Energy Institute Webinar
Thursday, September 19, 2024
9:30am-10:30am PDT
“Do California Farmers Respond to Electricity Prices?”
Authors: Fiona Burlig (University of Chicago), Louis Preonas (University of Maryland), and Matt Woerman (Colorado State University)
Presenter:
Matt Woerman
Associate Professor, Agricultural and Resource Economics
Colorado State University
Overview:
Farms that rely on groundwater for irrigation use significant amounts of electricity, but how farms respond to changes in electricity prices is little understood. This study analyzes short- and long-term responses of farmers in California to changes in electricity prices and groundwater pumping costs. The authors examine how farmers make immediate changes to watering intensity and switch crops over time.
Abstract:
How do agents respond to policy when investments have high upfront costs and lasting payoffs? We estimate farmers’ short- and long-run responses to changes in groundwater pumping costs in California—where perennial crops with these features are prevalent, and where groundwater pumps consume 6% of the state’s electricity. The authors use both fixed effects and dynamic discrete choice models that leverage quasi-experimental variation in agricultural electricity tariffs. In the short run, farmers’ groundwater (electricity) demand elasticity is −0.76 (−0.72), and they do not change crops. In contrast, the long-run groundwater (electricity) elasticity is −0.36 (−0.37), driven in part by meaningful reductions in water intensive perennial cropping. Meeting California’s sustainability targets would require reallocation of 9% of acres, including a 50% increase in fallowing. This would also reduce electricity consumption for this end-use by nearly 20%. Full Paper