Sharing water fairly
CHARLES W. HOWE
proposes arrangements for adapting the
allocation of
water to changing social values
Institutions are slow to change in the face of technological and social
evolution, usually lagging far behind the need for more appropriate
policies. This is particularly true in water resources where policy-making
and administrative processes are subject to the inertia of the historical
status quo of special interests.
This article focuses on the development and provision of larger-scale
water supplies at the river basin and watershed levels (in contrast to,
say, urban supplies) in water-short, semi-arid areas where irrigated
agriculture represents an historically important water use. As urban areas
and industrialization develop - often accompanied by increased concern
about environmental quality - reallocating water from irrigated
agriculture to urban, industrial and environmental purposes becomes a
major issue - in fact, a necessary condition for continuing efficient
economic development.
The economic costs of being unable to bring about such reallocation have
been the topic of several recent studies. One estimated that annual
savings of more than $200 million could be achieved in California through
regional reallocation of water from agriculture to urban areas. This was
reaffirmed by a study of the allocation of Colorado River water between
the Upper and Lower Basins which found that institutional inability to
take into account the non-consumptive uses (hydroelectric power and
reduced salinity concentrations) and associated benefits resulted in an
inefficient allocation, with too much water being consumed in the Upper
Basin.
Opportunities for highly beneficial water reallocation in California are
inhibited by the importance of supplies from large public projects that
are not subject to market allocation, by the conservatism of the state's
water agencies, and by the subsidies for irrigation water and crops that
help hold excessive water in irrigated agriculture. As the United States
National Research Council has shown, excessive irrigation applications
also cause extensive environmental damage through water logging and toxic
drainage waters.
Institutional arrangements for the development, abstraction and
distribution of water supplies might be classified as follows:
- Regulatory systems that issue permits for abstracting natural waters
from rivers, lakes or aquifers.
- Large public or private projects that develop natural waters and
provide for their distribution through contracts with water users.
- Riparian water law systems that permit 'reasonable use' of water by
land owners adjacent to water bodies.
- Priority ('appropriations') water law systems that permit the
establishment of water use rights characterized by priority ordering and
transferability.
Regulatory systems prevail throughout Europe, the best-known examples
being the Agences de Bassin of France and the Genossenschaften of Germany.
Permit systems are also widely used in Canada and in some of the eastern
states of the United States and Hawaii. The agencies in charge of these
systems typically have the power to develop and distribute water supplies,
handle waste water and, in some cases, deal with flooding. The water
abstraction permits can be for specific or indefinite periods and
typically are not saleable or tradable.
Non-tradable permits
The problems with non-tradable permit systems under conditions of water
scarcity are clear: allocation is carried out by an administrative board
that does not have the information needed to achieve economic efficiency
and equity; and the allocation is likely to be rigid over time and not
responsive to changing social values.
Large public or private projects generally 'develop' a natural water
source by providing storage and distribution. Access to the natural water
supply (say a river of variable flow) must be acquired according to the
national or regional system of water law, while the developed water supply
is usually allocated to customers through contracts. In many cases, these
contracts tie the water supply to specific uses (such as irrigation) or
even specific lands. These constraints lead to increasing inefficiency as
economic and social needs change. However, this need not happen, for some
projects have developed flexible, market-like arrangements for the
allocation of water: the water markets of the Northern Colorado Water
Conservancy District that distributes water from the United States federal
Colorado-Big Thompson Project are internationally known for their
efficiency and adaptability.
The riparian system of water law found in the United Kingdom and (by
inheritance from there) in the eastern United States allows owners of
lands bordering on water bodies 'reasonable use' of the waters in terms of
quantity and quality. The evolution of riparian law from earlier Roman and
English laws illustrates how law slowly changes in response to changing
social needs. The Roman and early English water laws were laws of 'prior
occupancy', i.e. the earliest uses along a river or canal were protected
against damage caused by those of later comers. While this seemed
equitable, it served to deny water use to new, often more productive
enterprises as the industrial revolution progressed. A more flexible
sharing of water was needed, so the English courts evolved the riparian
doctrine, and civil actions resolved disputes. This was established, it
should be noted, in regions of plentiful water supply where one party's
'reasonable use' did not frequently interfere with the uses of others.
Where water is truly scarce and/or where water quality problems are
important, the riparian doctrine simply does not work and many eastern
states of the United States are now changing their systems.
