On the public record

I had three thoughts about this proposed transformation.  It looks like there is willingness, and it is a pretty simple closed system.  The author clearly spent a lot of time thinking about it.

1. Hold some teaching sessions before the changeover.  Hold at least three meetings, issue paper shares and let people game out a few water years.  This is a big change, so people should get a chance to try it out and practice.
2. Given that the internal rate of return from holding a water rate averaged well over 15% a year (pg 7), why give out grants for system transformation (recommendation, top of page 27)?  Those should be loans, not grants.
3. What are the metrics for success?  How do we know if we have won?  Self-assessed community happiness before and after this switch?  Community satisfaction with water rights system?  If the springs start flowing again?  If the groundwater basin comes into sustainability without people shooting each other?  Total acres farmed?  Level of farm debt?  Biodiversity index?  You know, my mother is a statistician and my father is a scientist.  Either of them would disown me for doing an experiment without explicitly stating what I am testing up front.  How can we assess whether “the market” worked if we aren’t told up front what exactly it is trying to achieve.  Before doing this, be very clear about what will be better in Diamond Valley when the system is up and running.  (If I lived in Diamond Valley, I’d want to be happier after the switch than before.)  Running this experiment and fishing around for improved metrics afterwards is scientific fishing, nearly as shameful as data mining.  You would no longer be welcome at my parents’ table if you were guilty of scientific fishing.

My interest is flagging and I didn’t have any substantive thoughts about these topics.  If you want me to come back to this and think harder, bring up your issues in the comments.

The governance section emphasizes that forming water markets can quickly move water out of a region, causing substantial third party impacts and severe dislocation within the community.  Because it is hard to foresee all of the potential impacts, it is important to have a governing board with members of the most vulnerable communities: farmworkers, tribal representatives, people from historically disadvantaged communities.

HahhahahahahaHAHHAhahaha!  No it didn’t. Of course it doesn’t.  It says that decisions that normally land in the courts be settled by 5 to 7 person appointed boards.  Of those, half should be water-users, the rest from water management.  They should be good listeners with good communication skills and not crooks who succumb to the temptations of insider trading.

I am tired of typing “reinforces existing power structures”, so I’ll switch to my other complaint about Australian proposals.  How does this scale up in California?  How many of these local boards do we need?  One per local market?  Could irrigation district board members fulfill this function?  County supervisors?  What happens if there aren’t enough people who want to do this?  Is the market suspended?  Do boards combine when markets are stable enough to merge?  Are board members paid out of the proceeds from the market?  Are trades assessed an administration fee?

I didn’t understand “tagged trading” well.  It allows for trading between different hydrologic regions, but I don’t understand the mechanics.

The last paragraph on the page discusses permanently selling water away from the region.  It addresses the increased operating costs for the water users that remain.  Australia sets those exit fees at ten times the fixed annual charge for water conveyance.  So basically, the sale of the water has to cover the next ten years of O&M on the infrastructure that delivered that water to the original location.

The section refers us to Appendix E, for Principles for Trading Rules.  As we’ve seen before, these rules that govern trades between river reaches, basins or watershed are so simple they fit on one page.  They do accommodate the increased O&M costs to water users in the source area when some water is sold out of the area.  But Appendix E is explicit:

Exchange rates and trading rules should not be used to achieve other outcomes, such as altering the balance between economic use and environmental protection or reducing overall water use.

So where do we develop rules that protect or compensate third parties?  NOT IN THIS MARKET!  Maybe beside it.  Or around it.  Or somewhere nearby.  Could be adjacent.  Possibly to the left or right of it.  But definitely, definitely not part of the market.

You can imagine my feelings on the “federal government … actively purchasing water rights for the environment.”  Of course my preferences are to reserve generous environmental water (instream flows, etc) before any shares are distributed.

This does seem like a way to achieve Dr. Lund’s proposal, of letting urban users dedicate conserved water to the environment.

The final paragraph of this section is clever.

We are getting there, comrades.  We’ve done more than half of the paper.  Starting about here, I understood less of what I read.  I have a lot of non-rhetorical questions, so if you have explanations, I’d love to hear them.

***

I didn’t follow the first sentence.  It seemed to be contrasting how the shares-based system considers flows in their rivers (physical!) with how others (us? do we fall into rules-based?) consider the flows (theoretical!).  Like, we name pieces of the flows going by as “environmental” water.  I guess so, sortof.  My first thought was that we name some water “project water” because it is only in the river at that time of year because it was stored by a project dam.  But I don’t strongly recognize the behavior of parting out river flows by theoretical names.  Well, maybe we do.  And we would fix that if we changed to a shares-based system.  Because then we’d get real practical about the chunks of water going by, no doubt because someone bought them or could buy them and they would finally be worth something!

