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PERC Research Associate Clay Landry Talks About Water Marketing

NWRA (National Water Resources Association): What is PERC’s mission and how are you included in groundwater marketing?

LANDRY: We’re a non-profit organization – a think-tank is what some people like to call us– that looks at market solutions to environmental problems. PERC was a pioneer in the approach known as free market environmentalism. This is an idea that is really based on four
tenets, which are private property rights encourage good stewardship of resources, government subsidies often degrade the environment, market incentives encourage individuals to conserve resources and protect environmental quality, and polluters should be libel for the harm they cause others. The idea of groundwater marketing, even though we have seen some examples of it, is still much a theoretical idea throughout much of the country. There are some isolated exchanges, but in terms of a true market we haven’t seen much happen. We try to look at what conditions need to be established for a market to exist and why we haven’t seen more markets develop. We are conducting studies and doing research that helps determine what needs to be done to open these markets up.

NWRA: What factors need to be in place for a water market to exist?

LANDRY: You need to establish private property rights and those private property rights need to be transferable. By establishing private property rights, that helps to internalize both the costs and the benefits of decisions people make on how to use their water. People then become more responsible for the decisions that they make. For the most part water is perceived to be an open access free good in many parts of the country and people aren’t responsible for the decisions that they make. They just use water without considering how their uses are affecting other people’s uses of that water. Key to that, you also need to make those water rights transferable. This improves allocation in two ways. First, it moves water from lower to higher valued uses. Water use and water demand are not static over time. We have changing needs for water, we have environmental and climatic conditions that change our demands. By having a water market you make that water a bit more fluid in a sense that it can be transferred from one use to another use very easily.

The second benefit to allowing water rights to be transferable is that individuals are able to better deal with risk in relations to variations to water availability. I touched on that already, in that as water availability changes over time, we may have a drought year and those individuals who are more susceptible to financial problems due to not having access to water, can enter the market and secure some water through the market place.


NWRA: Where is groundwater being marketed now?

LANDRY: There are some places where we are seeing more transfers taking place. One in particular is in Texas in the Edwards Aquifer. We’ve seen the city of San Antonio starting to purchase water rights for groundwater for their municipal water needs. From what I understand they’ve acquired water from both an old quarry that was in existence that had claims to the water in the aquifer and they’re also buying water from farmers. We’re looking at analyzing and taking a closer look at what has occurred in the Edwards Aquifer to make that market successful.

NWRA: How has PERC been successful in marketing groundwater and other types of water?

LANDRY: The way that PERC has been most successful in marketing groundwater and surface water is that we’ve really been leading the discussion on idea of markets. We’re helping people, both politicians and natural resource administrators, realize there are alternatives to regulatory approaches that have all too often been relied upon. In terms of groundwater markets, we’re forging ahead on this issue by starting to looking at ways of adopting new technology, such as geographical information systems to define and enforce groundwater rights. That will help with the transferability of those rights. In terms of surface water, PERC’s biggest contribution has been in the area of market transfers of water rights for environmental protection. We’ve been very successful and very vocal in leading that effort. We were one of the earliest and lone voices in the early 80s that was advocating this approach to allow water rights to be bought and sold for in-stream flow use. That’s the idea of buying water rights that were previously used for diversion use, such as irrigating crops, and leaving that water in the stream for protection of fish and wildlife, water quality and providing recreational opportunities. We’re starting to see a number of groups form in the Western United States for the specific purpose of acquiring water rights for in-stream flow protection. PERC’s been very active in helping these groups, providing them with information, helping take a little closer look at that market.

NWRA: Is free market environmentalism the best approach to solving water-related environmental problems?

LANDRY: I do think it is the best approach going to solve some of our water-related environmental problems, as long as we continue to see a liberalization of water rights throughout the country, to allow for market transfers.This has not always been the case. Until very recently, water rights could not be traded for environmental uses. However, we’ve seen a trend, at least in the western United States, to recognize these environmental uses of water as beneficial uses and allowing for private entities and individuals to hold water rights for these uses. The reason that I think it is the best approach, is that it helps address environmental needs immediately. The traditional approach, which has been to use regulation, always seem to end up in the courts and has been slow in providing environmental protection.

NWRA: How can NWRA members learn more about water marketing?

LANDRY: PERC is probably one of the best sources of information in terms of water marketing. There are a number of publications that we have available. We have a recent book that came out last year called “Water Markets, Priming the Invisible Pump” by Terry Anderson, our executive director and Pamela Snyder, who is a former research associate at PERC.

This article was published by the National Water Resources Association September 23, 1998.

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