Well, this is embarrassing. Not a couple pages past where I left off, Dr. Haddad goes into some inherent problems of water markets. His third chapter describes some problems inherent to markets, although not exactly the same list I gave. He describes the crux of the issue neatly on page 34:
With respect to natural systems, there is a critical variable that could turn potential environmental benefits associated with efficiency … into potential environmental disasters. It is the rate of growth in the use of the resources. Is the quantity of an economy’s resource use … stationary or growing? If it is stationary … and the issue is one of selecting a resource-allocation mechanism to utilized a fixed amount of available resource, than an efficient system (such as a market) probably would be neutral or perhaps would even benefit the ecosystem that supplies the resource. But if the level of the resource use is not fixed but instead is growing … then an efficient system could simply accelerate the consumption of a natural resource well beyond its sustainable yield. That is, assuming that no regulations limit the exploitation of natural resources, an efficient system will identify opportunities for profitable exchange involving natural resources more quickly than will an inefficient system, thereby accelerating the throughput of natural resources through the economy.
I have three main thoughts about this.
A. I am so mad that I haven’t read Dr. Haddad’s book before. I did myself a great disservice and inadvertently forced myself to derive my versions of similar thoughts by reading the news and thinking. I wouldn’t wish that on anyone, so I hope you will all read Dr. Haddad’s Rivers of Gold soonest.
II. I believe this is where the wave of Reisner water enviros is going down a different path than my own water environmentalism. I believe they had some unconscious assumption of a fixed pool of water in ag, and evidence of substantial irrigation inefficiency. They figured that with way better irrigation efficiency, there was plenty of water. Enough for ag to do what it had done before (the same amount, done more efficiently, because of market incentives!) and the cities to purchase some. Conserve and market, as a win-win! But that hasn’t been what happened. Better irrigation efficiencies have sometimes lead to using more water on the same land (and getting even more crop yield per unit water), but it is also leading to an expansion in irrigated acres. I am a couple decades younger and spent some time in the Valley, and I never saw any evidence that irrigation efficiency improvements led to taking less water out of rivers (although it does other good things and I am for it). That’s how I came to the conclusion that I’d rather fix the irrigated acreage by rules because I am Stalin.
3. That leads to my third thought, which gets back to almonds. Water is the limiting material for almond growth. Relative to water, both arable land and market demand are infinite. Nothing will push back against the drive to expand water availability for almonds except a decision to do that. Certainly a water market without regulations to keep the rate of use of water stationary will lead to more of what we’re seeing in this drought: non-stop luxury crop expansion, efforts to weaken or destroy the Endangered Species Act, drilling two thousand foot wells that collapse the ground surface, and demands to draw water from anywhere, the Trinity, the Columbia, from unicorns.
I really should have read Dr. Haddad’s book long before and I should revisit Daly and Cobb. My bad.
FOUR. Australia’s water markets have this fixed availability of water built in to them. They’re one basin, with one river, well gauged. The official yearly allocation from the single source really is all the water involved in the market. California’s water sources are way the hell more mixed, unmonitored and indeterminate. Unbundling Water Rights didn’t mention making sure that the market was only dealing with a fixed amount of water because they’ve never had to create that condition. (Just like I didn’t rightly appreciate carriage water.) The new PPIC recommendations don’t explicitly mention ensuring that markets are only working with a fixed supply, although perhaps they back into it by making sure of instream flows first.
On the public record 
It sounds like you’ve done a circle and are back where we started. The culprit is the ongoing, infinite expansion of almond groves and until there is a limit according to available water, the Delta will continue to be drained. Just like my children’s book, “The Fable of the Farmer and the Fish,” available on Amazon. I’m going to read Dr. Haddad’s book!
We should have a book club!
See page 4 at http://www.spillwaynews.net/BackIssues/v2n3/Spilv2n3.pdf.
This raises the possibility that I will not only be blogging about books from 2000, but book reviews from 2002. Honestly. I can’t even get to the PPIC paper out this week.
I suppose it will give me material to chew on while it rains and people forget there was ever a drought.
Unfortunately, you’re premise statement “Better irrigation efficiencies have sometimes lead to using more water on the same land (and getting even more crop yield per unit water), but it is also leading to an expansion in irrigated acres” is incorrect. The facts are that irrigated agricultural land is actually shrinking, not expanding, in California, (We’ve done work for American Farmland Trust showing this trend) and agriculture isn’t using more water. The facts are that agriculture is taking the same amount of water and using it more effectively to increase yields per acre, thus increasing the land value per acre, and are shifting from lower value crops to higher value crops on the same number of acres. Increasing almond acreage is coming at shrinking cotton acreage. (California was one of the largest producers of cotton into the 1980s.) The added almond (and vineyard) acreage hardens agriculture demand, just as removing landscaping hardens urban demand.
You’re correct that the environmentalists failed to envision that ag would respond by increasing economic output in respond to efficiency standards. But you’re proposed solution is really no different than a Five-Year Plan. Accept that economic agents will figure out how to respond to whatever scheme you cook up. Instead, focus on constraining the total amount of water that is available for human consumption, which is what SGMA will do for groundwater, and what the swelling demand for water rights reform will do for surface water. Then let the agents trade water among themselves.
Took some classes under Haddad. Cool guy.
Re your comment: “Enough for ag to do what it had done before (the same amount, done more efficiently, because of market incentives!) and the cities to purchase some. Conserve and market, as a win-win! But that hasn’t been what happened.” Whilst, as you know, I would bristle at being labeled a “Reisner environmentalist”, in fact the mix you describe – less water, less irrigated acreage, water->cities, more efficient ag making more money – is what has happened in the big ag districts on the Colorado River system.
Imperial County water use dropped ~ 20 percent from 2002-2014, while crop revenue rose (in inflation-adjusted terms) 49 percent. The drop in water use was a negotiated policy intervention with water going to cities (it’s complicated – read my book! – as soon as they finish publishing it!) and the change in ag productivity was farmers’ response.
I’m not cherrypicking here – the data has similar patterns in Yuma (the reduction in water use there started earlier and had different drivers, but the conserved water also ended up moving to Arizona cities). With Yuma and Imperial combined, you’ve got the majority of the ag water use on the U.S. side of the border in the Lower Colorado River Basin. I’m not saying that this applies universally, but it has happened at scale in the part of the U.S. irrigated desert ag that I obsess over.