Thursday, 5 July 2012

Does Regulatory Assurance for Delta Water Exporters Require the $13 billion Tunnels?

A few weeks ago at the BDCP meeting, I asked this question to David Sunding, the economist hired by the BDCP.  He said it was a really good question, but answered he had analyzed the scenarios he had been given.

His conclusion from that economic benefit analysis was that the tunnels were worth paying for to the water contractors because the BDCP would provide regulatory assurance against further water supply reductions under the ESA, whereas the “no action” alternative did not include assurance against additional water supply cuts if the fish are not recovering.  Based on the value of incremental water supply, improvements in water quality, and seismic risk reduction, the tunnels were not a good investment for water exporters.  Those three benefits were about $5 billion short of the capital costs of the tunnels alone.  It took regulatory assurance, a benefit he valued at $11 billion in one scenario, to put them over the top.  But the tunnels don’t get regulatory assurance without the huge habitat program, so how can all that economic benefit be assigned to the tunnels?

In the BDCP most, if not all, of the environmental gains that could result in regulatory assurances for the overall projects are due to the habitat investments, not the tunnels which have uncertain environmental effects.  The BDCP envisions $4 billion in habitat investments paid for by federal and state taxpayers.

So my question is could a similar $4 billion investment in habitat in a “no conveyance” alternative merit a comparable regulatory assurance from the Fish and Wildlife Service?  What about $2 billion?  In a typical HCP, the regulated entity pays for investments in habitat that would not otherwise be made and thus improves the overall survival prospects for the species.  In return for the habitat investment that advances recovery of the species as a whole, the HCP provides incidental take permits and some degree of “No Surprises” assurance that there will be no further regulatory or financial burdens for the regulated entities under the ESA.  In the proposed BDCP, regulated entities are paying for water supply infrastructure and the public is paying for the habitat.  Why would that be more deserving of regulatory assurance, than an HCP without the tunnels where the exporters themselves are paying for a comparable investment in habitat?  

If a $2-4 billion investment in habitat could buy regulatory assurance on the current biological opinions, by my understanding of Dr.Sunding’s results, the water contractors would be better off with this “no tunnel” HCP than paying for the tunnels through the current BDCP proposal.

Even more importantly, taxpayers would be much better off if the water agencies paid for the habitat (or at least shared the cost).  In this scenario, the cost of the water bond wouldn’t be taking funds away from education and other essential services.  The BDCP would also have a much better chance of success since it wouldn’t need the water bond to pass.

In-Delta interests would not be happy with such extensive habitat restoration, but they are supportive of many habitat projects, and would be more accepting of BDCP if it didn’t come with the peripheral tunnels.

I am no environmental scientist or ESA lawyer, so I may be missing some reason why a “no conveyance” HCP couldn’t work as a BDCP alternative.  But from my economic perspective, it certainly looks like a win for all stakeholders compared to the current BDCP proposal, and a hell of a lot more financially and politically feasible.

Despite the dozens of so-called alternatives, the BDCP has never included a strong no-conveyance alternative.  Is it really too late?

About the Author

Ethan Jacob

Author & Editor

I am Ethan Jacob Executive Director of the Center for Business and Policy Research at the University of the Pacific, where I have a joint faculty appointment in the Eberhardt School of Business and the Public Policy Program in the McGeorge School of Law..


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