Market Forces

How innovative policies can help clean the transportation sector

As climate week gets underway, policymakers should prioritize ways to reduce emissions from one of the biggest contributors to greenhouse gases: the transportation sector. A diverse group of stakeholders recently came together to discuss opportunities to do just that.

Transportation accounts for nearly one third of all greenhouse gas emissions in the U.S. and a substantial share of local pollution in urban areas. Not only do these emissions greatly contribute to climate change, they can cause significant health concerns, from respiratory and cardiovascular illnesses, to premature mortality. Furthermore, communities of color and low-income communities have suffered much more from the health and well-being impacts of transportation-related air pollution than non-disadvantaged communities. Thus, it is both a social and environmental imperative to clean our transportation system.

However, cleaning our transportation system is not a trivial task—the effects of pollution vary widely in space and across different communities; the impacts of pollution are felt locally, regionally and globally; and multiple challenges across many different sectors of our economy to achieving this goal still exist. We will need a coordinated, multi-sector approach, with major investments and targeted policies.

To discuss these solutions and explore opportunities, Resources for the Future, Environmental Defense Fund, and Duke University’s Nicholas Institute hosted a two-day virtual workshop in July 2020. We invited individuals from all over the country, and from different sectors, including local governments, non-governmental organizations, stakeholder and community groups, industry, and academics, in an effort to increase communication across sectors, explore diverse policy solutions, and hear from different points of view.

Though we heard diverse approaches and assumptions from the different speakers and participants, we all agreed on the following: Cleaning our transportation system is a necessary and urgent action, and we can leverage this transformation to achieve even more improvements in social outcomes, above and beyond those caused by the transportation sector.

Panel I: Effectiveness and Behavioral Responses to Carbon Pricing and Vehicle Regulations under Existing Policies  

The first panel of the day discussed the effectiveness of carbon pricing and vehicle regulations on cleaning the transportation system, given existing policies and the nature of our “business as usual” future.

One of the main takeaways: though carbon and gasoline taxes can and have had an impact on reducing gasoline consumption, these taxes won’t be enough to achieve the major structural changes needed for the sector.

Other policies, such as vehicle efficiency standards and scrappage programs (like cash-for-clunkers), can help ensure older vehicles are replaced with better, more efficient (or even electric) alternatives, and can also work in conjunction with gasoline and carbon taxes to help achieve a cleaner transportation system. However, these programs may cause some unintended consequences if not pursued cautiously or developed jointly with policies that increase access to alternative modes of transportation.

Panel II: Distributional Effects of Transportation Policy

The workshop’s second panel focused on how to structure transportation policies to reduce the inequalities that transport-related pollution creates among different communities. The speakers highlighted the many different types of inequalities created by unjust and problematic housing and transportation policies, magnified by disadvantaged communities’ greater exposure to pollution, and how the transformation of the system can be leveraged to improve these distributional outcomes.

To be able to achieve these improvements, several steps must be taken, including:

  • Use data and modeling to identify disadvantaged communities most affected by transportation pollution;
  • Actively engage with community and environmental justice groups from the beginning when setting policy in order to identify their most pressing issues and concerns and ensure they have a seat at the table;
  • Conduct research to identify the most beneficial policies and actions for these communities and address their concerns;
  • Work to avoid unintended consequences of transportation policy that may harm disadvantaged communities in our quest to green the transportation system.

Panel III: Investments on Carbon Revenue: Efficacy and Impacts Across Groups

Our third panel explored the many avenues for investments of revenue raised from policies such as a carbon tax. There exist almost infinite options for investments- in both the private and public sectors, to individuals or corporations, for education and behavior modification, to infrastructure and technology, and so much more. Identifying the investment that provides the largest bang for buck is a challenge worth pursuing in order to maximize the benefits of our clean transportation transformation.