Then I burst out laughing, because when we pay a whole lot of attention to the physical nature of water flowing by, the number one part of that flow, the most important “hands off” piece is… conveyance water.  Carriage water?  Really?  That will be a new way of thinking, because I don’t hear about carriage water much.  When I do, it is a side requirement of a water transfer.  For all I know, the people who run the rivers here think about carriage water night and day, but I don’t hear about it.  I hear about water required to meet salinity standards in the Delta.  Maybe we keep the rivers full enough that the carriage water requirement is always fulfilled, making it less central to water policy.

(Additional reflection convinces me that I am being provincial, only considering the conditions I am used to.  I vaguely remember that the Murray-Darling River ran dry in their drought.  Were that happening here, carriage water would become very, very important.)

The rest of this section was best conveyed by Figure 2, which explains a lot.  This whole section also states that some parts of water allocations are properly done by rules, based on values.  Policy-makers who hope to dodge the policy fights by choosing a process (the market!) instead of an outcome are going to be disappointed. We are going to have to define “broad society priorities”, even with this process.

My two usual concerns returned in this short section.

The author contrasts two ways of managing third-party impacts.  Sortof.  I have never thought of beneficial use requirements as protecting third parties.  I thought beneficial use requirements simply restricted wasting water, such as using large quantities of water to drown gophers.  I suppose a third party who would otherwise use that water might use the beneficial use doctrine to complain to the Water Rights division of the SWRCB.  But I have always thought of the beneficial use doctrine as between the rights holder and the State.  No matter.  The author isn’t in favor of using the beneficial use doctrine, because it potentially limits economically efficient uses of water.  He thinks the State should manage third party impacts by issuing individual water use permits.

Again, we see a mechanism that favors the powerful (a single elected or appointed official issuing permits to individuals, or an agency issuing case-by-case permits).  At the worst, the elected or appointed official could be bought by election support.  At the least, it takes sophisticated users to negotiate permit processes in agencies.  The people who get water use permits will be the people who are good at interpreting regulations or can hire lawyers.

My second concern is that this commodifies water yet again, and why do we want water traders in the water system?  Reading through the comments of the articles that Steve Bloom linked, I saw the intermediaries called “speculators”.  I don’t know what’s happening in Australia, since my interest in the world ends at the 395, but I don’t see why middlemen should have an entryway into distributing water, nor profit from it.

I really do understand that this is a proposal to commodify water.  But each time I see a new facet of that, I am repulsed again.

When I read this section the first time, my reaction was that if we had metering on every water right, linked to an online “bank-like accounting system”, we’d be in such a different world that a water market would be a nearly trivial addition.

As always, I am not sure why the emergence of water-brokering businesses is a good thing.  I can tell from the writing that it is, but don’t know why.

This time, as I read it, I may have just understood something new.  The discussion of unregulated systems made me realize that the Australian version of this happens in an entirely controlled river basin.  Every piece of water in the system is fully under human control; they can choose when to release it or hold it back, presumably to match the totals in the traded bank accounts.  That is so far from the case here.  There are unmanaged tributaries, return flows, direct rain events.  We barely have enough gauging to know how much water is in the reaches of the major rivers, and the funding for even those gauges is perennially at risk.  Our reservoirs may or may not have capacity to hold substantial water from year to year.  Even if they have the physical capacity, their storage is governed by flood control rule curves and those will not be violated because someone downstream is holding back water to sell next year.  Changing that would require the U.S. Congress to change each reservoir operations manual.  Fucking Australians with their simple-ass systems, come here to suggest physically impossible management.  Honestly, they need new hobbies.

There is a paragraph about how adjust this for unmanaged systems (which is how I realized the default expectation is a fully regulated river basin).  I understand their suggestion for issuing shares in flow rates.  But what I don’t understand now is the extent of each market.  Each river basin (magically monitored and controlled) is its own market, and trades within that market are super convenient?  But trades along the major rivers of California already take place.  Trades along rivers would be east-west trades, good for getting water to agribusiness on the West Side of the Valley, but not for moving ag water to the cities in the south.

The more I read this paper, the more I don’t understand how to apply it here.  That’s probably why the paper is about converting to a market-based system in Nevada.  Sweet simple Nevada, where even Australian ideas might be progress.

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.

I have to say, friends, that slowly reading through a blueprint for transitioning from western water rights to Australian water rights has not created a bonanza of blogging attention. It is worth it, however, to read stupid bullshit like this and really understand what it would take to do that here.

ADDED 10/13: I listened to RAND’s Drought and Water Policy presentation. If the drought continues, ACWA is going to start pushing harder for water markets. I transcribed the discussion of water markets; it is beneath the jump.  When I finish going through the Unbundling paper, I want to start asking for a lot more specifics.  I cannot imagine a transformation like the one described in the Unbundling happening within a decade.  What could come sooner, by Year Six?  Dropping the requirement of a CEQA analysis for water transfers?  State law saying that we don’t care about third party impacts?

My other thought on hearing this discussion is the possibility that the transaction costs for water trades are just that high.  There’s a lot of talk about streamlining and lowering the barriers to moving water.  But water is heavy, hard to track and hard to move.  When you are talking about out-of-basin transfers, the physicality of water may override economic theory.

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