PUB00158

• Year: 1997
• Title: A Bibliographic Pathfinder on Water Marketing
• CWCB Section: Administration
• Author: Ronald A Kaiser
• Description: A Bibliographic Pathfinder on Water Marketing
• Publications - Doc Type: Other

ues to grant landowners unre-
stricted rights to pump ground-
water without liability for damages
inflicted on others-landowners
overlying a defined aquifer may
voluntarily form a conservation dis-
trict to regulate wells.

Opportunities
The absence of markets
and market-based prices
to allocate scarce sup-
plies and guide water
managers has resulted in large dif-
ferences in the value of water
among alternative uses. For ex-
ample, most of the water rights in
the western United States are held
by farmers and irrigation districts,
which pay only the modest cost of
having water delivered to their
farms. As a result, large quantities
of water are applied liberally to
relatively low-value crops. In some
cases, simply leaving more water
in the river to provide hydropower,
recreation, and fish and wildlife
habitat might increase the total
value of the water to society. Simi-
larly, selling water to urban areas
that otherwise would invest in
costly and often environmentally
damaging water-supply projects
might boost water values by an
order of magnitude or more in
some cases.5
Large differences in the value of
water among alternative uses pro-
vide powerful incentives to over-
come obstacles to transfers. As a
result, water marketing is becom-
ing common and increasingly in-
novative in several countries. A
variety of market arrangements
have emerged in the western
United States to accommodate and
respond to short-term fluctuations
in supply and demand stemming
from climate variability or other
factors. These include leases, op-

tions to purchase water during dry
periods, and water banking. The
temporary nature of such transfers
blunts a principal third-party con-
cern that a transfer will undermine
the economic and social viability
of the water-exporting area.
Farmers with senior appropria-
tive rights who grow annual crops
might profit by selling an option
to use some of their water during

objective of a water bank is to
bring together those who want to
purchase water with those who are
interested in selling their entitle-
ments.
The bank provides several key
functions. It determines which wa-
ter use entitlements may be
banked and the quantity of water
associated with each entitlement.
It determines who can rent or buy

Water marketing is becoming common and

increasingly innovative in several countries.

a drought and leaving some or all
of their fields fallow. Growers
threatened with the loss of long-
term investments in orchards, or
cities facing rationing, are able to
more than compensate these farm-
ers for losses incurred from tem-
porarily leaving some of their lands
fallow.
Such transfers among farmers
within the same irrigation district
are common and often relatively
easy to arrange. But cities seeking
to transfer water away from an ir-
rigation district are likely to en-
counter greater institutional ob-
stacles and financial costs.

Water Bank.
Water banks represent
one solution to
these obstacles. Wa-
ter banks are de-
signed to facilitate water transfers
in response to short-term changes
in supply and demand conditions.
They enable the owner of a per-
manent water right to sell all or
part of one year's entitlement.
Thus, the entitlement is, in effect,
leased or rented but not perma-
nently transferred. The primary

water, and it sets the rental rules.
The bank may also determine how
much water can be transferred
without injury to third parties.
Once the rules are established, the
bank operates like a broker, accept-
ing valid water use entitlements for
deposit and making them available
to those hoping to obtain water at
a lower cost than they would oth-
erwise have to pay.6
. California. A temporary federal
water bank administered by the
Bureau of Reclamation and en-
dowed with federal funds was es-
tablished in California during the
1976-77 drought to provide for
water transfers within the agricul-
tural sector.? Then, in 1991, Cali-
fornia established an emergency
water bank in the fifth year of a
prolonged drought, after legisla-
tive attempts to promote private
transfers produced few transac-
tions. The bank, which reallocated
water among willing buyers and
sellers, operated in 1991, 1992,
and 1994. Initially, the bank pur-
chased water for $125 per acre-
foot (about 10.1 cents per cubic
meter) and sold it for $175 an acre-
foot plus delivery charges. In some

Spring 2001 . 57