One of the difficulties is understanding the distributional impacts of investments. It is important to identify who will benefit the most from these investments, and whether there are important spillovers such as job creation. When the benefits of an investment are diffuse or long term, this can create a political challenge in its implementation. Furthermore, understanding the policy context around the investment is key: non-transportation-related policies such as zoning or housing regulations can affect the benefits of any investment in this space. For example, changing zoning rules could improve access to alternative modes of transportation, making investments in electric vehicle charging stations and public transit more effective at shifting driving away from private, fossil-fueled vehicles.

Panel IV: Changing the Rules: State and Local Policies and Potential Interactions with Carbon Pricing

The final panel of the day discussed how non-carbon pricing policies at the state and local level may interact with existing carbon policies, such as the Regional Greenhouse Gas Initiative (RGGI, a regional cap and trade program covering GHG emissions from 10 states in the northeast). Though cap and trade or carbon pricing sends a price signal to reduce carbon emissions, it alone may not be enough to achieve the large transformation required.

Alternative policies, such as the low carbon fuel standard, congestion pricing, or even policies outside of the transportation sector can help to bring about even greater reductions of transportation emissions, especially when combined with carbon pricing policies.

Electricity sector policies are an especially important one to get right. As our transportation system becomes less reliant on gasoline and more reliant on electricity for fueling, we need to ensure that the electric sector is clean (and carbon pricing can play an important role in achieving this outcome), while also implementing policies to reduce the costs that charging vehicles can place on the system.

A Vision for a Clean Transportation Future

This workshop made a strong case for urgent action—the emissions associated with transportation are too large and affect too many vulnerable communities to allow the status quo to continue unabated. Many different types of policies can be implemented, and even in the face of political challenges – particularly at the federal level – cities and states across the country are already taking action.

The speakers envisioned a future where transportation is clean; where all individuals across the country, regardless of where they live, have mobility access and alternatives in their modes of travel; where investments are made with an eye towards maximizing the public benefit and ensuring those most disadvantaged are uplifted; and where all communities have a voice in shaping the path of this clean transformation. This clean future exists; now it is up to us to shape policies in order to achieve it.

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How Climate Economics supports the Paris agreement temperature targets

New research building on Nobel Prize winner Nordhaus’ past contributions shows reaching UN climate targets is a good investment for the planet

Two years ago William Nordhaus was awarded the Nobel Prize in Economic Sciences for his pioneering work on “integrated assessment modeling” (IAM) and his Dynamic Integrated model of Climate and the Economy (DICE)—a framework designed to analyze the interplay between the economy and climate change, and used to assess economically optimal CO2 emission pathways and the social cost of carbon (SCC). Now a new paper published in Nature Climate Change demonstrates that a 1.5 to 2 degree target in line with the UN Paris agreement is economically optimal when the DICE model is updated to reflect newer research and latest expert assessment.

As I described in a blog about Nordhaus’ Nobel Prize two years ago, there were several ways new research could strengthen the results from Nordhaus’ DICE model and other IAMs. In this new paper, Martin C. Hänsel and co-authors (including Daniel Johansson, Christian Azar and EDF Senior Contributing Economist Thomas Sterner) made a number of such modifications to the baseline assumptions to update the results coming out of Nordhaus’ DICE model.

Two of their key updates relates to the economic assumptions/inputs to the model:

  • Updating the damage function (the assumed relationship between climatic changes and economic damages) to reflect a recent meta-analysis of climate damage estimates; and
  • Updating how equity between present and future generations is taken into account in DICE by revising the parameters determining the social discount rate. The choice of discount rate has a large impact on the results coming out of IAMs, since it determines the weight given to the climate damages affecting future generations.  This has spurred a long-standing debateespecially since the value of at least one of the parameters typically discussed is based on value judgments. Hänsel et al therefore chose to update the values of the parameters determining the social discount rate according to a recent survey of expert opinions.

The authors also made a number of additional updates to reflect new research in climate science and thereby improve the assumptions determining the relationship between greenhouse gas (GHG) emissions and temperature change (which include assumptions with respect to the global carbon cycle and the energy balance model translating radiative forcing to temperature impacts).

