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Economic Currents

Keep up to date with the latest UHERO news.

Informing Water Policy in Hawaii with Transformative Interdisciplinary Research: UHERO’s Role in ʻIke Wai

UHERO's Project Environment will be leading the economic analysis for a new National Science Foundation project addressing critical gaps in the understanding of Hawaii’s fresh water supply that limit decision making, planning and crisis responses. ‘Ike Wai (from the Hawaiian ‘ike, (knowledge), and wai, (water) spans geophysics, microbiology, cyberinfrastructure, data modeling, indigenous knowledge and economics and connects university scientists to state and federal agencies and community groups.

Diversity in volcano age, eruption types, structural history, and hydrological features generate a complex subsurface water system that provides most of Hawaii’s potable water supply. While many hydrological studies have been carried out in Hawaii, relatively little is known about the exact structure of the many groundwater (GW) aquifers that are present throughout the state. Existing models are able to approximate the structure, but the accuracy of predicted water flows and sustainable yields for Hawaiian watersheds is limited by the availability of existing data, which is used to calibrate the models. Accordingly, ʻIke Wai will use new technology to measure the volume and interconnectivity of aquifers within Hawaiian volcanoes. Geophysical imaging will provide new high-resolution 3D maps of geologic structures. Real-time monitoring will support analysis of aquifer volume and hydraulic conductivity estimations. Flow and aquifer connectivity measurements will integrate three approaches: submarine GW Discharge (SGD) analysis, geochemistry and the innovative use of microbial diversity as a GW tracer.

Data and outputs from ʻIke Wai will provide decision-making tools to address challenges related to water availability and sustainability. Recent research on the West Hawaii coast has shown that we do not fully understand the size, flow rates, and boundaries of our groundwater aquifers. Without a clear understanding of how much water is available, we cannot properly plan future water use and management. There is currently significant debate over whether there is enough water to meet planned development while ensuring the biological and ecological integrity of surrounding nearshore habitats. ʻIke Wai will provide crucial geophysical data that will allow us to assess how much water is available to support both humans and nearshore environments.

Once we know the size, volume, and flow rates of groundwater aquifers, we can match these water supply estimates with current and projected demands for water. These demands come in the form of human demand — for domestic, commercial, agricultural, and municipal use — as well as biological and ecological demands — for example the dependency of nearshore organisms on freshwater discharge to the ocean, which is driven by the size and flow rate of up-gradient aquifers. The research from ʻIke Wai will help resource managers, policy makers, and the general public understand how scarce groundwater is in these areas, and how these resources should be priced, pumped, and managed to achieve the objectives that will be determined as part of our stakeholder engagement process. These objectives could be related to development, ecological integrity, and/or cultural integrity — we won’t know exactly what we are aiming for until we engage the stakeholders in our research.

The ʻIke Wai Initiative will give us a better sense of where the water is, how much is there, how much and where we can pump for what uses, and how we should best manage (price, restrict, require permits for, etc.) this resource. Stakeholder engagement and policy evaluation are also key components of the project, so we believe that the research results will not only be transformative from a scientific perspective but also useful for planning and management. Providing user friendly access to data and research results is an important objective of the project. Software engineers will work collaboratively with other members of the research team and stakeholders to create web and mobile applications for data dissemination, interaction and visualization.

For more information on the project, visit EPSCoR.

--Kimberly Burnett and Christopher Wada


Understanding the Links Between Local Ecological Knowledge, Ecosystem Services, and Resilience

UHERO’s Project Environment has received funding from the National Science Foundation to participate in an interdisciplinary, international project that spans the natural and social sciences as well as the terrestrial and marine spheres. UHERO is partnering with scientists, resource managers, cultural practitioners and private landowners in Hawaii and Fiji. The project has two distinct parts; the first examines the relationship between local ecological knowledge and social, economic, and ecological outcomes across twenty rural villages in Fiji. The second part of the project explores the effects of different management and climate change scenarios on ecosystem services and indicators of resilience in three Pacific island watersheds.

