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New book by PERC researchers: Tapping Water Markets

Now available from RFF Press, Tapping Water Markets explores the past, present, and future of water marketing. Written by PERC Executive Director Terry Anderson and research fellows Brandon Scarborough and Reed Watson, the book provides up-to-date information of where and why water shortages are occurring and where and why markets are emerging to resolve water conflicts.

Unlike other books that portray water wars as an inescapable reality of a crowded planet, Tapping Water Markets proposes institutional reforms aimed at fostering voluntary water exchange, conservation, and cooperation. The book contains case studies from the United States and other parts of the world demonstrating the importance of clearly defined, secure and transferable water rights.

Intended for professional and lay audiences, the book covers a range of topics including surface water allocation, groundwater management, environmental flows, and water quality trading. It concludes with predictions about the future of water scarcity and the ability of water markets to shape that future more positively.

Copies are available direct from the publisher and at Amazon.com.

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8 reasons why water is not the next gold

By Chris Corbin

I’ve noticed an increasing trend in what I call “Water is the Next Gold” articles. On some level, I couldn’t agree more – hence, my career choice. Although, as someone actively engaged in the western water market, I can easily name 8 reasons why water is not the next gold.

1. Gold is simple. Water is complex. Surface water vs. groundwater, simultaneous and interdependent use, just scratch the surface of this complex resource. The only constant with water is change.

2. Gold is safe. Water rights come with inherent risk, due to the uncertain validity of the invested asset.

3. Gold markets don’t include adjudication. Water markets include adjudication.

4. Gold markets have low transactions costs. Water markets have high transaction costs. Water transactions are plagued by third party effects and the tragedy of the anticommons.

5. Gold has many buyer and many sellers. This is not yet the case in the water market, but the supply and demand of water in the West makes this a strong possibility in the future.

6. Gold markets are efficient. Regulatory bottlenecks challenge the efficiency of water transactions.

7. Gold has clearly defined prices. Water lacks clearly defined prices. For example, tell me how much water is worth.

8. The gold market isn’t polarized. Some people believe water should never be traded. Even though I disagree with these people, their opinion still exists.

With that said, I strongly believe investing in Western water rights is a wonderful idea, it’s just not the next gold.

Chris Corbin is the founder of Lotic LLC — a water rights marketing and management company, and a PERC Enviropreneur Institute alum. He blogs at Living in Actively Moving Water.

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Water As a Human Right

The United Nations recently declared access to clean drinking water and sanitation a basic human right. The measure, while non-binding, could pave the way for greater governmental control over water, most likely in the form of subsidized water projects, below cost rate structures, and political allocation of water rights. As Bruce Pardy (PERC Julian Simon Fellow) notes in today’s Financial Post, putting our most precious resource under political control may only exacerbate the problem.

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Is clean water for fracking the next cleantech opportunity?

Lynne Kiesling at Knowledge Problem has an interesting post that might be of interest to enviropreneurs. She picks up on a recent article that suggests clean water for fracking is the next hot cleantech sector:

“In an interview this week with VantagePoint Capital Partner and Founder Alan Salzman, he told me that he sees technology that can help solve the clean water issue for fracking as an upcoming hot area for investment. “We think the limiting factor for gas fracking is water. We’re not gas people, and we’re not oil people. But we are water people,” said Salzman…

A company called ABSMaterials has been working on the problem of cleaning liquids involved with fracking. The company uses sand-like particles to absorb chemicals, and the company says it can remove 99 percent of oil and grease from water in fracking fluid, and another 90 percent of the toxic chemicals like benzene and xylenes.”

This video shows one of their products in action. As Lynne notes, this project and others are being funded in part by the Department of Energy. Her concluding discussion asks good questions:

“If fracking really is here to stay and growing, as Mike has discussed extensively, are these research subsidies necessary to induce innovation in water cleaning technologies? If so, on what basis? Is there a Coase problem here — does legal precedent fail to define legal liability sufficiently to clarify the profits attached to the water cleaning? Or, if that’s not the case, is the water cleaning insufficiently valuable to be worth doing? That hypothesis is consistent with the argument that fracking does not actually create a lot of water supply damage. But if that’s the case, then why subsidize the research — isn’t that a waste of taxpayer funding on research that isn’t likely to be valuable enough to be worth pursuing?”

