March 2012, Issue 58: Editors’ Notes

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What is water worth? To answer this question, we need to consider how water use impacts economic returns.

Water supports many economic activities in Arizona: growing food, processing ore, maintaining fairways, manufacturing microchips, and cooling power plants, to name a few. Each of these applications requires a different amount of water to produce $1 of revenue. Moreover, each has a unique input-output function that describes how changes in water supply—from a trickle to a deluge—affect productivity. Without an intimate understanding of how water is used for a given process, it can be very difficult to evaluate its impact on economic output.

One simple way to compare the value of water across multiple sectors would is to divide the total economic output, or gross product, by the total water use for each sector. The chart below shows this for a few key sectors of the Arizona economy, based on data from ADWR and the U.S. Bureau of Economic Analysis.

agr

Keep in mind that the values do not consider the significance of water to a given sector or production process. For example, a farm and a law firm may have similar revenues (same numerator). However, the farm not only uses more water than the law firm (different denominator), but water is proportionally a much more significant input to the farm’s production. Consequently, water accounts for a greater proportion of the farm’s revenues than it does for the law firm’s revenues.

Caveats notwithstanding, this simple metric still provides some interesting food for thought. The main conclusion here is that broad conversations about Arizona’s future water supplies should consider the tremendous heterogeneity in economic returns for different water uses. These economic realities will almost certainly shape how water resources are developed and used in the future.

Juliet M. McKenna, MS, PG | Taylor D. Shipman, MS | Michele Robertson, PG