The authors also considered the impact of:

  • NETs (negative emissions technologies) such as afforestation, Biomass Energy with Carbon Capture and Storage (BECCS), and direct air capture. By providing the additional option of negative emissions after 2050, NETs further reduce the optimal equilibrium temperature, but also leads to a lower SCC in 2020 since the availability of NETs makes it optimal to postpone some emission reductions. However, it’s important to note that the potential magnitude of NETs available and on what timeline is debated and, for some strategies, still to be demonstrated.
  • Emission pathways with higher abatement of non-CO2 GHG emissions (which are not determined inside the DICE model) and make even lower equilibrium temperatures attainable. This illustrates the value of also addressing short term climate forcers such as methane emissions.

Both these latter updates contribute to a reduction in the economically optimal equilibrium temperature in DICE (i.e., the long run global average temperature which would provide the theoretically optimal balance between the social cost of climate damages and the costs of emission reductions).

The combined results of all these updates – reflecting recent findings in the climate economics and climate science literature – to the baseline assumptions in DICE are:

  • The SCC in 2020 is twice as high with all the other updates but with Nordhaus’ baseline assumptions for the social discount rate left unchanged. This is well in line with the strong consensus that SCCs at the levels produced with the baseline assumptions in DICE ($39 per tonne) significantly underestimate the true social costs of carbon dioxide emissions.
  • Optimal climate policy according to this updated DICE model keeps equilibrium temperature below 2 °C in 2100 in three quarters of all model runs.

Despite these key updates to the DICE framework, there are still—as the authors also point out—additional enhancements that can be made to improve this type of climate economic analysis, which weighs the costs and benefits of climate action. Such enhancements include consideration of risk and uncertainty and the representation of so-called “tipping points” as well as taking into account that the value of environmental assets relative to other goods and services may increase as they suffer a larger share of the costly damages from climate change.

Overall, these new findings show that the temperature targets in the Paris agreement (where countries committed to limiting the global temperature rise to well below 2 °C and to actively pursue a 1.5 °C target) are also supported by climate economic analysis and that reaching the UN climate targets is a good investment for the planet.

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How the Suspension of EPA Regulations Fails to Recognize the COVID-19 Crisis and Social Costs

COVID-19’s burden on healthcare systems worldwide, a mounting death toll, and the impacts this has on people across the globe is truly alarming. In addition to the public health crisis, the pandemic has also brought most countries’ economies to their knees. Governments are making decisions today that will resonate for decades for future generations, which is why interventions must be intelligent and forward-looking, while practical, rapid and cost-effective. 

One of the macroeconomic aspects that has critical ramifications is determining what is deemed essential, in terms of jobs and services. Food, health care, and emergency services are clearly essential. And while policymakers can debate the merits of other positions, make no mistake, pollution monitoring and enforcement are also critical.

EPA’s Suspension of Enforcement

On March 26, EPA administrator Andrew Wheeler announced that the agency would suspend enforcement against violations of a broad set of environmental regulations, with no end date. This announcement effectively provides companies across the United States with a waiver from clean air and other public health protections, and has massive implications for human health at a time when keeping citizens healthy is paramount. We know air pollution causes diabetes, heart and lung diseases and worsens asthma, putting people at higher risk of severe effects of COVID-19. In fact, recent analyses find areas with high air pollution levels before this crisis reported higher COVID-19 death rates.

The naive expectation is that companies will continue to abide by the law and self-report any pollution amid the pandemic. This ignores well-established economics literature demonstrating how self-regulation does not work. Even if it is argued that reducing regulation will ease economic burdens at a time when it should be redirected for economic stimulus – that is also a fallacy that is undercut by the current administration’s analysis.