For Part 1 of the project, we will focus on twenty rural coastal communities across four districts in Fiji. The team will collect household and village-level data within each of the four districts on ecological knowledge, customary skills and intergenerational knowledge. This will be matched to new and existing data collected from nearby forests and reefs. The goal is to develop an index of local ecological knowledge, as well as an index of social-ecological resilience, and examine relationships between these new indices and other ecological, social and economic outcomes. Of particular interest is the influence of local ecological knowledge on our indicators of resilience.



In Part 2 we will conduct three in-depth case studies at the watershed level, focused on quantifying ecological, cultural, and economic values of various land/ocean uses and covers, and their implications for resilience to climate change. The three watersheds were chosen where collaborators have long-term studies to leverage strong existing relationships with landowners, resource managers and users. The watersheds include Kaupulehu on the leeward coast of Hawaii Island, Haena on the north shore of Kauai, and Kubulau on southwestern Vanua Levu.

In each watershed we will collect new terrestrial data on vegetative composition, canopy cover, and indicators of habitat connectivity. Marine ecological surveys will include reef fish assemblages, benthic cover, species composition, biomass, and trophic structure. Ecosystem and cultural services for land and ocean uses will be calculated based on existing data, ecological characteristics, participatory mapping, and interviews.

To understand what combination of land-use practices best enhance social-ecological resilience under different climate change scenarios, we will evaluate the levels and resilience of ecosystem services under multiple future scenarios of climate change and management. These scenarios will represent a range of likely future climates crossed with a range of possible management decisions for each of the three watersheds. After developing an understanding of the ecological, cultural, and economic benefits of each of the management scenarios, we will then assess the costs of various management regimes under different climate change scenarios. The team can then identify a series of “optimum” scenarios – those that appear to maximize resilience indicators and emphasize the cultural, economic and ecological values identified to be of interest to the community members, land managers, and other stakeholders.

Our dual focus on Hawaii and Fiji provides a spectrum of cultural values and land and ocean uses, from functional agroforestry and traditional subsistence fishing in Fiji, to systematic habitat conservation and restoration in Hawaii. As a result, we can capture a wide spectrum of land management paradigms and their potential outcomes under different climate change scenarios, and our results can inform decision making elsewhere in Hawaii, in the Pacific, and throughout coastal areas more broadly.

-Kim Burnett and Cheryl Geslani


How Do We Manage Our Interdependent Environmental Resources?

Managing water resources requires an understanding of the linkages between key hydrologic factors and direct human influences. The problem is further complicated by the fact that water resources are often interdependent, which suggests that management should also account for ecological interlinkages. For example, a forested upstream watershed may replenish an underlying groundwater aquifer, or a coastal groundwater aquifer may provide positive spillover effects to a downstream nearshore resource such as a fishery. Left unregulated, these spillover effects are economic externalities—additional, unintentional costs or benefits. In general when private parties act in their self-interest in the presence of externalities, the outcome may not be the best for society.

The Kukio Region: Groundwater and Limu

In an application to the Kukio region on the Big Island, Pongkijvorasin et al. (2010) explore how the relationship between submarine groundwater discharge (SGD) and a keystone algal species, Gracilaria coronopifolio (“limu”), in the nearshore affects optimal water management. Lab experiments suggest that moderate levels of SGD influx to a coastal marine environment increase the growth rate of limu due to resulting changes in nutrient loads, temperature and salinity (Duarte et al., 2010). A reduction in the aquifer, and hence SGD, generates a negative externality since there is less water entering the coastal environment. This study shows that optimal water management before accounting for the limu involves only slightly higher water pumping rates (roughly 6 million  per year over 100 years in both cases) because the market value of algae is relatively small compared to the benefits of water consumption. However, the market value of limu does not include ecological and cultural values. One way to account for values that are difficult to monetize is a minimum algae-level constraint. If the stock of limu is constrained to be no less than 90% of its current level, the effect on optimal extraction rates is much more dramatic: extraction starts at approximately 4 million  per year, falls to 3 million  annually by year ten, and stabilizes at less than 0.5 million  per year from year 22 onward.

