The Quest for More Water -

Why Markets are Inevitable

By Robert Glennon

Some readers might wonder why I, a liberal Democrat, spent this past summer as a fellow at a free-market think tank. The answer is that I believe that water marketing is essential if we are to prevent further damage to the environment from development. Where I probably depart from some of my PERC associates is that I believe government must play a critical role in overseeing markets to protect the environment and third parties.

We in the United States are heading toward a water scar-city crisis: We can’t make new water; all the water there is, is. In July, the city of Las Vegas, New Mexico, froze new development due to a lack of water. The city expects literally to run out of water this month.

Such a dramatic action may become commonplace in future years. In a recent survey, 36 states reported that they expect to suffer water shortages in the next ten years, yet demand for new sup-plies is increasing dramatically, mostly due to the increase in population. We now number 300 million and will exceed 400 million by the middle of the century. Fights over water are no longer confined to the American West, as disputes involving the Great Lakes, the Delaware River, the Potomac River, the Roanoke River, and the Ipswich River suggest.

With such a disconnect between supply and demand, what are our options? The conventional answer is to build a dam, divert a river, or drill a well. Each of these options has significant environmental and financial consequences. We have already dammed most rivers in the United States, some repeatedly. Few good dam sites remain. Even proposing a dam stimulates serious opposition and controversy. As for our rivers, we have decimated many of them, diverting so much water that they have literally run dry. I’m not merely talking about small creeks. Large rivers like the Colorado and Rio Grande no longer reach the ocean. Securing new supplies by diverting additional waters from rivers will come with a high environmental cost attached.

Options Drying Up

Recently, we have turned to groundwater as the panacea for water demands. But, as I show in my book Water Follies (2002), there is no free lunch. Think of an aquifer as a giant milkshake glass and think of each well as a straw in the glass. The law in most states permits a limitless number of straws in the same glass. That is a recipe for disaster, a classic illustration of the tragedy of the commons.

Groundwater pumping has severe environmental consequences. For example, the Ipswich River in Massachusetts has gone dry in five of the last eight years as a result of groundwater pumping. In Florida, a state that receives more than 50 inches of rain per year on average, scores of lakes have dried up due to groundwater pumping. In short, the conventional answers are not viable solutions.

Another option is to expand the supply of water. One technology that is getting considerable attention, especially in California, is desalination. But paraphrasing Winston Churchill, desalination is a technology that has great potential and always will. In certain localized areas, desalination may be a viable alternative. But for most situations it is incredibly expensive, involves the consumption of huge amounts of energy, and disposal of the intensely concentrated brine component creates a pollution problem.

Another option for expanding the supply is reuse of wastewater, municipal effluent. In Tucson, we have been using effluent to irrigate golf courses, parks, cemeteries, and other turf areas. In our future, the use of municipal effluent will increase, but it too has drawbacks. For one, it is a costly source of water, requiring a system of dual pipes. For another, scientists have recently discovered that even after wastewater has been treated, the water may contain endocrine disrupters, such as antibiotics. In short, reuse of municipal effluent offers an option for some circumstances, but it is not a silver bullet.

If we have limited ways to increase our water supply, what are our options for reducing demand? On this front, we can do a better job of conserving water. State and local governments can play a critical role in developing water conservation pro-grams. The cities of Tucson and Albuquerque have made great strides in reducing per capita water usage. Yet the population of both cities continues to climb, offsetting the conservation savings. Moreover, further conservation success may be difficult to achieve, as existing programs have already picked the low-hanging fruit, and higher fruit is harder to harvest.

States should avoid conservation standards that require elaborate monitoring because they may be neither cost-effective nor successful. An example of overly complicated regulations is a California program that mandates landscape audits performed by certified landscape design auditors who must meet “irrigation specialist certification standards.” The state requires landscape managers to pass state-established certification tests, but the workers who actually set the meters are often undocumented workers from Mexico who lack the language skills and training to comply with the rules. Still, water conservation programs, both voluntary and state-mandated, can encourage or require water conservation.

At this point, the nation’s water future looks rather gloomy. Our existing water supply faces threats, the demand for new supplies is increasing, and our options for increasing the supply or reducing demand appear rather limited. What can we do? What we have not seriously undertaken is to encourage the reallocation of water from existing to new users through market forces and price incentives.

Let’s examine water pricing first. Even though water is a valuable resource, many Americans pay more each month for their cell phones and cable television than they do for water. Indeed, residents in some cities pay nothing for water. In Fresno, California, a controversy erupted in 2003 over whether meters should be installed in people’s homes so that actual water use could be measured and paid for. Until now, city residents have been able to use as much water as they wish without any charge for it. Meters enable a city to insist that residents be responsible in their water use or pay financial consequences. The absence of meters has significance for water use. Fresno residents use about 300 gallons per capita per day but in neighboring Clovis, which has meters, water use is about 200 gallons per day. Sensible water pricing would encourage all water users to carefully examine how they use water, for what purposes, and in what quantity.

Retiring Existing Water Rights

Turning to market forces, new residential, commercial, and industrial development should pay its own way by being required to purchase and retire existing water rights in exchange for permission to build. Developers would retire a current water use as a condition for commencing a new use.

To those readers who are already committed to market-based solutions to environmental problems, what I am urging may seem elementary and an article of faith. To those more suspicious of water marketing, I ask them to consider, what are the alternatives?

To both camps, I plead that the reallocation of water is imperative if we are to avoid the environmental degradation caused by damming rivers, diverting streams, and pumping wells. And if reallocation of water is to occur, it is surely better that the process be between willing sellers and buyers than through government rules and regulations. Allocations through the public sector would occur at the direction of elected politicians or at the discretion of bureaucrats. Allocation decisions made through the political process would typically result in the water going to the most powerful economic interests in the state.

That said, I am mindful of the problem of market failure. Markets have difficulty internalizing environmental values. Water may be an economic good but it’s also a public resource. There will be a critical role for the government to ensure that water transfers do not harm the environment or third parties. In some situations, the government may decide to prohibit water transfers in order to protect valued and unique communities. For example, northern New Mexico’s acequias are centuries-old subsistence-farming communities of Hispanic Roman Catholics. These communities conceive of water as a community resource. The state of New Mexico has a compelling reason to protect this rich culture’s traditional water use, even though the use may have a low economic value.

In short, I support using price signals and water marketing as tools to encourage water conservation and water reallocation. For true believers and agnostics alike, these tools offer the best way to protect the environment.

REFERENCES

Glennon, Robert. 2002. Water Follies: Groundwater Pimping and the Fate of America's Fresh Waters. Washington DC: Island Press.
---. 2005. Water Scarcity, Marketing and Privatization. Texas Law Review 83: 1873-1902.

ROBERT GLENNON was a Julian Simon Fellow at PERC this summer. He is the Morris K. Udall Professor of Law and Public Policy and a member of the Water Resources Research Center at the University of Arizona. He is the author of Water Follies: Groundwater Pumping and the Fate of America’s Fresh Waters (Island Press, 2002). For more on the ideas in this essay, see Glennon (2005).

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Robert Glennon is the Morris K. Udall Professor of Law and Public Policy in the Rogers College of Law at the University of Arizona. He is the author of many articles and books, including the acclaimed Water Follies: Groundwater Pumping and the Fate of America’s Fresh Waters.
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