The Clear Benefits of Environmental Regulation

Every year, the Office of Management and Budget (OMB) performs a benefit-cost analysis (BCA) of all government agencies and federal rulings. The table below is taken from the most recent OMB report that did a thorough analysis and took a retrospective look over a 10 year period. [n.b, slated for release in 2017, this report was not made public until 2019. OMB only released one report during the Trump administration years, which was one-fifth of the length of previous ones, only did single-year BCAs, and was released two days before Christmas in 2019.]

Estimates of the Total Annual Benefits and Costs of Major Federal Rules (For Which Both Benefits and Costs Have Been Estimated) by Agency, October 1, 2006 – September 30, 2016 (billions of 2020 dollars). Sorted from best to worst Benefit-Cost Ratio, figures rounded to the nearest billion.

Agency# of RulesBenefitsCostsBenefit-Cost Ratio
Environmental Protection Agency (EPA)39215 to 76250 to 61 4.3 to 12.6
Joint DOT and EPA449 to 8612 to 22 4.2 to 3.9
Department of Labor1011 to 303 to 7 3.6 to 4.2
Department of Health and Human Services187 to 352 to 7 3.1 to 5.0
Department of Energy2723 to 449 to 13 2.6 to 3.3
Department of Transportation (DOT)2725 to 459 to 17 2.6 to 2.6
Department of Justice32 to 51 to 1 2.1 to 4.0
Department of Agriculture51 to 21 to 1 1.2 to 1.4
Department of Homeland Security41 to 21 to 1 0.8 to 1.6

The table above underscores the crucial role EPA regulations play in human health and benefits to society. For each dollar spent on EPA’s programs, Americans derive a $4-13 benefit in the form of improved livelihoods. In general, rules exhibiting the greatest benefit-cost ratio relate to air pollutants, which have a great deal of interplay in terms of at-risk populations for COVID-19 and associated respiratory impacts. An EPA report focusing on the Clean Air Act amendments of 1990 finds a central estimate of a 32$ return for each dollar invested. Critically, these analyses do not monetize all of the health benefits of regulations, and thus these figures likely undercount the true benefits to society (the costs, however, are much more certain).

In terms of their benefit-cost ratio, EPA and major environmental rules result in benefits to the public that far outweigh their costs to government and industry. These rules are designed to preserve and protect human life and ecosystems. Removing protections presents a tremendous social cost.

Of course, EPA’s ability to enforce regulations during a pandemic has its limits. We wouldn’t want to put anyone at risk of contracting coronavirus. Still, there are ways to continue enforcement. EPA could redesign monitoring initiatives to continue digitally in places where this isn’t already the case. But announcing a sweeping, indefinite suspension that ignores most of what we know from behavioral economics and human nature makes little sense.

While the future is full of uncertainty, and economic turmoil is already here, we need to think carefully and critically about how to best protect people, the environment, and avoid slipping into a deep recession. Removing EPA’s ability to provide health protections to society during a public health crisis is lunacy. Doing it in the name of cutting costs is entirely misguided, as each dollar taken away results in an additional $4 to $13 in social costs.

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A growing call for environmental integrity

The recent introduction of bipartisan carbon fee legislation is demonstrating an important pattern taking hold as policymakers focus on climate change solutions. The Energy Innovation and Carbon Dividend Act, like the MARKET CHOICE Act introduced earlier this year by Republican Rep. Curbelo, recognizes that any carbon fee aimed at meeting the challenge of climate change must be designed with environmental performance in mind.

The new legislation is the first time in a decade that lawmakers from both sides of the aisle have come together to put forth serious climate policy. And like the MARKET CHOICE Act, it uses a fee to reduce pollution across the economy and includes “environmental integrity mechanisms” (EIMs) — provisions that tie a carbon fee to clear, measurable pollution reduction goals and keep us on track to meet those goals. EIMs are still a relatively new concept on the climate policy scene, but leading thinkers have begun to pay them significantly more attention, and it is clear they are emerging as a critical component of any serious carbon fee proposal: and with good reason.

