After yet another revision, the governor’s plan to build twin tunnels through the Sacramento-San Joaquin Delta still makes no economic sense. A closer look at the three types of economic benefits claimed for the project to export water to Central Valley farms and Southern California cities shows why it can’t possibly justify its estimated $15 billion cost. In each case, I give a value derived directly from the optimistic estimates of the state’s consultants and a more intuitive comparison.
Water supply: The latest numbers estimate the tunnels will increase water exports south of the Delta by an annual average of 257,000 acre-feet, with no increase in drought years when it is needed most. The cumulative value of that water supply over 50 years is $2 billion to $3 billion.
For comparison, San Diego’s new desalination plant will provide 56,000 acre-feet of drought-proof water for a capital cost of $1 billion. Desalination is the most costly water supply alternative, but it still provides more than three times the water supply per dollar invested than the Delta tunnels.
Water quality: Because the tunnels would divert higher-quality water from the Sacramento River, the salt and other contaminants in export water supply could decrease by 20 percent. It’s estimated that this could have a cumulative value to water exporters of as much as $2 billion over 50 years.
However, it is important to remember that the tunnels aren’t a water treatment or desalination plant that purifies water. Thus, the water exporter’s gain in water quality will be offset by degraded water quality elsewhere, a concern that is at the center of opposition in the five Delta counties and environmental concerns raised by the EPA and others.
Seismic risk: Listening to the governor, earthquake protection is the main economic argument. But the state’s experts estimated seismic-risk reduction to water exports was only worth a cumulative $400 million over 50 years. Why is this value so low? First, it is a very low probability event even in the most pessimistic models. Second, the outage to water exports isn’t as bad as you hear in TV commercials. Department of Water Resources Director Mark Cowin correctly described it as “weeks or months” in a recent media call, not years. In a worst-case earthquake scenario, the tunnels might prevent 2 million to 3 million acre-feet in lost water exports, a costly but manageable shortage. For comparison, the current drought has cut surface water supplies to farms and cities by more than 10 million acre-feet.
The earthquake argument is not only economically wrong, it is morally outrageous. The real damage from what some call California’s Katrina would be death and destruction in the Delta itself. The state’s model of this tragedy shows hundreds could die and that 80 percent of the economic damage was from the loss of property and infrastructure in the Delta.
It’s shocking that the state’s response to this are water tunnels that protect only 20 percent of the economic loss and zero percent of the life loss. Levee upgrades are much cheaper and reduce risks for all Californians.
In sum, the economic benefits of the tunnels to the water exporters total about $5 billion of its $15 billion cost, and the benefit-cost ratio is even worse when the negative impacts to the Delta and risks to the environment and upstream interests are considered.
Support among water exporters has been steadily eroding as the economic and financial shortcomings of the plan become better understood.
A few years ago, the state tried to shore up its economic argument by attaching a huge value to the hope of 50-year regulatory protection from the Endangered Species Act, and incorrectly attributing habitat restoration benefits to the tunnels. After heavy criticism, the latest revision to the tunnels plan eliminates the 50-year regulatory assurance and separates environmental restoration. The plan’s already flimsy economic rationale evaporated with this correction.
It is increasingly clear that there are less divisive alternatives that provide more economic and environmental value than the tunnels. No amount of tweaking can save what is fundamentally a bad idea. It’s time to move on.
Jeffrey Michael, an economist, is director of the Center for Business and Policy Research at the University of the Pacific. Read his blog at valleyecon.blogspot.com.
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