The movement to implement market-based approaches to allocating water is gaining ground across California and in other western states. Proponents argue that markets offer an efficient and cost-effective means of promoting conservation -- those who need water would pay for it on the open market, while others would conserve rather than pay increased prices.
Rivers of Gold takes a new look at California's water-reallocation challenge. The author explains the concept of water markets and the economic theory undergirding them. He shows how some water markets have worked -- and others have failed -- and gives the reader the analytic tools necessary to understand why. The book:
Rivers of Gold offers a balanced understanding of both the role that markets can play in reallocating water and the limitations of the market mechanism. In the end, the author offers a comprehensive assessment of the institutional design features that any water market should incorporate if it is to reallocate water effectively, in California or in any other region where water is scarce.
Rivers of Gold is the first book to provide a detailed examination of water markets and the institutional design issues associated with them. It is the only book available that presents in-depth case studies of actual water-market transactions, and will be essential reading for water resource professionals and resource economists, as well as for students and scholars of environmental policy, environmental economics, and resource economics.
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Brent M. Haddad
The movement to implement market-based approaches to allocating water is gaining ground across California and in other western states. In Rivers of Gold, Brent M. Haddad explains water markets and the economic theory undergirding them. It is the first book to provide detailed case studies of water market transactions and the institutional design issues associated with them. It will be essential reading for water resource professionals and resource economists, as well as for students and scholars of environmental policy, environmental economics, and resource economics.
About Island Press,
Dedication,
Title Page,
Copyright Page,
Preface - A Note on the Author's "Water Politics",
Acknowledgments,
Introduction - The Ghost of Owens valley,
CHAPTER 1 - The Water-Reallocation Challenge in California and the West,
CHAPTER 2 - Why Markets Are the Institution of Choice for Water Reallocation,
CHAPTER 3 - Political, Legal, and Cultural Challenges to Water Markets,
CHAPTER 4 - Lessons from California's Experience with Short-Term Water Markets,
CHAPTER 5 - Shotgun Wedding: The Imperial Irrigation District—Metropolitan Water District Water Conservation Agreement,
CHAPTER 6 - Timing Was Everything: The Palo Verde Irrigation District-Metropolitan Water District "Two-Year Test Land Fallowing",
CHAPTER 7 - Water Ranching: The Devil's Den Water District—Castaic Lake Water Agency Combined Land Purchase and Water Transfer,
CHAPTER 8 - Getting to a Market: Lessons and Design Recommendations,
APPENDIX 1 - After Twenty Years of Policy Effort in California: No Water Market,
APPENDIX 2 - Zero to Six Long-Term Rural-to-Urban Water Transfers in California over Twenty Years,
APPENDIX 3 - Proposals for Market-Based Reallocation: Evaluating Their Feasibility and Appropriateness,
APPENDIX 4 - Farmer Resistance to Long-Term Rural-to-Urban Water Transfers: Two Examples and an Economic Interpretation,
Source Materials,
Index,
Island Press Board of Directors,
The Water-Reallocation Challenge in California and the West
"[Between 1995 and 2020,] California's population is forecast to increase by more than 15 million people, the equivalent of adding the present populations of Arizona, Nevada, Oregon, Idaho, Montana, Wyoming, New Mexico, and Utah." —1998 California Water Plan Update (DWR 1998a, p. ES1–4)
A discussion of water reallocation begins with four questions: How much water is available? Where is it now? Who needs it? How will it get from those who have it to those who need it? In answering these questions for California, our starting point is an overview of the state's evolving circumstances of hydrology and demography as well as the legal doctrines that define who has water rights and what the rights entail. Historical, political, social, economic, and ecological perspectives are then woven in to develop a fuller picture of the state's water-supply challenges. After California's features are discussed, this chapter presents a comparative perspective, describing conditions in four other western states: Arizona, New Mexico, Texas, and Colorado.
Water Reallocation: A Key Issue in California
Unlike the situation in some parts of the United States and the world, the water challenges facing California do not emerge from a basic scarcity of the resource. An average of 200 million acre-feet (maf) of precipitation is deposited in California annually. Some regions receive as little as 4 inches per year, while others receive more than 60 inches. The state also has historically appropriated roughly 7 maf of water from the Colorado River and the Klamath River. Given California's population of 33 million, this quantity of annually renewing water is more than four times what some analysts believe is a minimum for agricultural self-sufficiency. In fact, California is one of the world's leading exporters of agricultural commodities, and this performance is fueled in part by the abundance of water.
Of the state's precipitation, two-thirds is consumed through evaporation and transpiration by plants. The remaining one-third comprises the state's annual runoff of about 71 maf. The state also takes advantage of vast groundwater reserves, in an average year withdrawing about 14 maf of the estimated 850 maf available. These natural storage basins supplement California's water during the dry months and during drought years. Since the groundwater reserves are replenished at a rate of 12.5 maf/year, the California Department of Water Resources (DWR) estimates an annual overdraft of 1.5 maf of groundwater. In other words, Californians are mining groundwater faster than it is being recharged by precipitation. A small but growing additional year-round source of water is urban reclaimed water, which is expected to provide a reliable annual supply of almost 600,000 acre-feet (af) for urban and agricultural uses by 2020. A portion of total state supply goes to the maintenance of healthy rivers, estuaries, and wetlands. In average precipitation years, the flow utilized for ecosystem maintenance is 36.9 maf, whereas in drought years the amount used drops as low as 21.2 maf. Thus, in an average year, roughly 42.6 maf is available for agricultural and urban uses. Agricultural production currently uses roughly 80 percent of the available 42.6 maf.
As shown in figure 1.1, most of California's precipitation falls in the eastern and northern parts of the state. A portion of the precipitation, much of which arrives as winter snow, is captured in reservoirs during the spring thaw and then released throughout the dry, hot summer and autumn months. A combination of dams, aqueducts, and pumping stations—constituting the most developed water system in the world—aug—ments natural rivers and delivers water from the mountains to Central Valley agricultural regions and coastal population centers.
Changing Patterns of Water Demand in California
As in most of the western United States, water in California was originally allocated to serve an agrarian economy. The federal government's primary mission was to "reclaim" wildlands and create opportunities for westward migration, homesteading, expansion of agriculture, and economic growth. As a result of this pattern of expansion, economic and political power came to reside in rural areas, not cities. Irrigation districts and individual farmers locked up the lion's share of California's developed water, in the form of either renewable long-term contracts or permanent rights.
As have other western states, California has been undergoing a transition in its use of freshwater resources. Net water use in the early 1990s included 80 percent for agriculture, 16 percent for urban regions, and 4 percent for recreation, wildlife, and power generation (MacDonald 1993). The largest agricultural users in terms of acreage were cotton (1.5 million acres), irrigated pasture and alfalfa (1 million acres each), and rice (0.5 million acres). Water use in the state's agricultural regions peaked around 1980 and has been slowly declining since then. Statewide demand continues to grow but at a historically low rate, bolstered by demand from urban regions, which is growing at a rate of roughly 64,000 af/year.
Both aggregate demand and the pattern of use are expected to change in California as population grows from 1995's roughly 32 million to the 47.5 million projected for 2020 (DWR 1998b). Figure 1.2 highlights projected regional trends in population growth. When these trends are compared with the distribution of rainfall shown in figure 1.1, California's water-transfer challenge stands out in stark relief.
Underscoring the urban-suburban focus of California's future water needs, in 1995, 110 new towns and major subdivisions were in the planning stages. These were expected to...
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