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The Good, Bad, and Ugly of Watershed Management

Efficient management of groundwater resource systems requires careful consideration of relationships — both positive and negative — with the surrounding environment. The removal of and protection against “bad” and "ugly" natural capital such as invasive plants and feral animals and the enhancement of “good” capital (e.g. protective fencing) are often viewed as distinct management problems. Yet environmental linkages to a common groundwater resource suggest that watershed management decisions should be informed by an integrated framework. We develop such a framework and derive principles that govern optimal investment in the management of two types of natural capital — those that increase recharge and those that decrease recharge — as well as groundwater extraction itself. Depending on the initial conditions of the system and the characteristics of each type of natural capital, it may make sense to remove bad capital exclusively, enhance good capital exclusively, or invest in both activities simultaneously until their marginal benefits are equal.


Optimal Joint Management of Interdependent Resources: Groundwater vs. Kiawe (Prosopis pallida)

Local and global changes continue to influence interactions between groundwater and terrestrial ecosystems. Changes in precipitation, surface water, and land cover can affect the water balance of a given watershed, and thus affect both the quantity and quality of freshwater entering the ground. Groundwater management frameworks often abstract from such interactions. However, in some cases, management instruments can be designed to target simultaneously both groundwater and an interdependent resource such as the invasive kiawe tree (Prosopis pallid), which has been shown to reduce groundwater levels. Results from a groundwater-kiawe management model suggest that at the optimum, the resource manager should be indifferent between conserving a unit of groundwater via tree removal or via reduced consumption. The model’s application to the Kona Coast (Hawai‘i) showed that kiawe management can generate a large net present value for groundwater users. Additional data will be needed to implement full optimization in the resource system.


Cost Implications of GHG Regulation in Hawai‘i

The State of Hawai‘i and the U.S. are developing greenhouse gas (GHG) emissions reduction regulations in parallel. The State requires that economy-wide GHG emissions be reduced to 1990 levels by the year 2020 and the U.S. Environmental Protection Agency is developing new source performance standards (NSPS) for new electricity generation units. The State Department of Health has proposed rules that would reduce existing large emitting electricity generating units by 16% from 2010 levels. The NSPS proposes GHG concentration limits for new electricity units.

We use a comprehensive model of Hawai‘i’s electricity sector to study the potential cost and GHG impacts of State and Federal GHG regulations. Given uncertainty about the final form and implementation of these regulations, we adopt a series of scenarios that bracket the range of possible outcomes. First we consider the State’s GHG cap (for existing units) and NSPS (for new units) being implemented at the facility level. Next, we consider the implications of allowing for partnering to meet the State GHG cap and the NSPS at a system-wide level. We also consider the case where the State GHG cap is extended to apply to both existing and new units. The current proposed State GHG rules exclude biogenic sources of emissions. We address the impacts of this decision through sensitivity analysis and explore the impact of GHG policy on new coal-fired units.

We find that regulating GHGs at the facility level leads to greater reductions in GHG emissions but at higher cost. Over the 30-year period that we study, when biogenic sources of emissions are ignored, facility level implementation of policy will add $3 billion to the cost of electricity generation at an average cost of $180/ton of GHG abatement. If biogenic sources of emissions are included within the accounting framework, abatement costs rise to $340/ton.

Overall, we find that the high cost of Hawai‘i’s current electricity generation provides a strong incentive to move towards less costly alternatives – in this consideration, primarily wind and rooftop PV. This leads to a reduction in GHG emissions. However, this finding would not hold if fuel prices were substantively lower than current levels, either from falling prices or fuel-switching to lower cost products. Regardless, the qualitative implications about the optimal structure of GHG policy are robust to changing assumptions about fuel prices. Implementing GHG policy at the facility level leads to relatively higher levels of GHG emissions reductions, though at substantially higher cost. If a greater level of GHG emissions reduction is desired, the least cost policy is to lower the level of the GHG cap while still allowing for the greatest flexibility in achieving targets.


