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Environmental Water Markets: Restoring Streams Through Trade

  • Brandon Scarborough

    Western water law is a bit peculiar. It provides limited usage rights to parties who have legal claims on water. Most of the rules date to the settlement of the western United States in the nineteenth century. The traditional rules, which were codified by state legislatures, worked well in an agricultural economy. But, as changes in values evolved, some limits inherent in the prior appropriation doctrine have become apparent. It was, and still can be, difficult to change the use of water from its historic designation to one with greater value. Such is the case for restoring instream flows through water markets.

    Societies with strong property rights allow parties to protect their property, develop it, trade it, or give it away. They enjoy greater prosperity and freedom than societies that impose many restrictions on property or suffer from a lack of clarity in rules. As Brandon Scarborough explains in this Policy Series, restrictions in water rights and uncertainty about how particular water trades can be affected limited the ability of parties to voluntarily use water for environmental benefits.

    As often happens when the rules are unclear, people make do and struggle to create new arrangements that allow resources to move to higher-valued uses. Water rights have evolved in recent years as parties express desires to sell, lease, or give water for environmental or recreational purposes. Legal entrepreneurs plowed new ground. Some states have assisted in the move to expanded water rights, others have been less supportive. This Policy Series provides guidance for improving the legal environment for parties who wish to engage in the beneficial exchange of water rights.

    This essay is part of the PERC Policy Series of papers on timely environmental topics. This issue was edited by Roger Meiners and Laura Huggins and designed by Mandy-Scott Bachelier.



    Brandon Scarborough makes a compelling case for the benefits of using free-market trades to restore stream flows. He describes where we are on instream flows in the West and provides a useful history of how we got here. He then goes on to explain how we can do better by pointing the reader toward new strategies and on-the-ground examples that work.

    — Tom Iseman
    Program Director for Water Policy and Implementation
    Western Governors’ Association

    Scarborough provides an accessible and perceptive analysis of the obstacles facing water markets in the West. This PERC Policy Series is a must read for anyone interested in learning more about the challenges facing market-based water transactions.

    — Andy Fischer
    Conservation Program Manager The Deschutes River Conservancy
    Download the full report, including endnotes and references.
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