinating this much water, California will nevertheless free 2.8 million acre-feet of water from current sources to redistribute to agriculture. This water is currently being delivered to urban areas via the California State Water System, which flows through the Central Valley, California’s largest agricultural area.

The cost of desalinating this much water will be approximately $4.7 billion dollars.

With the additional 2.8 million acre-feet of supply, and with a 10% reduction in water demand due to conservation, the agricultural deficit will be reduced to 13.5 million acre-feet. This represents 53% of current agricultural water consumption, and I will assume that California will experience a 53% loss of its agricultural sector. In Part 13 of this series I noted that the annual sales of farm products was $46.2 billion, but because many other industries depend on agricultural production, the actual value of agriculture to the California economy is about $90.2 billion. Thus, a 53% loss would translate to about $47.8 billion in economic losses each year.

Add the cost to desalinate urban water and the agricultural loss, and the total becomes $52.5 billion. This is approximately equal to 2.2% of California’s gross state product. (I am equating the cost of desalination to a decline in economic output of equal size. This is not precisely correct, for desalination will result in the economic inputs of building and operating the necessary infrastructure. However, for the average Californian, the cost of water will simply increase. They will pay more, but receive no additional services. It will function similarly to a tax increase, or an increase in the price of oil. In addition, the amount involved is small compared to the losses in the agricultural sector.)

California GDP Growth 2007-2014. Data Source: Bureau of Economic Analysis.

A 2.2% hit is a big hit. From 2007-2013 California’s GDP growth (in current dollars) averaged 2.7%. But measuring in current dollars means that some of the growth includes inflation. If you adjust for inflation, then over that period GDP growth has averaged 0.9%. (Bureau of Economic Analysis 2014a) Thus, a 2.2% hit would result in an average 1.3% decline in real GDP every year. And even if the effect of the water deficit were only half as large as I estimate, it would still result in an average yearly GDP decline of 0.2%.

Since a recession is often defined as two consecutive quarters of declining GDP, and depression is defined either as a recession lasting two or more years, or as a decline of 10% or more in GDP, the scenario I envision would certainly mean an ongoing recession in California, and eventually a full-blow depression (Wikipedia a, Wikipedia b). I will not go into detail regarding the effects of depression, they are terrible. But I will go so far as to say that unemployment will drastically increase, and people will be forced to leave the state to find work. At the same time, people will stop moving to the state, resulting in a net out-migration. It is almost certain that asset values will collapse, both due to the economic decline and the surplus resulting from the out-migration.

The agriculture sector will be hit the hardest, that seems clear. However, because many other industries depend on agriculture, and because urban water consumers will have increased water costs, the effects will be felt throughout the economy.

Now, some may argue that by selecting the years 2007-2013, I have biased the results. These years include the Great Recession, and California was hit hard. These people would argue that these years yield an unrealistically low estimate of annual GDP increase. I would reply that, as noted in Part 12 of this series, California’s economic growth has been in a long-term decline for almost 40 years. If one were going to project from the long-term record, then one might expect California’s GDP growth to slow to zero or contract, even without the effects of the water deficit.

Thus, it seems likely that the current drought, exacerbated by future declines in water supply due to climate change, will have serious and ongoing effects on California’s economy.

Sources:

Bureau of Economic Analysis. 2014a. Regional Data. http://www.bea.gov/iTable/iTable.cfm?reqid=70&step=1&isuri=1&acrdn=1#reqid=70&step=1&isuri=1. This is a data portal. For the current dollars data in this post, I selected GDP in current dollars, All industries, California, and 2006-2014. For the inflation adjusted date in this post, I selected GDP in chained 2009 dollars, All industries, California, and 2006-2014.

Wikipedia a. Depression (economics). Viewed 9/29/2015 at https://en.wikipedia.org/wiki/Depression_%28economics%29.

Wikipedia b. Recession. Viewed 9/29/2015 at https://en.wikipedia.org/wiki/Recession.