In 2001, an extreme drought tightened water supply in the Upper Klamath Basin (basin) while earlier increases in Endangered Species Act (ESA) water requirements for basin fish species that same year elevated demands. The Bureau of Reclamation (Reclamation), which manages irrigation water in parts of the basin located near the Oregon-California border, responded to ESA Section 7 obligations by severely curtailing water allocations to Reclamation Project irrigators for the 2001 growing season, costing irrigators an estimated $35 million in farm income. This event has directed attention to several important factors that may further undermine effective water management in the basin. These include higher ESA flow requirements due to a recent Ninth Circuit Court ruling and a ten-fold energy rate increase to irrigators resulting from a mid-2006 contract expiration with the regional energy provider. The overall objective of this research is to assess the impact of changes in ESA flow requirements and energy prices on the Upper Klamath Basin farm economy given variable levels of water trading flexibility and groundwater availability. A mathematical programming and Geographic Information System (GIS) framework is used in which farm decisions are assumed to maximize net revenue subject to hydrological, institutional, economic, and agronomic constraints. The results suggest that greater development of basin groundwater resources and the institution of a flexible water bank may be sufficient to mitigate the majority of costs related to increased ESA flow requirements in future years.
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