Transcript ppt - Foundation for Teaching Economics

Shopping for Water
How the Market Can Mitigate Water Shortages in the
American West
Gary D. Libecap
Bren School of Environmental Science and Management
Sustainable Water Markets Program
University of California, Santa Barbara
Foundation for Teaching Economics
April 7, 2016
Las Vegas
Growing Challenges with
Sharing and Managing
Water in the Semi-arid West
and the Colorado Basin:
Role of Water Markets
Overview
• Drought and the problem of not viewing water as an
asset.
• Benefits of water markets.
• How to create a market:
– Water rights
– Trading platform
• Water markets and the environment.
• Urban water pricing—the problem when water is too
cheap.
• Summary.
Growing Gap between Water Supply and New
Demand
• The current drought only underscores a longstanding problem, which is that:
• Water has not been viewed as an asset in itself
– Seen primarily as an input for production or consumption
– Poorly measured—Who has what? How is it used? How
much is used? Where is it used? Alternative uses?
• Incentives for wise use, conservation, and
reallocation to meet new demands for the
environment, recreation, urban, new valuable crops
largely have been missing
How could a Water Market Help?
• Markets influence both supply and demand
– Price signals for information on alternative water values
– Prices moderate and rechannel demand voluntarily
– Prices provide incentives for conservation and reuse
– Markets provide a platform for reallocation to meet new
demands smoothly and rapidly
• Water markets can make water an ASSET to be
valued, conserved, protected, redirected as needed
• Water markets can better align incentives
• How to create a market?
How to Create a Market?
• Ownership!
– Who owns the water?
– What is the water rights system?
• Measurement!
– How much water?
– How is it used?
– What are hydrologic links between surface and ground
water?
– Short-term and long-term issues
How to Create a Market?
• Clarify water rights and make them secure.
– Cannot trade what is not owned
– Adjudication—align paper and wet water claims
– Clarify water rights within irrigation districts
• What is the water rights system?
– Prior appropriation.
– First in time, first in right.
– Seniors get first diversion privileges.
– Initially supported mining and agriculture and investment.
– Basis for trade today, including environmental flows.
Appropriation or Riparian?
Prior Appropriation, Riparian,
Hybrid
How to Create a Market?
• Provide a platform for trading
– Information on willing sellers and buyers.
– Create or allow water banks for storage, brokering.
– Storage trading, dry-year options for farms, cities.
– Emphasize demand-offset arrangements.
– Infrastructure for moving water.
Water Markets and the Environment
• Expansion of water markets will help the environment
more broadly
– Water banks and reservoir storage credits for urban and
other uses also benefit the environment.
– Pricing moderates demand.
– Pricing reduces waste and encourages conservation,
reducing pressure on stream flows.
– Water managed and shared more effectively.
– Instream flow leases or purchases.
Water Markets and the Environment
Market Successes: Environmental Trades
• Instream flows:
– Buyers: federal and state agencies, non profits
– Sellers: irrigators
– Short-term leases during dry periods
– Payment for irrigation and canal/ditch improvements,
longer term
Market Trades would Better Align Prices and
Incentives for Urban Use
• Same groundwater well in NE Tucson
– Agriculture: $27/AF; urban use: $479-$3,267/AF
• Recent drought short-term leases in San Joaquin
Valley from east ($20-30/AF) to west ($1000/AF)
The Power of Prices in Urban Use
• Tucson has steep block pricing
• Most of Phoenix area uses lower flat rates by season
Market Opportunities: Promote Trade within the
Metropolitan Water District of Southern California
Market Opportunities: Promote Trade within the
Metropolitan Water District of Southern California
• Current allocation system does not reward
conservation.
• More pressure by MET on Colorado River sources.
• Some members have more water than do others.
• Currently, penalized if do not use all the water
allocated to them.
• Exchange potential among MET’s 26 members that
would be secure, bankable, and tradable.
• Trading potential to encourage conservation.
If Water Markets are so Useful, Why are they
so relatively limited?
• Property rights to water are weaker than for land.
• Lengthy regulatory review, “no harm” requirement.
• Ease of opponents to protest, raising costs to traders
and delaying.
•
•
•
•
Trading “consumptive use” avoids any harm.
Limiting protests to those directly affected.
Have protests bear costs.
Streamline regulatory approval process.
Conclusion
• No new water and growing, shifting demand.
• Have to share water more effectively.
• Water markets are a key element of the response to
the growing water crisis.
– Faster.
– Less contentious.
– More complete—align incentives.
– Generate information on alternative values.