A carbon fee – which sets a price per unit of pollution – prompts the economy to respond by providing powerful incentives to reduce that pollution, but it cannot guarantee the environmental result. While energy and economic modeling tools can provide critical insight into possible or likely outcomes, they cannot provide certainty over the magnitude of the impact. That’s why it is critical to include EIMs designed to provide greater assurances that a fee will deliver on its pollution reduction potential.

Momentum is building for urgent action on climate change. Last week, hundreds of protestors flooded into the Capitol calling for lawmakers to act. The recent Intergovernmental Panel on Climate Change report on the climate impacts of 1.5 degrees of warming and the U.S. National Climate Assessment paint a stark picture: the effects of warming are already here and there is no room for more delay if we are to avert disastrous impacts on human health and our economy. As this demand for action has gotten louder, so has the call for solutions that guarantee the results we need.

There is growing recognition that we need serious solutions to these pressing problems – and that means performance-based policy designed to ensure pollution reductions occur at the pace and scale the science demands. EIMs play the role of an insurance mechanism – they may never be triggered if a fee performs as expected, but provide critical safeguards in case it does not. As Rep. Ted Deutch, the author of the new bill, recognized, a price on pollution can harness the power of the market and provide a flexible cost-effective means of achieving results. But Rep. Deutch and the bill’s co-sponsors also realized that it is no longer acceptable to simply set a price and walk away, hoping the fee does the job. We also need limits on pollution, and effective mechanisms to ensure we meet our critical emissions reduction goals.

Indeed, the most straightforward way to cut pollution is to place enforceable declining limits on pollution, guaranteeing the environmental outcome, while giving businesses flexibility to determine the best way to meet it. We already have proof that those kinds of policies can help meet environmental goals faster and more cheaply than expected while growing the economy.

Regardless of the approach we take, the cornerstones of good policy design are the same: clear and measurable emission reduction goals, effective provisions to ensure they are met, and flexibility in how to meet them coupled with strong incentives to do it cheaply and efficiently. In the context of a carbon fee, that means including an EIM.

Ultimately, in order to achieve the dramatic transformational change needed to reach a 100% clean energy economy and the pollution reductions that science demands: net-zero emissions as soon as possible, a portfolio of policy approaches is needed (as others have pointed out). This means not only a limit and a price on pollution, but also investing in innovation and development of promising emerging clean energy technologies. It also means putting in place other programs that accelerate deployment of clean transportation infrastructure and promote electrification of cars and buildings. And it means encouraging states and cities to continue to lead and take action to cut pollution, pushing beyond federal requirements.

The seeds of future progress in Congress are being planted and demand is growing for durable and effective solutions that ensure environmental goals will be met. The key metric for any climate policy is environmental performance – lawmakers on both sides of the aisle are demonstrating they recognize this fundamental principle.

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And the Nobel Prize goes to… Climate Economics

How newer research is building off Nordhaus’ past contributions

Äntligen! (Swedish—my native tongue—for “Finally!”) Last week, the Royal Swedish Academy of Sciences awarded the Nobel Prize in Economic Sciences to William Nordhaus for his pioneering work on “integrated assessment modeling” (IAM) – a framework which has made it possible to analyze the interplay between the economy and climate change, and the consequences of climate policies. And while the recognition of Nordhaus’ achievements is an encouraging sign that mainstream economics is starting to recognize the important contributions of environmental economics to the field, it’s critical that economists continue to build on and strengthen the research Nordhaus initiated.

Nordhaus started his research – in what was to become the now very active and expanding field of climate economics – already in the 1970s. His fundamental contribution came in the early 1990s when he introduced his Dynamic Integrated model of Climate and the Economy (DICE), which became the foundational framework for the IAMs used today by the Intergovernmental Panel on Climate Change (IPCC) as well as by an Interagency Working Group to develop estimates of the Social Cost of Greenhouse Gas Emissions during the Obama Administration.