Priority water rights
The evolution of priority water rights systems occurred in response to
needs in water-short regions where many uses were located away from the
river. In the western United States, this evolved from practices in 19th
century mining camps where water was transferred away from the natural
streams to ore processing facilities. Security of tenure was needed, so
the rule became 'first in time, first in right'. Similar developments took
place in Australia and Chile. Thus, priority water rights have come to be
characterized by:
- A priority system with senior rights having first call on available
water.
- Quantification in terms of diversion flow rates, consumptive volume,
type of use, place of diversion and seasonal time of use.
- Saleability, subject to 'no injury' to other water users.
- A 'beneficial use' requirement.
Such priority systems are spreading as water scarcity increases. They seem
the best systems to fit a set of desirable criteria for water allocation
mechanisms: (a) flexibility in allocation over time; (b) security of
tenure for water owners; (c) reflection of the real cost of water to the
user; and (d) fairness to participants. The priority system clearly
corresponds to these: (a) water rights are personal property and are
saleable; (b) sales of water rights are voluntary, and so they can be held
as long as the owner desires; (c) water rights prices, when set in fairly
competitive markets, reflect real opportunity costs (in contrast to the
arbitrary, often politically motivated pricing of water from large
projects); and (d) transactions between willing buyers and sellers appear
to meet the test of fairness.
Water systems always involve interdependency. The withdrawals and
consumption of one user, and the changes it makes to water quality, affect
others. 'Externalities' are pervasive. Thus a market system in water
rights cannot perform efficiently without some kind of supervision. The
'no injury rule' - avoiding damage to other users when water is first
appropriated or later traded - must be enforced by a supervisory agency.
But even when other water users are protected from injury, there remains a
range of increasingly important social values that will not be protected
or adequately taken into account by supervised water markets as we now
know them.
Water markets and market-like arrangements are increasingly being used. As
traditional water demands are joined by new demands for environmental
quality and the attainment of social/cultural goals, increased 'social
efficiency' of water use is needed. In many settings this efficiency is
more likely to be achieved through supervised markets than through other
institutional arrangements, but the need for market oversight or
supervision must not be underemphasized.
Many of the emerging demands for water are non-market ones - uses
of water that do not directly enter the market economy and which have no
visible price as a measure of value. Values generated by such demands can
be divided into use values (such as recreation on public water
bodies) and non-use values (such as personal enjoyment from knowing
that natural streams and riparian habitats are being protected). These
increasingly important non-market values are not taken into account by
typical water market buyers and sellers because the benefits in question
accrue to others. If they are to be protected, it will have to be through
the actions of public bodies (local, county, state and national
governments or special districts) acting either as buyers in water markets
for these public purposes or using governmental powers outside the market
to reserve water. Buying through the market assures that opportunity costs
(benefits foregone elsewhere) will be fully taken into account.
Thus it seems desirable to have public bodies actively participating in
water markets on behalf of their constituents. The city of Boulder,
Colorado recently dedicated $12 million worth of water rights to
maintaining streamflow in Boulder Creek - a major aesthetic attraction in
the town.
There are, however, legal and economic barriers and limits to protecting
public values in this way. One is the definition of 'beneficial use',
which has historically been narrow, often excluding instream uses. The
definition must be broadened to include all uses that generate social
benefits. Perhaps the notion of 'beneficial use' should be completely
expunged from law books.
There are economic limits to the public purchase of water rights when
social and cultural goals are sought for poor communities. Community
governments are not likely to have the financial resources to buy or
retain water rights commensurate with the goals being pursued. Several
years ago an old Spanish community in New Mexico decided to sell part of
its water rights to a new ski area. The social and cultural fabric of the
community was centred around the ancient irrigation system, where the
channels defined property lines, supported subsistence crops and provided
a common maintenance task for all the people. These values were endangered
by the water sale, but the economic needs were also great. The district
court responsible for supervising water transfers ruled against the
transfer - the first time in the southwestern United States that cultural
values had been invoked in denying or modifying a water transfer.
Thus, as pressure on water systems continues to increase, the 'social
efficiency' of water allocation must receive increasing attention. The day
of big dams is over for most of the world because the economic and
environmental costs have become too high. Improvements in the 'social
efficiency' of allocations of existing supplies are necessary. The
allocation strengths of water markets are necessary to this task but
public agency involvement as market participants and supervisors is also
essential.
Professor Charles W. Howe is Professor of Economics and Director,
Environment and Behavior Program, Institute of Behavioral Science,
University of Colorado, Boulder, United States.
