Water, water everywhere, waiting for a market

Orange County Register
July 18, 1999

CLAY LANDRY
Copyright 1999 The Orange County Register

THE WRITER: Mr. Landry is a research associate at the political Economy Research
Center in Bozeman, Mont., and the author of "Saving Our Streams Through Water
Markets: A Practical Guide."

Interior Secretary Bruce Babbitt called for water markets, conservation and aquifer
recharge in a recent speech to western water officials in Boulder, Colo. Environmentalists
and market proponents alike are hailing the speech as visionary and claim that Babbitt has
seen the light. Even his staff calls it "the most important water speech of his
tenure." Unfortunately few people seem to remember that Babbitt presented the same
ideas in a Boulder speech nearly three years ago. At that time, he said the key to solving
western water problems "lies in utilizing opportunities for careful cultivation of
voluntary, willing buyer willing seller markets." Not much has happened since then.

In the West that I have always called home, actions speak louder than words. And Bruce
Babbitt has failed on that count. It’s easy to dust off old speeches. It’s a lot harder to
make things happen. The West is the fastest growing region in the nation and also the most
arid. A solution to our water problems is nothing less than critical. And, as the
secretary has pointed out thrice now, markets move us toward a solution.

The federal government claims that it wants to help. In 1988, the Bureau of Reclamation
declared itself a "water market facilitator." The bureau even went so far as to
come up with regulations for buying and selling federally supplied water. But these rules
have been little help. "Market activity in federal water has not increased
significantly," points out Terry Anderson and Pam Snyder, authors of "Water
Markets: Priming the Invisible Pump."

It’s time for the federal government to step aside and let the discipline of markets
take over. The idea is simple. Allow federally supplied water to be traded among water
users at whatever prices they may choose. That way people face the true cost of water,
rather than some federally subsidized price. When faced with real prices, people have as
the incentive they need to conserve water, Take for example the city of Tucson, which
reduced peak daily demands in the late 1970s by 20 percent simply by increasing water
prices.

In his most recent speech, Secretary Babbitt cited deal in California between the
Imperial Irrigation District, the city of San Diego and the Metropolitan Water District of
Southern California as a shining example of how his agency is striving to make markets
work. If completed, the deal would be the largest water transfer in the history of the
West.

The secretary needs to choose his examples more carefully. This deal, at least nine
years in the making and still not completed, is exactly the reason government shouldn’t
tinker with markets. The these groups are now looking for someone, namely the state of
California or the federal government, to foot part of the bill for moving the water to San
Diego. If they succeed in snaring a government partner, San Diego water users will not
have to pay the real cost of their water. It’s a subsidy masquerading as a market
transaction.

Taxpayers have subsidized water in the West long enough. And subsidizing water markets
is only a recipe for disaster, not to mention unnecessary. Most people are not going to
turn off the tap until they feel the pinch in their wallets.

Ironically, water markets are already working with minimal federal involvement in the
very state that the Interior Secretary seems to favor for making pronouncements about
water.

Consider the water market of the Northern Colorado Water Conservation District where
each year thousands of acre-feet of water are traded through private, voluntary
transactions. The water for the district is provided through Bureau of Reclamation
projects. However, the federal agency has had little involvement with water transfers in
the district. The result has been the creation of one of the most widely known and best
developed water markets in the West, if not the world. During the last few years, the
market has grown considerably providing a reliable source of water for farmers as well as
thirsty residents of Denver and Ft. Collins. One of the main reasons for the active
trading is that water may be bought and sold with a minimum of red tape.

Other water markets are forming as well. Westlands Irrigation District in California
has an electronic trading board where farmers by and sell water. In Utah and Nevada,
residential building booms have given rise to active markets as well. In those states,
developers are buying water to make sure that new homes have an adequate supply. Oregon
has even developed an energetic market for water intended for environmental needs. In that
state, an environmental organization is paying farmers to use less water for irrigation
and leave more water in the rivers to help protect endangered salmon.

Markets are precisely the type of discipline that water management in the West needs.
The water problems throughout the region will only be solved through rational economic
decisions prompted by real market prices — something water users haven’t faced in the
past. "Subsidized prices create an insatiable demand for water and encourage
inefficient uses," say Anderson and Snyder. Babbitt must realize that the West will
never see real prices if the federal government continues to muck up true water markets
with an endless flow of cash.

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