The novelty of DICE was the integration of findings across disparate disciplines including physics, chemistry, and economics to model the link between economic activity and carbon emissions, leading to higher atmospheric carbon concentration and related higher global average temperatures. Furthermore, his model linked this increase in average temperature to economic damages. This integrated framework laid out the principles for estimating the damaging impacts of greenhouse gas emissions (GHGs) on human welfare, and could therefore be used to calculate the social cost of greenhouse gas emissions and to study the consequences of climate policy interventions such as carbon pricing.

In awarding him the Nobel Prize, The Royal Swedish Academy of Sciences recognized Nordhaus’ research as a methodological breakthrough and critical step forward – but one which does “not provide final answers.” While DICE, an acronym which nods to the perilous game we’re playing with the planet, laid the groundwork for the development of robust estimates of the social cost of GHGs by the Interagency Working Group (which experts agree reflect a lower bound), his research has also served to highlight how newer and ongoing research can further strengthen these estimates.

Such enhancements which further strengthen integrated assessment modeling include:

  • Incorporating more of the many non-market health and environmental impacts which are still omitted in IAMs by constructing more detailed damage functions (the assumed relationship between climatic changes and economic damages) founded in empirical studies of climate impacts using real-world data and taking into account that the value of environmental assets relative to other goods and services may increase as they suffer a larger share of the damages from climate change.
  • Strengthening how inter- and intra-generational equity is taken into account.
    • The highly influential Stern Review commissioned by the UK government in 2005 argued persuasively that Nordhaus put too little weight (through his choice of parameter values related to the discount rate) on the welfare of future generations which resulted in lower estimates of economic damages, and spurred an academic debate leading to recommendations that governments instead use declining discount rates when evaluating public projects and policies with long term impacts.
    • Climate change will impact different regions of the world very differently, with poorer regions generally hit worse than richer parts of the world. How well economists represent the spatial distribution of damages across regions of the world and the functional form and parameter values they choose for weighting differences in such damages significantly impact estimates of the social cost of greenhouse gas emissions.
  • Strengthening the way IAMs deal with risk and uncertainty – an inherently crucial element in any analyses of climate change – and the representation of so-called “tipping points” beyond which damages accelerate or become irreversible. This more recent research shows that such model enhancements also significantly increase estimates of the social cost of greenhouse gases, and underscore the vital importance of drastically reducing GHG emissions to insure against high‐temperature catastrophic climate risks.

Nordhaus shares the Nobel Prize with Paul Romer, who is separately awarded for integrating technological innovations into long-run macroeconomic analysis and his analyses of how markets develop new technologies. This is a very appropriate choice considering the importance of technological change for addressing climate change and gives this year’s prize the common theme of how to achieve both sustained and sustainable economic growth.

It is extremely timely that the Nobel Prize in Economics to Nordhaus’ work highlighting the critical role of carbon pricing and Romer’s work on the importance of technological innovation for long-run welfare was announced on the same day as the IPCC released its special report on the impacts of global warming of 1.5 °C showing the urgency of addressing climate change, and how both carbon pricing as well as technological innovation and diffusion have important roles to play.



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What California’s history of groundwater depletion can teach us about successful collective action

California’s landscape will transform in a changing climate. While extended drought and recent wildfires seasons have sparked conversations about acute impacts today, the promise of changes to come is no less worrying. Among the challenges for water management:

These changes will make water resources less reliable when they are needed most, rendering water storage an even more important feature of the state’s water system.

One promising option for new storage makes use of groundwater aquifers, which enable water users to smooth water consumption across time – saving in wet times and extracting during drought. However, when extraction exceeds recharge over the long term, “overdraft” occurs. Falling water tables increase pumping costs, reduce stored water available for future use, and entail a host of other collateral impacts. Historically, California’s basins have experienced substantial overdraft.

Falling water tables reflect inadequate institutional rules

One cause of the drawdown is California’s history of open-access management. Any landowner overlying an aquifer can pump water, encouraging a race to extract. Enclosing the groundwater commons and thereby constraining the total amount of pumping from each aquifer is critical for achieving efficient use and providing the volume and reliability of water storage that California will need in the future. However, despite evidence of substantial long-run economic gain from addressing the problem, only a few groups of users in California have successfully adopted pumping regulations that enclose the groundwater commons.

