Selling water to the highest bidder

At some point, the way Colorado River water gets divvied up is going to have to change. As we've noted in past writings, the lower basin states of Arizona and Nevada frequently push close to the limit of using the amount of water they are allocated use more water than they're allowed to under the compact that runs the river. Climate change will likely make droughts worse, and reduce the total amount of water available to states using the river's water. In preparation for this inevitable need to change the system, the Bureau of Reclamation, which manages the river's dams and reservoirs -- including the giant storage systems of Lakes Mead and Powell, recently took suggestions from the public for new ways to manage the river. (Read the list of submitted ideas here)

Intake towers for Nevada at Lake Mead. If the lake level drops below 1,025 feet above sea level, Nevada can't get its water. Image courtesy Flickr user Thomas Hart.

One of these ideas involves what's known as a water market. If you follow environmental policy at all, you know it's become fashionable to look to markets to solve some types of environmental problems. The idea is, when prices are attached to a limited resource (like water or a pollution permit), those who need the resource the most will pay the most for it, and it ends up divvied up in the most efficient way.

A paper published this week in the Journal of the American Water Resources Association details this concept for the Colorado River Basin. The researchers, economists Rich Wildman and Noelani Forde, take as their model Australia's Murray-Darling Basin, which has adopted a successful water market. The needs pressing the Australian basin are akin in many ways to the Colorado River Basin, and western policy makers (including water wonk Brad Udall, whom we have interviewed on the topic) have been interested in learning what they can from the changes to management that Australia implemented during a 10-year drought known as the "Big Dry," where runoff was at 40 to 50 percent of normal.

But while there are many parallels between the Australian situation and what is likely to happen in the Colorado River Basin, there are also many hurdles to following the land of Oz down its market-based path, as the paper details.

First, in order to have a water market (or any market, really) you need a common authority to set the rules, monitor transactions, and run the show. Australia's three states dependent on the water in the Murray-Darling Basin had to cede authority to the Murray-Darling Basin Authority, a new organization created to manage the water resources in the basin "in the national interest." No such authority currently exists in the Colorado River Basin, and it would probably take an unprecedented drought and water shortage similar to what Australia experienced for Basin states to cede water authority to a federal or quasi-federal entity.

Australia's once-might Darling river became paltry during the "Big Dry." Image courtesy Flickr user Wolf.

If there was a drought significant enough to force states past that hurdle, there are many other details to sort out. The new market would have to deal with senior and junior water rights (how do senior water holders get extra compensation on the market?), in-stream flows or other environmental concerns (which are currently treated differently state-to-state), and impacts on hydropower generation (for instance if water got moved around enough to reduce generation capacity from big dams). There's also the difficulty in simply setting up a system where water can be traded and moved around in a timely enough fashion to make the market work.

And then there's the question of culture. Right now, the paper's authors write, the only states that really have an incentive to change anything are Arizona and Nevada. They will be the first to run out of water; the Central Arizona Project, which provides water to Phoenix, relies on one of the most junior water rights in the state and will quickly experience problems when there is a shortage. Las Vegas, meanwhile, is so concerned about water that it is pursuing what the paper calls a "politically contentious and expensive pipeline" to pump groundwater from the Snake Valley.

The Upper Basin states, particularly Colorado, have been very resistant to change. When now-Interior Secretary Ken Salazar was a Colorado Senator, in 2008, he said any change to laws divvying up Colorado River water would be "an anathema to the fundamental principles of Colorado's water rights."

Wildman and Forde, the economists behind this paper, think money could solve the cultural problem; if senior water rights holders see the opportunity for a steady source of reliable income (perhaps better than weathering the up-and-downs of agricultural markets), they might change their minds about a water market.

But they also worry that, if it takes a crisis to spur change, the attendant panic might preclude the setup of a smart, well-monitored market-based solution such as the one they propose.  While it worked fairly well for Australia, the country's Murray-Darling river basin management was also initially set up differently from the Colorado's. For example, instead of set allocations, upper and lower basin users were already accustomed to receiving percentages of yearly flows.

At some point, maybe in the next few years, maybe in the next few decades, a water-shortage crisis will hit the Colorado River Basin and the communities it supports. Whether change happens before then or in the midst of a chaotic and painful drought, I suppose it is at least comforting that smart people are thinking about ways the transition to this water-poor future can work. In the meantime, I'm just feeling lucky I live in an Upper Basin state. (neener neener)

Stephanie Paige Ogburn is the online editor at High Country News.