Water Rights Markets - Again

"While small in number in recent years, sales of water rights are expected to accelerate as the pressure continues on a finite supply of water."

"Farmers of high-value crops, developers and cities all are looking for water."

"The state Department of Ecology is trying to encourage the water market by acting as a clearinghouse for information for both potential sellers and buyers. The agency has itself been a buyer to bolster instream flows."

"We have a firm belief in a market solution...That is what we want to be focusing on a lot over the next decade."

These quotes are all from a recent article:  Yakima River Basin -- A Market Solution  By David Lester, Yakima Herald-Republic.

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Water Markets are being touted by many as the solution to the problem of allocating finite water supplies. By their own admission there are various interested parties in areas where marketing is being tried and the expectation is that there will be many more. 

I can see the value of this approach in areas yet to be developed, or even in areas just reaching their full development.  But what about areas that are already overdeveloped?  If there are no sellers, nothing happens.  If the price of water rises enough to move sellers, and full consumptive water use transfers to new users, the area likely benefits economically, but it still remains overdeveloped.  That's not a solution.  If your market only allows for 75% of the historic consumptive water use to be marketed (for conservation purposes) who pays for the value of the other 25%?  And what if the economic returns can't make up the previous value of that 25%? 

In Lester's posterchild case, a former irrigated alfalfa farm sold water rights to a classy, upscale winery 60 miles away who then drilled groundwater wells to take the former surface water rights.  The argument was hundreds of thousands of dollars of additional economic gain and more jobs.  This claim is no doubt true, but were the new groundwater wells evaluated to make sure they would have no negative impact (impairment) on existing wells in the new area?  What if 10 new wineries want to do the same thing in the same area?  What if a poorly managed, high pollution-risk factory bought and transferred these same water rights? 

I can only assume that some regulating agency/entity would control all these less than undesirable outcomes, but then, you no longer have such a free market.  And everyone knows what managed markets are capable of.  Besides, who thinks a state agency bidding for water rights to keep a stream flowing will compete well with a world-class winery?  Or a micro-chip production facility?   Or even a corporate hog operation?  It may not be a big thing to everyone, but the social fabric and economic base of an area relying heavily on a market-driven water rights allocation solution can easily change over time.  Of course, in an overdeveloped water basin the economic and social bases are going to change anyway as the resource depletes - at best becoming smaller and less significant over time. 

I'm not anti-market for water solutions. In fact, there are water and water right markets I don't fully understand - like the all-in water rights auctions and the many and varied state and local water banks created - including various lease markets.  But I have yet to find a water or water rights market that addresses the social aspects of water rights and water usage, or, when taken to the nth degree doesn't eventually exclude all of the lower economic, but nonetheless equally important, water uses of an area.  Are these simply trade-offs that must be endured for the overall good of the system?  Is the highest bidder always the best use of water?

So I simply say take a look at marketing options carefully before committing.  They all tend to look good and operate pretty well at first, but when they kick in and start running at full speed and efficiency, I'm not sure they all take me where I think we should go.

Kansas Water Transfer Act

A water transfer in Kansas means the transportation of 2,000 AF or more per year for use at a point 35 miles or more away.  The act is administered by a Water Transfer Panel made up of the chief engineer, the secreatry of the Kansas Department of Health and Environment and the Director of the Kansas Water Office - 3 state agency heads.  The chief engineer is the chair of the panel. 

Basic tenets are: 

1) No transfer can be approved that would reduce the amount of water required for present or any reasonably foreseeable future needs by users in the source area.  (Of course, there are exceptions, like if the panel thinks the benefits to the state for approving the transfer will outweigh the benefits to the state for not approving it; or, the panel says an emergency exists which affects the public health, safety or welfare; or, the governor declares an emergency affecting the public health, safety or welfare.)  

2)  No water transfer can happen: (1) If such transfer would impair water rights; and (2) if the transfer is for use by a public water supply, unless the panel determines that a conservation plan has been implemented by the applicant that meets state guidelines, has been in effect for a year or more, and implements a rate structure which encourages efficient water use.

3)  No transfer shall happen without an application and a public hearing.

4)  No transfer shall be exempt from complying with:  a) a GMD Management Program (so long as the program does not prohibit transfers out of the district; applies equally to users inside and outside a GMD; and does not discriminate against users outside a GMD); and b) the water appropriation act or the water plan storage act.

There are 9 elements the panel must consider when deciding if the benefits to the state for approving the transfer outweigh a no-transfer decision:  1) All current beneficial use(s) being made of the transferred water; 2) any reasonable future use of the water; 3) the economic, environmental, public health and welfare and other impacts of acting on the transfer; (4) alternative water sources available to the applicant; (5) the applicant's actions to preserve the quality and remediate any water contamination now available; 6) design, construction and operation of any works used to carry the water; 7) effectiveness of conservation plans implemented by the applicant; 8) conservation plans implemented by any persons protesting or potentially affected by the transfer; and 9) any applicable program, standard, policy or rule and regulation of a groundwater management district.

As you can see, there is considerable latitude given to the state panel in approving or disapproving water transfers.  And virtually everything is couched in terms of "what's best for the STATE".  Even the local GMD management plans must go along with transfers - at least they can't preclude them.  With few people, little political representation, relatively little money, an active water marketing system, and very little direct involvement in the process, can you see how skeptical the rural folks with water might be?

 

A common feeling is:  Why should we work at cutting water use back any amount when it's so easy for the state to transfer part or all of what we had been using out of our area for someone else's use?"  In these cases, it seems an active water market and a definitive transfer process become impediments to responsible management decisions.  I don't know if this is right or not, but it appears real.
 

In the process of developing the SD-6 HPA regulatory water use reductions, the first big concern/issue was proving that the water saved would stay local and be available to them or their descendants later.  Otherwise they would never have continued discussions.  There are likely few folks who will purposely scrabble and do with less water when the system can allow (or result) in their savings going somewhere else.  Not knowingly, anyway.  I wonder if this is an issue in other areas considering mandated water use reductions or active water marketing devices designed to re-allocate (reduce) water use?

Irrigation and Markets

Many have been discussing the benefits of the market place in allocating water.  The claim is the effectiveness of the market place in ensuring water reaching its highest economic use while also ensuring that the end uses pay the full cost of supplying and replacing the water - sustainability.  Conservation and efficient use are also rewarded with a market solution.  If these are your goals, I think the market pundits have it right.

However, one thing to keep in mind is that irrigated agriculture (probably not even the very highest value specialty crops) will be able to compete with most other water uses - particularly municipal and industrial.  With a market driven paradigm, irrigated agriculture will all but eventually disappear and this water moved to higher economic uses.  While this might be viewed a good thing by some, it will have consequences to our food supply and its quality.  The dry land production of all crops, from vegetables to field corn and wheat, diminishes in quality and quantity without irrigation.  To maintain current production, 1 to 3 acres of new, dry land cropping will have to come into production for evey converted irrigated acre - depending on where the conversions occur.  Of course, some areas only irrigate and cannot sustain dry land cropping at all.

I just can't see how agriculture is going to compete in a pure water market without some assistance.  Of course, said assistance (subsidies) are seriously frowned upon by the pure market supporters.  With subsidies, food costs remain low.  Without them, food costs will rise - dramtically.  Once again, I don't know the answers, but a pure market seems like a choice with serious downsides.  I wonder if a water market can be instituted for all other uses but for ag?