SMGA addresses overdraft—but pumpers must agree to terms

California’s Sustainable Groundwater Management Act (SGMA) of 2014 aims to solve this challenge by requiring stakeholders in overdrafted basins to form Groundwater Sustainability Agencies (GSAs) and create plans for sustainable management. However, past negotiations have been contentious, and old disagreements over how best to allocate the right to pump linger. The map presented below illustrates how fragmentation in (historical) Groundwater Management Plans also tracks with current fragmentation in Groundwater Sustainability Agencies (GSAs) under SGMA. Such persistent fragmentation suggests fundamental bargaining difficulties remain.

Spatial boundaries of self-selected management units within basins under SGMA (GSAs) mirror those of previous management plans (GMPs). Persistent fragmentation may signal that adoption of SGMA doesn’t mean the fundamental bargaining difficulties facing the basin users have disappeared.

New research, co-authored with Eric Edwards (NC State) and Gary Libecap (UC, Santa Barbara) and published in the Journal of Environmental Economics and Management, provides broad insights into where breakdowns occur and which factors determine whether collective action to constrain pumping is successful. From it, we’ve gleaned four suggestions for easing SGMA implementation.

Understanding the costs of contracting to restrict access

To understand why resource users often fail in adopting new management institutional rules, it’s important to consider the individual economic incentives of various pumpers. Even when they broadly agree that groundwater extraction is too high, collective action often stalls when users disagree about how to limit it. When some pumpers stand to lose economically from restricting water use, they will fight change, creating obstacles to addressing over-extraction. When arranging side payments or other institutional concessions is difficult, these obstacles increase the economic costs of negotiating agreement, termed “contracting costs.”

To better understand the sources of these costs in the context of groundwater, we compare basins that have adopted effective institutions in the past with otherwise similar basins where institutions are fragmented or missing. Even when controlling for the level of benefits, we found that failures of collective action are linked to the size of the basin and its user group, as well as variability in water use type and the spatial distribution of recharge. When pumpers vary in their water valuation and placement over the aquifer, the high costs of negotiating agreement inhibit successful adoption of management institutions, and overdraft persists. Indeed, in many of California’s successfully managed basins, consensus did not emerge until much farmland was urbanized, resulting in a homogenization of user demand on the resource.

Four key takeaways to ease agreement

In the face of such difficult public choices, how can pumpers and regulators come to agreement? Four main recommendations result from our research:

  • Define and allocate rights in a way that compensates users who face large losses from cutbacks in pumping. Tradable pumping rights can help overcome opposition. Pumpers can sell unused rights and are oftentimes made better off. The option to sell also incentivizes efficient water use.
  • Facilitate communication to reduce costs of monitoring and negotiations. The Department of Water Resources has already initiated a program to provide professional facilitation services to GSAs.
  • Promote and accept tailored management. Stakeholders and regulators should remain open to approaches that reduce contracting costs by addressing issues without defining allocations or attempting to adopt the most restrictive rules uniformly throughout the basin. For example, pumpers have successfully adopted spatially restricted management rules to address overdraft that leads to localized problems; others have adopted well-spacing restrictions that reduce well interference without limiting withdrawals.
  • Encourage exchange of other water sources. Imported, non-native surface water may lower contracting costs because it can save users from large, costly cutbacks. Pumpers have written contracts to share imported water in order to avoid bargaining over a smaller total pie; where such water is available, exchange pools (such as those described here) can help to limit the costs of adjustment.

SMGA is a large-scale public experiment in collective action. To avoid the failures of previous attempts to manage groundwater, stakeholders crafting strategies for compliance and regulators assessing them should keep in mind the difficult economic bargaining problem pumpers face. Hopes for effective, efficient, and sustainable water management in California depend on it.

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