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Comments to swsr, November 3,2003, by John Wiener 23 The larger context: In the semi-arid West, the ability to shift existing water supplies from one use to another is crucial, given the high economic and environmental costs of new supplies. World-wide, there is increasing concern with water management and the attraction of reallocation as a demand-side options in response to scarcity, rather than increased suppJYt because lIthey are regarded as being more environmenta Uy sustainable, cost-effective, and flexibre... n (I pee 2001: 219; citations omitted.) Adaptation to climate variability, presently and in the future, is affected by the legal framework of water management, the complexity of management arrangements, and the ability to --assess current resources and project future resources. This requires continuing collection of data and the ability to use scenarios with hydrologicaf models to estimate possible future conditions." (lpec 2001: 223). The assessment of management techniques is more of a challenge than the assessment of suppry-side technical options (IPCC 2001 : 219); Uttle is known about how water transfer mechanisms which may be superimposed on existing regimes~ Every study of potentiaJ impacts of climate variabUity and change has recommended serious inquiry into the management institutions and laws governing water allocation and re-allocation, as far as J know (e.g. USGCRP regional and sector studies, available on-line from US Global Change Research Program website). In the western U.S., there is a rong tradition of recommending remedies for the high costs of transactions in water rNWPRAC 1998, N RC 1992), believed to constrain transfers, but few ureal- lifell experiments. While water banks are theoreticaUy desjrablei there is little experience with truly market-driven efforts. The famous California drought water bank, a Jeading example of a transfer mechanism superimposed on a complex historical system of administrationt was very effective as a quick response to a crjsis situation hut experienced 'arge inefficiencies due to a rigid price structure (Archibald and Renwick 1998, Howitt 1998, Jercich 1997). The long standjng Idaho water banks have had some beneficial effects but of a very restricted value due to inappropriate pricing structure and priority rules" Additional experjence is found in the Arizona ground.water exchange areas where trading is limited in scope (MacDonnell, Howe and Miller 1994, NRC 1992, SaJiba and Bush 1987). It is important that the high transactions costs. in money as wen as time, have almost certainly been a significant drag on agriculturets ability to adjust to changing opportunities. Because the high cost of changes would have to be financed (by self wjth opportunity cost, or with credit and obvious costs), the changes would have to "pay 01111 quickly. Long-term benefits from perhaps a huge number of small adjustments are probably being fost because they would take too long to payoff, or because they are too small to provide benefits big enough to cover the costs of change. Small changes are, apparentlYi limited to those "under the radar" within a lateral, for example; this inefficiency could be eased. There has been public concern in Co'orado over rarge water safes out of the Arkansas Valley to growing Front Range cities (e.g. Governorts Commissioni 2000). These transfers have resulted in substantial negative local impacts because of the Valley's high dependence on irrigated agriculture and the absence of alternative investments (Howe, LazQ and Weber 1990; Howe 1997; Howe 2000; Howe and Goemans, forthcoming, and see Colorado Water December 2002 issue). The strong cultural and symbolic importance attached to lIour watern in the West has inhibited public acceptance and water market development (Ingram 1990, Thompson 1997). Further, there is very serious concern that municipal buyers can pay so much more than agriculture that any reduction of the frictions witJ onry increase the speed with which irrigation water is drained away (see news item appendix 1 for a statement January 15, 2003). At the South Platte Forum in October 2003, Peter BinneYt utilities manager for Aurora, Colorado, noted that his water customers were paying more than $3000 per acre...foot under drought emergency pricing in 2002, (at the highest tier rates, one presumes), and other sources commonly mention figures in the high hundreds of doUars per acre-foot, not to mention tap fees for hooking up new homes.