Water markets are one of the most contentious issues in water policy. Much of the debate lies in competing ideological views about the role of markets for allocating resources. Yet often the ideological debate is a distraction from the real challenges of better defining legal water rights, valuing water (and thus water conservation), and of course eliminating the ridiculous and offensive government subsidies for water use and waste.
The debate over water markets will only heat up (dumb pun, sorry) as climate change puts more pressure on water resources, especially in the west. A recent article by law professor Jonathan Adler provides a short and well written argument in favor of increased use of water markets to respond to the pressures of climate change on water supply and demand. The article, Warming Up to Water Markets, was published in the Cato Institute’s Regulation journal, so it obviously comes from a pro-market perspective. And while I don’t agree with every proposition and conclusion, Jonathan Adler does a nice job of providing a short summary of the challenges climate change presents for water policy and how markets can play a role in the solution (Jonathan also covers environmental law issues for the excellent Volokh Conspiracy blog, always worth reading). He offers four general recommendations:
- Defining and recognizing the security and transferability of property rights in water resources
- Eliminating government subsidies for water use and distribution;
- Moving toward market-based prices for water; and
- Identifying and reducing legal and regulatory barriers to water transfers, particularly inter-basin and interstate water transfers.
I strongly agree with the first three recommendations, and would consider these only modest steps towards a true water market. The final recommendation has some merit, but I would like to see water marketing applied within a watershed before markets are use to transfer water from one basin to another. Water markets are also a much better fit with western water appropriation rights than eastern riparian reasonable use rights, a point often lost in the ideological debates.
For more on water markets, and a great read in general, I highly recommend David Zetland’s Aguanomics blog. Unlike Jonathan and I, David is an economist by background so he has experience with how markets can (and can’t) work in theory and practice.