The big dry

12/03/2013 § 6 Comments

We’re in a drought. Pastures are drying out, stock are stressed, and Wellington now has water restrictions (very mild water restrictions, it must be said).

The costs are being toted up. The figures being tossed around are in the $1 to $2 billion range (0.5% to 1.0% of GDP, roughly), which compares to agriculture being ~10% of GDP. If it hits lambing or breeding stock, the impacts could go on past this season. Given the weak economic recovery, there are concerns about moving back into recession.

The drought is, of course, a lack of water. But really, it’s a lack of insurance. By insurance, I mean information and infrastructure that protect us from downside risk. There isn’t enough of that around water in New Zealand, and no wonder. We haven’t needed it. But this year we do, and climate change is expected to increase the variability of weather and make ‘insurance’ more important.

Just for example…

You may remember that December was wet, so the hydro dams were spilling water over the Christmas break. If not, the great memory machine can help out. Lake Ohau, Lake Pukaki, Aviemore, Waitaki, Benmore, Tekapo, Roxburgh — all were spilling water. My wife — South Island born and bred — said that was a bad sign, that they’d be telling us to conserve power in the autumn as a result. Well, it’s not quite at that level, but it’s getting there.

One thing clearly missing was better information. The current drought is unusual:

The February rainfall into Lake Te Anau in the South Island was the lowest since records began 80 years ago, Meridian Energy said yesterday….

Going from full at the start of January to the 1992 level in March had never happened before, [Leyland] said.

The past wasn’t going to be a good guide to the future. If we can figure out better models of weather, precipitation, power generation, power usage, etc., then we can have better control over the lake levels. That’s going to cost money to figure out, but it’s like buying an insurance policy.

Another kind of insurance is increased storage. The country as a whole is not short of water. It is just in inconvenient places at inconvenient times. Storage and distribution can overcome those problems — it’s like money in the bank or an insurance policy against drought. As or if the variability of rainfall increase(s), the value of that insurance policy also increases.

There’s also the consumption side. Because we aren’t used to extended dry periods, we aren’t that efficient with water.We could be, though, and that’s something else we should figure out. Unfortunately, the consumption needs to be supply-sensitive. That is, we should reduce our consumption in dry years but correspondingly increase it in wet years when we can. That kind of flexibility will have a cost to it, just like buying insurance.

And, it really, really suggests we need some kind of rationing mechanism for water, so that people are using more or less of it depending on how much is around. Prices are economists’ first choice for rationing, because they allow people to make individual decisions about how much that water is worth to them.

We aren’t the only people to face uncertainty around water. We’re lucky — we tend to have lots of it. We just need to work out how to manage the variability. Other places — Australia, California, Israel — have to make do with less. That means we don’t even need to be particularly clever; we just need to learn from them. Think of it as importing insurance.

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§ 6 Responses to The big dry

  • about this serious question you should meet my friend Jean-François Berthoumieu, in Agen, France, one of the most interesting people in France on those subject : do more agriculture with less water… and create systems to keep water for agriculture or towns in the same dams.

  • Damned shame then that Canterbury went and fired the country’s top guy in sorting this stuff out. Budget cuts. Management Science wasn’t getting many students: most students who like numbers get put off by the management label, and the ones who are in management need multiple choice questions to sort out the difference between medians and means. So MSci had to go.

    Fritz Raffensburger was working with Cal Tech’s Charlie Plott on some crazy dynamic water pricing models for Canterbury incorporating a whole ton of hydrological constraints.

    He’s working for the RAND corporation now instead. But let’s keep funneling money over to that STEM stuff. That’s what really matters.

    (teh stupid…it burns….)

    • It’s a shame that Fritz’s department was canned. At the same time, I’d argue that Operations Research fits quite well under STEM. In fact, many of the people working in the crazy water pricing models project had an eng & agriculture background.

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  • Bill, you make some very good points here. Let me add a few cents as a hydrologist.

    First up, while insurance is indeed a big issue, it’s not the only issue. Managing droughts is not just about insuring against failure. It is also about avoiding overly risky investments – where the benefits cannot offset the insurance over the long-term. In some places, rain-fed agriculture is simply unsustainable.

    Also, not all droughts should be thought of in exactly the same ways. A meteorological drought isn’t a lack of insurance, it’s just a significant shortfall in rainfall compared with long-term conditions. But when it translates to agricultural drought, I agree with you. (if a drought falls on a forest, and no one is there to feel it, does it break the bank?)

    Better models of climate, weather, hydrology and water demand are indeed good and under continual development. However, some of the uncertainty about the climate-water-production system is irreducible, so as insurance they are only part of the solution. And unfortunately, some of the existing models are not used to the maximum extent, whether for reasons of cost, trust, or communication.

    Homing in on storage makes sense, but storage will only be good insurance if it is used as such. Water storage that is just used to support an increase in base demand would lead to increased vulnerability once a drought arrives. And storage, of course, not only refers to artificial reservoirs but also aquifers and snowpack (with decreasing controllability).

    Which brings me to your call for supply-sensitive consumption, which is spot on, whether by a water ethic, financial tools, or regulation. I very much agree with Eric that we need serious research on this front, though I wouldn’t agree that simply copying solutions from dryer, more developed economies will work. We need solutions that work within our budget, values, and legislative environment.

    • Bill says:

      Hi Daniel –

      Thanks! Good to have some thoughts from someone who knows about water. The issue of more storage creating dependence and thereby increasing vulnerability is interesting — I hadn’t thought about it in those terms. I’m sure there’s a happy equilibrium there somewhere :-).

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