Optimal groundwater management when recharge is declining: a method for valuing the recharge benefits of watershed conservation

Demand for water will continue to increase as per capita income rises and the population grows, and climate change can exacerbate the problem through changes in precipitation patterns and quantities, evapotranspiration, and land cover—all of which directly or indirectly affect the amount of water that ultimately infiltrates back into groundwater aquifers. We develop a dynamic management framework that incorporates alternative climate-change (and hence, recharge) scenarios and apply it to the Pearl Harbor aquifer system on O‘ahu, Hawai‘i. By calculating the net present value of water for a variety of plausible climate scenarios, we are able to estimate the indirect value of groundwater recharge that would be generated by watershed conservation activities. Enhancing recharge increases welfare by lowering the scarcity value of water in both the near term and the future, as well as delaying the need for costly alternatives such as desalination. For a reasonable range of parameter values, we find that the present value gain of maintaining recharge ranges from 31.1million to over1.5 billion.

Published version: Burnett, K. and Wada, C.A., 2014. Optimal groundwater management when recharge is declining: a method for valuing the recharge benefits of watershed conservation. Environmental Economics and Policy Studies. In Press.


Integrating Demand-Management with Development of Supply-Side Substitutes

Sustaining water availability at current prices in the face of growing demand and declining resources is not possible, and scarcity is further exacerbated by falling recharge levels due to climate change, urbanization, and watershed depreciation. We discuss an integrated approach to water-resource development based on principles of sustainability science. In addition to demand management such as pricing, we consider supply-side substitutes such as desalination and wastewater recycling. The importance of integrating demand- and supply-side approaches is especially evident in the case of watershed conservation as climate adaptation. Watershed conservation reduces scarcity by improving groundwater recharge. Yet, incorrect pricing can waste those potential gains. We discuss a joint management strategy, wherein block prices for groundwater consumption and co-determined prices for watershed conservation incentivize and finance efficient profiles of both.


Ordering Extraction from Multiple Aquifers

Optimal groundwater extraction satisfies the condition that the marginal benefits of water consumption equal the full marginal cost of extraction in each period, including the opportunity cost of future benefits foregone. But how should this well-known condition be generalized when there are multiple aquifers available? We provide an extension of the “Pearce equation” to guide the optimal ordering of resource extraction and an illustrative application wherein it is optimal to extract from the “leakiest” aquifer first, letting another aquifer increase in volume. This generalized least cost-first principle contrasts strongly with the sustainable yield approach. By including spatial dimensions, the model provides the marginal valuations of water at each time and place, such that full marginal cost pricing can incentivize users to implement the efficient program. While an untrammeled water market would fail to provide the optimal solution, regulators can facilitate efficient water trading by setting appropriate exchange rates.


A Policy Analysis of Hawaii's Solar Tax Credit Incentive

This study uses Hawaii as an illustrative case study in state level tax credits for PV. We examine the role of Hawaii’s tax credit policy in PV deployment, including distributional and tax payer impacts. Hawaii is interesting because its electricity rates are nearly four times the national average as well as has a 35% tax credit for PV, capped at $5,000 per system. We find that PV is an excellent investment for Hawaii’s homeowners, even without the state tax credit. For the typical household, the internal rate of return with the state tax credit is about 14% and, without it, 10%. Moreover, the vast majority of installations are demanded by households with the median income and higher. We estimate that single-family homeowner’s in Hawaii may demand as much as 1,100 MW of PV. There are, however, significant grid constraints. Policy currently limits PV generation to no more than 15% of peak load for any given circuit, or approximately 3% of aggregate electricity demand. Tax credits are therefore not likely to increase the overall deployment of PV, but rather spread the cost of installation from homeowners to taxpayers and accelerate the rate at which Hawaii reaches grid restrictions.

 Published version:  Coffman, Makena, Sherilyn Wee, Carl Bonham, and Germaine Salim. "A Policy Analysis of Hawaii's Solar Tax Credit." Renewable Energy 85 (2016): 1036-043. Web.

