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Text File | 1994-05-02 | 6KB | 126 lines

<text> <title> Water Markets and Water Pricing </title> <article> <hdr> CRS Review, December 1991 Water Markets and Water Pricing </hdr> <body> By Betsy A. Cody and John L. Moore. Betsy A. Cody is an analyst in natural resources policy and John L. Moore is a senior specialist in environmental policy and chief, both with the CRS Environment and Natural Resources Policy Division. In the West, where water is often scarce, access to affordable and dependable supplies is a primary concern. Because of increasing demand for water in urban areas and for in-stream uses, and the disparity in prices among user groups, many Western water managers are considering water marketing as a way to allocate supplies more efficiently. East of the Great Plains, water is often taken for granted. Users pay for various delivery systems, usually through a small monthly bill. In some communities--both East and West--local authorities meter and price water to encourage conservation. In general, however, water and its costs are not something most people in the East worry about. From the great Plains west, it is a different story. Excluding the coastal region of the Pacific Northwest, water is scarce. Today, in some areas, continued growth is putting extreme pressure on limited supplies. Under these circumstances, treating water as a marketable commodity is appealing in part because it would rationalize the way water supplies currently are allocated. Allocating Water among Competing Uses Current water allocations between agriculture, cities, industry, and recreational or ecological purposes are deeply rooted in the early needs of Western development. Because water needed for farms, towns, and commerce is limited, Western states have evolved legal systems that treat water like property, usually tied to beneficial use at specific locations. Since water is used over and over again as it moves to the sea, the pattern and timing of use is carefully controlled by states. The earliest claims on water, usually by irrigators, are the most secure in times of shortage. The Federal Government played an important part in western water development through the construction of large reservoirs and delivery systems, mainly to benefit small farms. By some estimates today 85 percent of the capital costs are borne by the Federal Government. Thus water for irrigation from Federal projects is cheap compared to its actual delivery costs. The result of state allocation systems and Federal projects is that irrigators use large blocks of water often costing them a few dollars per acre-foot (approximately 326,000 gallons). At the same time, new supplies of water can cost hundreds, even thousands of dollars per acre-foot. For example, the Bureau of Reclamation's Central Valley Project in California prices irrigation water at $1.50 to $16.50 per acre-foot, whereas municipal water available to the Metropolitan Water District of Southern California typically ranges from $192 to $261 per acre-foot, but sells for as high as $705 per acre-foot. The large volumes used by agriculture, the low price, and the high cost of new water supplies for nonagricultural needs make voluntary sales an appealing option. Given that about 80 percent of water withdrawn for use in Western states goes to agriculture, even small shifts to other users may help reduce shortages and the need for more costly alternatives. In many situations, irrigators could sell their water at considerably more than the income for its current use. Buyers would still pay less than their other supply options. Water Transfers in Practice Given these potential gains from trade, water sales and exchanges are an increasing part of Western water management. Transactions take a number of forms: -- Purchase of farmland to obtain the associated water rights--This technique has been used for many years, primarily by municipal water agencies seeking new supplies. Recently conservation groups have purchased land to acquire water rights for use in protecting fish and wildlife habitat. The Nature Conservancy has purchased land in Texas and Nevada to provide water for wildlife habitat. -- Annual sale of water within Federal water project boundaries--The Northern Colorado Water Conservancy District (NCWCD) has a well-established water market. Water delivered to the district by the Bureau's Colorado Big Thompson (CBT) unit is divided into shares, which can be bought, sold or leased for use within the district. Approximately 30 percent of the NCWCD's Bureau water is marketed each year. -- Water banks where water from idled land can be sold to other bidders--California used this technique recently to move water to drought-stricken areas. The state purchased approximately 800,000 acre-feet of water from farmers who idled land for a flat rate of $125 per acre-foot. The state then sold nearly 400,000 acre-feet to agricultural users, primarily for permanent crops such as orchards and vineyards. The State of Idaho has a similar program. Even where sales or leasing might benefit both parties, shifting water between uses in Western states is not easy. Federal or state authorities must take into account effects on third parties (other water users, recreational interests, etc.) from changing the location of water use; complex contracts often limit flexibility in Federal water projects; and treatment of profits from sale of Federal water is an important concern. With growing populations, Western states will probably increasingly have to explore market options in managing scarce water supplies. </body> </article> </text>