Incentivizing Externalities

Once we understand how optimal resource extraction rates change in the presence of an externality, the next question is how do we internalize it? In other words, what can we do to incentivize private actors (e.g. water consumers) to behave in a way that provides the most benefits to society? When the externality is negative, as is the case where reducing the groundwater stock slows limu growth in the nearshore, a corrective tax can be implemented to reduce groundwater extraction and increase the benefit of higher groundwater levels over a longer period of time. When the externality is positive, as is the case when watershed conservation activities increase recharge for a downstream aquifer, the socially optimal level of conservation can be incentivized using payments or subsidies. As the number of positive and negative externalities within a water management system increases, so does the complexity of the optimal tax/subsidy formula. Nevertheless, advancing methods for managing linked natural systems is important, especially in the context of water resources, given trends of increasing scarcity worldwide and the expected effects of climate change.

-Christopher Wada

 

References:

Duarte, T.K., Pongkijvorasin, S., Roumasset, J., Amato, D. and K. Burnett (2010), ‘Optimal management of a Hawaiian Coastal aquifer with nearshore marine ecological interactions’, Water Resources Research46, W11545.

Pongkijvorasin, S., J. Roumasset, T.K. Duarte and K. Burnett (2010), ‘Renewable resource management with stock externalities: Coastal aquifers and submarine groundwater discharge’,Resource and Energy Economics32, 277-291.
 

WORKING PAPER


Changing climate conditions threaten groundwater recharge. The potential benefits of conserving it are substantial.

Results from a recent statistical exercise suggest that by the end of the 21st century, Hawaii will likely see a 5-10% reduction in precipitation during the wet season and a 5% increase during the dry season (Timm and Diaz 2009). Given that approximately 70% of normal precipitation falls during the wet season, Hawaii is facing an overall decline in annual precipitation, and thus a decline in groundwater-recharge (how much water goes toward refilling our critical aquifers*). Meanwhile, water tables and streamflow have already been declining as a result of both increased groundwater withdrawals and the warming climate (Bassiouni and Oki 2012). 

Drawdown of existing groundwater stocks is likely still decades away, meaning there's still time to do something about it. One option is watershed conservation. Watershed conservation, of course, has costs and those costs can appear quite high in the near-term. For example, the construction of pig fencing -- one tactic for achieving watershed conservation -- can cost between $92,000 and $159,000 per mile, not including helicopter time and materials. Conservation activities, however, can generate much larger benefits over the long run. Estimating these benefits is the topic of our new working paper: Optimal groundwater management when recharge is declining: A method for valuing the recharge benefits of watershed conservation.

To arrive at these estimates, streamflow and evapotranspiration projections (Safeeq and Fares 2012) and rainfall projections (Timm Diaz 2010) were used to construct two potential climate change scenarios:

(i) a precipitation decline of 5.3% and subsequent recharge decline of 8.5% by 2100 (baseline) and

(ii) a precipitation decline of 1.9% and a subsequent recharge decline of 3.7% by 2100 (conservative)

Using a dynamic economic-hydrologic optimization model (read the working paper here for more on the model) and based on these scenarios, we looked at the Pearl Harbor aquifer and calculated a net present value (NPV) based on the stream of future benefits (expressed in dollars) derived from having this water resource available at current recharge rates. We then calculated NPV for the aquifer in each of the two climate change scenarios. The amount of value "lost" (the difference between the NPV at current recharge rates and the NPV at lower recharge rates) represents the potential benefit of conservation.

The net present value (NPV) of the Pearl Harbor aquifer is approximately $7.886 billion at the current rate of natural recharge. Our two climate change scenarios reduce the value:

(i) If a decline in precipitation reduces recharge by 3.7% the value drops to $7.722 billion. (potential benefit of $163.9 million)

(ii) If recharge is reduced by 8.5% the value drops even further to $7.538 billion. (potential benefit of $347.7 million)

We conducted a sensitivity analysis on several of the model’s parameters (see results in figure above and explanation of parameters below). We found that maintaining the current level of recharge in the aquifer represented a value of anywhere between $31.1 million and $1.5 billion. In addition to increasing welfare by lowering the scarcity value of water in both the near term and the future, enhancing recharge delays the need for costly alternatives like desalination.

The enormous dollar values in the Pearl Harbor aquifer example illustrate the kinds of huge benefits conservation can generate. Pig fencing may cost a lot, but it still pales in comparison to the potential tens of millions - or even billions - that can be had from such conservation projects over the long term. When other ecological services provided by forested watersheds are considered (e.g. those related to species habitat, subsistence, hunting, aesthetic value, commercial harvest, protection against flooding and sedimentation, and ecotourism), the value of watershed conservation may be much higher.