Market, Welfare And Land-Use Implications of Lignocellulosic Bioethanol In Hawaii

This article examines land-use, market and welfare implications of lignocellulosic bioethanol production in Hawaiʻi to satisfy 10% and 20% of the State’s gasoline demand in line with the State’s ethanol blending mandate and Alternative Fuels Standard (AFS). A static computable general equilibrium (CGE) model is used to evaluate four alternative support mechanisms for bioethanol. Namely: i) a federal blending tax credit, ii) a long-term purchase contract, iii) a state production subsidy financed by a lump-sum tax and iv) a state production subsidy financed by an ad valorem gasoline tax. We find that because Hawaii-produced bioethanol is relatively costly, all scenarios are welfare reducing for Hawaii residents: estimated between -0.14% and -0.32%. Unsurprisingly, Hawaii’s economy and its residents fair best under the federal blending tax credit scenario, with a positive impact to gross state product of $49 million. Otherwise, impacts to gross state product are negative (up to -$63 million). We additionally find that Hawaii based bioethanol is not likely to offer substantial greenhouse gas emissions savings in comparison to imported biofuel, and as such the policy cost per tonne of emissions displaced ranges between $130 to $2,100/tonne of CO2e. The policies serve to increase the value of agricultural lands, where we estimate that the value of pasture land could increase as much as 150% in the 20% AFS scenario.


Intergenerational Equity with Individual Impatience in an OLG Model of Optimal and Sustainable Growth

Among the ethical objections to intergenerational impartiality is the violation of consumer sovereignty given that individuals are impatient. We accommodate that concern by distinguishing intra- and inter-generational discounting in an OLG model suitable for analyzing sustainability issues. Under the assumption of constant elasticity of marginal felicity, the optimum trajectory of aggregate consumption is guided, via the Ramsey condition, by the intergenerational discount rate but not the personal discount rate. In an economy with produced capital and a renewable resource, intergenerational neutrality results in a sustained growth path, without the necessity of a sustainability constraint, even in the presence of intragenerational impatience. We also find that green net national product remains constant along the optimal approach path to golden rule consumption.

Published version: Endress, L.H., Pongkijvorasin, S., Roumasset, J., Wada, C.A., 2013. Intergenerational equity with individual impatience in a model of optimal and sustainable growth. Resource and Energy Economics. In Press.


How Have Catch Shares Been Allocated?

 A unique database was created that describes the methods used to allocate shares in nearly every major catch share fishery in the world. Approximately 54% of the major catch share fisheries in the world allocated the Total Allowable Catch (TAC) solely on the basis of historical catch records, 3% used auctions, and 6% used equal sharing rules. The remaining 37% used a combination of methods, including vessel-based rules. These results confirm the widely-held belief that nearly all catch share programs have “grandfathered” private access to fishery resources: 91% of the fisheries in the database allocated some fraction of the TAC on the basis of historical catch. This publicly available database should be a useful reference tool for policymakers, academics, and others interested in catch shares management in Hawai‘i and across the globe.

To suggest edits or additions to the database, please email lynham@hawaii.edu.

Working PaperDATA FILE (XLSX)

Economic Impacts of Inter-Island Energy in Hawaii

This study assesses the economic and greenhouse gas emissions impacts of a proposed 400MW wind farm in Hawaii. Due to its island setting, this project is a hybrid between an onshore and offshore wind development. The turbines are planned for the island(s) of Lanai and, potentially, Molokai. The project includes building an undersea cable to bring the power to the population center of Oahu. It is motivated by 1) Hawaii’s high electricity rates, which are nearly three times the national average, and 2) its Renewable Portfolio Standard mandating that 40% of electricity sales be met through renewable sources by the year 2030.

We use an economy-wide computable general equilibrium model of Hawaii’s economy coupled with a detailed dynamic optimization model for the electric sector. We find that the 400MW wind project competes with imported biofuel as a least-cost means of meeting the RPS mandate. As such, the wind project serves as a “hedge” against potentially rising and volatile fuel prices, including biofuel. Though its net positive macroeconomic impacts are small, the estimated reduction by 9 million metric tons of CO2 emissions makes the project a cost-effective approach to GHG reduction. Moreover, variability in imported fuel costs are found to be a much more dominant factor in determining cost-effectiveness than potential cost overruns in the wind project’s construction


Please contact Makena Coffman at makenaka@hawaii.edu for the full study.