Mike Giberson, also at Knowledge Problem, has been providing diligent and extensive analysis of fracking and energy markets more broadly from a market perspective, much of which can be found here.

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Trading Fruit for Fish in Washington

by Brandon Scarborough

The final installment (at least for now) in PERC’s Water as a CropTM series highlights how agriculturalists can capture conservation values and economic profits by altering land and water use practices.  In Washington’s Columbia River Basin, fish migration routes have been severed and spawning habitat lost because of declines in stream flows and water quality. In response, spring-run Chinook, steelhead, and bull trout are now listed for protection under the Endangered Species Act, and a host of regulatory programs have since been implemented.

Despite these efforts, however, populations have failed to recover and little has been done to restore critical habitat.  As an alternative, local orchardists have formed a program that links conservation to economic opportunity. Fruit growers can get paid to replace riparian fruit trees with fish-friendly vegetation buffers  — in effect, orchardists are going to be growing fish in place of fruit. Read the full case study here.

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Banking for Water on the Colorado

by Reed Watson

The second case study in PERC’s Water as a CropTM series features the Colorado River Water Bank, a market-based policy proposal that could improve Colorado’s long-term water security. As the case study explains, the Colorado River Compact obligates the state of Colorado and other Upper Basin states to leave a certain amount of water in the Colorado River for Lower Basin states. As Colorado’s growing population demands more and more water, the state risks violating that agreement. The proposed water bank stands to alleviate that risk — and to reduce the cost should a curtailment occur — by allowing water users throughout Colorado to trade consumption rights.

Click here to read the case study. For more on the series, see Cheney Lake Watershed: Farming Water Quality in Kansas.

Reed Watson is a research fellow and the coordinator of applied programs at PERC.

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Turning Water Into a Crop: Lessons from Cheney Lake

by Brandon Scarborough

Increasing water scarcity and decreasing water quality have become two of the leading environmental and economic challenges we now face.  In a recent nationwide survey of water quality, the U.S. Environmental Protection Agency reported that roughly 42 percent of stream miles and 23 percent of lakes are in poor condition and no longer support their intended uses. Additionally, changing precipitation and water withdrawal patterns have reduced stream flows in many locations below the level required to maintain habitat for fish and wildlife.

Given these challenges, it is crucial that public policy recognizes the importance of water as an asset. So doing requires understanding the institutions that govern water ownership and allocation and the ways in which these institutions encourage or discourage conservation. Given such an understanding of the institutions, it is then possible to recognize that water can be both an input as well as an output in production processes.

PERC’s new Water as a CropTM case studies exemplify free market environmentalism by describing profitable strategies for marketing agricultural water to non-agricultural water quantity and quality demanders. As the value of clean water and free flowing streams continues to increase, farmers and ranchers are reevaluating the way they use water and land resources to produce outputs. When landowners can profit from improvements to environmental quality, outputs such as clean water, wildlife habitat, and improved stream flows become additional “crops” in a landowner’s production function. From apple growers in Washington to irrigators in Georgia, the agriculturalists identified in the case studies practice water conservation not only because it can be profitable but also because it is the right thing to do.

The first in a series of case studies highlights the efforts of farmers in south central Kansas that are now managing their land and water resources not only for agricultural production, but for improved water quality and enhanced habitat for fish and wildlife. Partnering with the City of Wichita, a local conservation district, and state and federal agencies, area farmers have developed a watershed-wide plan to improve water quality by putting environmental outputs in the hands of the farmers. In the end, farmers improve their land use practices and their economic returns and the city reduces its water treatment costs, while reduced sediment and pollution increase the production of environmental services.

Brandon Scarborough is a research fellow at PERC and coauthor of Saving our Streams: Harnessing Water Markets, available at perc.org.