--- Kim Burnett and Christopher Wada

 

 

About the Chart: Valuing the Conservation of the Pearl Harbor Aquifer

1. Our baseline assumed demand for water would grow by 1% each year (based on historical data for population and per capita income growth).

2. The high growth scenario assumes demand for water grows at triple that rate (3% each year).

3. Many past studies suggest that demand for water is fairly constant given changes in price, i.e. demand is "inelastic". However, recent research suggests that consumers facing increasing block prices (the pricing structure currently used in Hawaii) may be more responsive to price changes. The high elasticity scenario assumes that the price elasticity** of demand is -0.5, twice the value of the baseline scenario.

4. The discount rate adjusts the value of future benefits or costs to reflect the desire to accrue benefits sooner and costs later. In the low discount rate scenario, the discount rate is one third of its baseline value (0.01), which means that weighting of net benefits accrued to current and future consumers is closer to being equal.

5. Because the price derived from the optimization model used reflects both the extraction cost and the scarcity value of water, with the scarcity value of water being relatively large, the high extraction cost scenario (where the cost coefficient is double its baseline value) does not substantially change the NPV.

 

*Hawaii's groundwater provides nearly 99% of Hawaii's domestic water and roughly 50% of all freshwater used throughout the state (Gingerich and Oki 2000).

**Price Elasticity: The price elasticity of demand measures the percentage change in quantity demanded resulting from a one percent change in price. In other words, it is a measure of consumer responsiveness to price changes. Demand for a good is said to be inelastic when elasticity is less than one and elastic when elasticity is greater than one. In our baseline scenario, for example, the -0.25 value for demand elasticity means that a user consuming 10,000 gallons of water per month at a price of $5 per thousand gallons would reduce consumption by 25 gallons per month if the price of water is increased to $5.05 per thousand gallons.

References

Bassiouni M, Oki DS (2012) Trends and shifts in streamflow in Hawai‘i, 1913–2008. Hydrol Process. doi:10.1002/hyp.9298 Gingerich SB, Oki DS (2000) Ground water in Hawaii, U.S. Geological Survey Fact Sheet 126-00

Safeeq M, Fares A (2012) Hydrologic response of a Hawaiian watershed to future climate change scenarios. Hydrol Process 26:2745–2764

Timm O, Diaz, HF (2009) Synoptic-Statistical Approach to Regional Downscaling of IPCC Twenty-First-Century Climate Projections: Seasonal Rainfall over the Hawaiian Islands. J Climate 22:4261-4280.

This research is forthcoming in the peer-reviewed journal, Environmental Economics and Policy Studies (Burnett and Wada 2014). For more applications of economic principles to natural resource and environmental management problems, visit UHERO’s Project Environment.

WORKING PAPER


The Water-Energy-Food Nexus

The water-energy-food nexus is one of the most important and fundamental global environmental issues facing the world today. The US Geological Survey estimates that the United States used 201 billion gallons per day (bgd) of freshwater for thermoelectric power generation and 128 bgd for irrigation in the year 2005. Combined, energy generation and irrigation accounted for roughly 80% of all water withdrawals over that period. At the same time, energy is a key input for the production of freshwater. A 2006 study prepared for the California Energy Commission estimated that the electricity required to process one million gallons of water in a typical urban water system ranges from 4,000 kWh per million gallons in Northern California to 12,700 kWh in Southern California, and water-related energy use comprised over 19% of total energy use in the state. Although the wide range in values suggests that water-related energy use depends on a variety of location-specific factors, the interconnectedness of the resources is clear.

As demand for each of the resources grows, examining tradeoffs will become especially important. For example, biofuels may be developing into a viable alternative to petroleum, but the implications for water resources will be considerable. The UHERO Project Environment team will be working with the Research Institute for Humanity and Nature to develop a framework capable of quantifying such tradeoffs. The project will focus heavily on coastal regions in the Asia-Pacific “Ring of Fire”. For more on economic approaches to water and energy management, visit UHERO’s Project Environment.

---Christopher Wada


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