Sustainable Development and the Hawaii Clean Energy Initiative: An Economic Assessment

 The connection between the emerging field of sustainability science and the economics of sustainable development has motivated a line of interdisciplinary research inspired by the notion of “positive sustainability.” This notion is founded on three principles or pillars: (1) adopting a complex systems approach to modeling and analysis, integrating natural resource systems, the environment, and the economy; (2) pursuing dynamic efficiency, that is, efficiency over both time and space in the management of the resource-environment-economy complex to maximize intertemporal well-being; and (3) enhancing stewardship for the future through intertemporal equity, which is increasingly represented as intergenerational neutrality or impartiality. This paper argues that the Hawaii Clean Energy Initiative (HCEI) fails to satisfy all three pillars of sustainability, and consequently fails to achieve the "sustainability criterion" put forward by Arrow, Dagupta, Daily et al: that total welfare of all future generations not be diminished. HCEI shrinks the economy, contributes negligibly to reduction of global carbon emissions, and sparks rent seeking activity (pursuit of special privilege and benefits) throughout the State of Hawaii.


A dynamic approach to PES pricing and finance for interlinked ecosystem services: Watershed conservation and groundwater management

A theory of payment for ecosystem services (PES) pricing consistent with dynamic efficiency and sustainable income requires optimized shadow prices. Since ecosystem services are generally interdependent, this requires joint optimization across multiple resource stocks. We develop such a theory in the context of watershed conservation and groundwater extraction. The optimal program can be implemented with a decentralized system of ecosystem payments to private watershed landowners, financed by efficiency prices of groundwater set by a public utility. The theory is extended to cases where land is publicly owned, conservation instruments exhibit non-convexities on private land, or the size of a conservation project is exogenous. In these cases, conservation investment can be financed from benefit taxation of groundwater consumers. While volumetric conservation surcharges induce inefficient water use, a dynamic lump-sum tax finances investment without distorting incentives. Since the optimal level of conservation is generated as long as payments are correct at the margin, any surplus can be returned to consumers through appropriate block pricing. The present value gain in consumer surplus generated by the conservation-induced reduction in groundwater scarcity serves as a lower bound to the benefits of conservation without explicit measurement of other benefits such as recreation, biodiversity, and cultural values.


Published Version: Roumasset, J., Wada, C.A., 2013. A dynamic approach to PES pricing and finance of interlinked ecosystem services: Watershed conservation and groundwater management. Ecological Economics. 87, 24-33.




Economic Impact of the NELHA Tenants

 The Natural Energy Laboratory Hawaii Authority (NELHA) contracted the University of Hawaii Economic Research Organization (UHERO) to estimate its economic impact on the State of Hawaii. NELHA currently accommodates 41 tenants ranging from companies bottling deep sea water to solar and biofuel companies. These tenants pay close to $4 million in rent, royalties and pass through expense directly to NELHA. In addition, they employ hundreds of people, purchase goods and services from local businesses, and invest in capital improvements at NELHA.


Foundations for Hawai‘i’s Green Economy: Economic Trends in Hawai‘i Agriculture, Energy, and Natural Resource Management

It is clear from previous studies that Hawai‘i’s natural capital is highly valued and should be managed accordingly. For example, Kaiser et al. (1999) estimate that the Ko‘olau watershed provides forest benefits valued between $7.4 and $ 14 billion, comprised of water resource benefits ($4,736-­‐9,156 million), species habitat benefits ($487-­‐1,434 million), biodiversity benefits ($0.67-­‐5.5 million), subsistence benefits ($34.7-­‐131 million), hunting related benefits ($62.8-­‐237 million), aesthetic values ($1,040-­‐3,070 million), commercial harvest ($0.6-­‐2.4 million), and ecotourism ($1,000-­‐2,980 million). Hawai‘i’s coral reefs alone are estimated to generate at least $10 billion in present value, or $360 million per annum (Cesar and van Beukering, 2004). Another recent study considering the value to all U.S. households finds that increasing the current size of marine protected areas in Hawai‘i from 1% to 25% and restoring five acres of coral reefs annually would generate $34 billion per year (Bishop et al., 2011).2 While many studies that place value on Hawai‘i’s natural resources have been undertaken in recent years, little is known about the economic impacts generated by agencies charged with protecting and managing these important resources in Hawai‘i. To that end, an online survey of natural resource managers in Hawai‘i was conducted, and the results are summarized in section 6 of this report.


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