Unbundling Water Rights: Use It, Sell It, or Save It – Never Lose It, pg 16-17

I have never believed that the threat of “Use it or lose it” ever motivated a grower.  Our water rights system has been unenforced for decades (until now, really).  Have growers really thought that the State Water Resources Control Board is keeping track of their yearly diversions, ready to pounce on a missed irrigation year or a decreased diversion amount?  Until 2009, there was no penalty for not submitting the Annual Statement of Diversion and Use.  I’d be surprised to hear of a water right being yanked for being two decades dormant.  I don’t know but strongly suspect that a water right would be allowed to come back into compliance before it was “lost”.  Plus, conserving water and selling water are now both beneficial uses.  For all the talk about “use it or lose it”, I don’t think the doctrine genuinely hampers water transfers.

(So why does it keep coming up?  My guess is that growers love to talk about government regulation contradicting its intent. The Alanis Morrisette-level irony overwhelms them.  Of course I don’t know their inner thoughts, but I’d bet they mention it to Australian visitors much more often than they consider it in their water use decisions.)

All that aside: sure, whatever.  This section looks good to me.

The paragraph distinguishing irrigation efficiency from economic efficiency is nice, although I will say for the severalth time that flood irrigation methods are not inherently inefficient.  They can be managed well.  (One of my irrigation professors described poor irrigation practices, then dismissed them entirely with “That’s not irrigation.  That’s water spreading.”  Perhaps the author of this paper was using “spreading” the same way.)

Again, I wonder how this recordkeeping scales up to California.  How would we track an individual right’s annual carryover?  This would mean tracking the diversion and also designating some water back up in the reservoir as that individual’s?  But there are so many diversions and so many sources.

I didn’t understand the phenomenon described here:

The importance of allowing market-driven carrying forward of unused water allocations was driven home during the early stages of developing Australia’s water trading systems, when it was discovered that all the gains from trade in some parts of the country were being lost because too little water was being carried forward. Trading was deepening rather than reducing the impacts of drought. When the policy was changed to allow water to be carried forward to the next year, the price of allocations doubled, that is, the value of water increased dramatically.

If you do understand, could you please tell me what was happening?

The warning against making allocations before the precip actually falls and is captured is good, but cannot be reconciled with making allocations early in the year so farmers can make planting decisions.  In California at least, it is either/or.

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9 Comments

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9 responses to “Unbundling Water Rights: Use It, Sell It, or Save It – Never Lose It, pg 16-17

  1. jrfleck

    I wish I had more time for this discussion, because you’re picking apart all the really important issues. But I’ve got a looming deadline. You may find me taking the whole thing in sequence after Jan. 1.

    But…

    On your quoted paragraph, I think they’re talking about the ability to hang onto water for trading purposes through time? We’ve seeing this in the efforts to develop quasi-market-like mechanisms on the Colorado River, in which water can be banked in one year for use in another year by a different state.

  2. onthepublicrecord

    I got that, but I didn’t understand what actually happened.

    all the gains from trade in some parts of the country were being lost because too little water was being carried forward. Trading was deepening rather than reducing the impacts of drought. When the policy was changed to allow water to be carried forward to the next year, the price of allocations doubled, that is, the value of water increased dramatically.

    What were the gains from trade, how were they lost by not having water the next year, what changed when multi-year trades were allowed? I’d be grateful if someone spelled out what happened step-by-step.

  3. onthepublicrecord

    Also, your looming deadline is crucial. We are all looking forward to your book.

    In the new year, when you have copious free time, I hope you’ll return to this.

  4. jrfleck

    And I’m doing the next best thing in the meantime, one of the fabulous perks of my new life of faculty leisure, which is dispatching one of our bright young students to read these. (Given the long term payout of young student’s career, this seems like useful leveraging.)

  5. onthepublicrecord

    Welcome, bright young student! Glad you’re with us.

  6. I think that you’ve got the essence of the proposal for tiered shares (mentioned in a previous post, but the comments there are now closed). What I think we are are both saying / reading is summarized in an example table I’ve imagined (below) where I’ve indicated shares in Tier 1, 2, and 3 having different delivery amounts under different weather conditions.

           Tier 1   Tier 2  Tier 3
     Wet   100%     100%    100%
     Norm  100%      50%      0%
     Dry    50%       0%      0%
    

    What I’d like to see is an untradeable “Tier 0”, which allocates to in-stream flow / environmental uses of water, but maybe a Trust could hold Tier 1 shares for the environment instead. As of page 17, I haven’t read anything that explicitly says we ought to do that, but I haven’t read anything that says we can’t, either. *

    Then fine, go ahead and make your online water trades using current water year or previous (banked) water year allocations. Sell your futures too. But how does one actually take delivery of the water purchased on the market? Is the market confined to your own watershed? If the watershed has few share owners, then is the market concept inherently flawed (since efficient markets seem to require many participants)? Is there a delivery charge in addition to the water purchase?

    Over all, I don’t see anything that raises my ire except that I think how shares are initially allocated could lead to undesirable outcomes. Young seems to favor giving shares to those already holding water rights, but maybe we should give them money instead and then sell the shares in the newly established market.

    * Reading ahead I see mention of the “hands off” flow on page 19.

    • onthepublicrecord

      Right, environmental water or instream flow would be the same as a Tier 0.

      My guess at the way they take delivery in Australia is that each river/watershed has a market and enough plumbing to deliver water or hold it for the following year.

      I like thinking of alternatives for allocating shares. That’s a useful prompt.

  7. With regard to this: “…all the gains from trade in some parts of the country were being lost because too little water was being carried forward. Trading was deepening rather than reducing the impacts of drought.”

    I think that this could refer to the advantages of forward knowledge and planning. Since farmers need to know in advance of the actual growing season how much water they can use, and water managers don’t allocate until the current season, having “some in the bank” that a farmer knows can be relied upon allows more efficient crop planning.

    • onthepublicrecord

      And growers weren’t doing enough of that at first? That would make sense.