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Increasing block water pricing, water transfer, and wildlife refuge water supply provisions of the Central Valley Project (CVP) Improvement Act are analyzed in terms of likely farmer response and economic efficiency of these provisions. Based on a simplified partial equilibrium analysis, we estimate small, but significant water conservation savings due to pricing reform, the potential for substantial water transfers to non-CVP customers in severe drought years when the water price exceeds $110 per acre foot (1 acre foot equals 1.234 × 103 m3) and positive net benefits for implementation of the wildlife refuge water supply provisions. The high threshold water price is partly a result of requiring farmers to pay full cost on transferred water plus a surcharge of $25 per acre foot if the water is transferred to a non-CVP user. The act also sets an important precedent for water pricing reform, water transfer provisions, and environmental surcharges on water users that may find their way to other Bureau of Reclamation projects. |
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