So how are we going to build these western water markets?

Peter Culp, Robert Glennon and Gary Libecap have published an excellent new analysis of the potential for water markets to help us dig out of the western United States’ water mess:

Culp, Glennon and Libecap

Culp, Glennon and Libecap


Water trading can facilitate the reallocation of water to meet the demands of changing economies and growing populations. It can play a vital role in encouraging conservation and stewardship of water supplies in a way that can address cultural, social, and environmental priorities. It can facilitate building a structure for managing the ever-increasing risks of greater variability in water, including through methods such as insurance contracts, hedging tools, water banking, and other mechanisms. Deploying market tools in the allocation of water can help us to overcome the growing fragility and vulnerability of the water management institutions and infrastructure in the American West.

I agree, and their new work offers a great menu of policy options to move down this path. In brief (again quoting Culp et. al):

  1. Reform legal rules that discourage water trading to enable short-term water transfers.
  2. Create basic market institutions to facilitate trading of water.
  3. Use market-driven risk mitigation strategies to enhance system reliability.
  4. [B]etter regulate the use of groundwater by monitoring and limiting use to ensure sustainability, and by bringing groundwater under the umbrella of water trading opportunities.
  5. To make water markets work at scale, strong federal leadership will be necessary to promote interstate and interagency cooperation in water management

This is great stuff. But how do we actually do any of them?

Each of their first four bullet points is a staggeringly difficult task that will require enormous institutional capacity within the states to carry out. Consider California’s efforts to move on number four, for example. In the midst of the drought of record, with overwhelming problems caused by groundwater pumping, all California could manage was some feeble legislation aimed at just the first part – monitoring and limiting use to ensure sustainability at some future point in time sorta maybe. This is not for lack of smart scientists and policy people pointing out that the problem is deeper and requires stronger action. This rather reflects a shortcoming of the political system that has left us at with a sub-optimal equilibrium because of the ability of individual players, acting in their own short term interest, to block progress toward a more socially optimal solution. We’re stuck in the wrong spot, and years of water politics in California, despite calls to move off of it, have failed. From Kosnick:

There exists a socially optimal level of production of a good…, but without coordination of the overlapping players involved, optimality is not guaranteed. For example, this is a prisoner’s dilemma, where each player acting independently in his own best interest fails to internalize the externalities of his actions on the other players, and so a suboptimal (if dominant strategy) Nash equilibrium results…. Self-interest and a limited perspective reduce the benefits to society as a whole.

Not to pick on California, but nearly two decades of experience in trying to put together markets to move Colorado River agricultural water from Imperial and Palo Verde to the urbanized coastal plain (Glennon’s Unquenchable discusses the efforts at length) shows how hard this can be.

Culp et. al clearly get the difficulty of the task that they’re proposing. In a discussion of the impediments posted by existing water law doctrines, for example, they write:

Comprehensive reform of these doctrines would be controversial and could take decades to implement.

But I think they’re on to something when they suggest the following approach:

[S]tates could immediately act to facilitate effective short-term water trading. Particularly important would be for states to encourage existing water users to invest in conservation by allowing users who free up water to lease their water savings on a short-term basis to other users. This strategy offers obvious, real-world opportunities for win-win solutions, benefitting all parties and increasing economic efficiency.

Having spent years watching the New Mexico legislature’s lack of institutional capacity to make even simple water rule changes, and watching California thrash about this year in the midst of genuine crisis, I think Culp and his colleagues are a tad optimistic to suggest this could be done “immediately”, but whatever. I’m all for optimism. And I’d file this under the critical category of “baby steps,” smaller and relatively easier things that can be done that provide shorter term benefits and the learning experience to help amass the necessary social capital to take on the harder challenges to come.

I also think they’re on to something important in suggesting a federal role:

The federal government has a key role to play in assisting the development of water markets through its leadership on water issues, facilitating large-scale planning and interstate cooperation, developing critical data and information, modernizing the management of existing federal projects, and reforming existing federal agricultural policies.

Minute 319, the U.S.-Mexico agreement that, among other things, allowed last spring’s Colorado River Delta environmental pulse flow (and which Culp helped design) is a great “baby steps” example. It includes some of the elements Culp, Glennon and Libecap are asking for (albeit dressed up quite differently), but it was as much about learning how to do stuff as it was about actually doing stuff. It also demonstrates the importance of the role of the U.S. federal government.

The important thing we need recognize here, I think, is that the investment in the social capital needed to do these things, an investment in what I’ve sometimes called the “institutional plumbing”, is every bit as real and important as the investment in pumps and canals and dams that make up the physical plumbing of water in the West.

California water for kids, circa 1961

California Water Supply, from "The Golden Book of California," Golden Press, 1961

California Water Supply, from “The Golden Book of California,” Golden Press, 1961

The Los Angeles area, with its large population, requires a great supply of water. To meet its needs, water is brought in by pipe lines from a long distance.

Little moisture falls on the Central Valley in the dry season. During the season of rainfall, water is dammed and stored. It is released through canals when needed to irrigate the fields where farming is carried on.

From “The Golden Book of California,” 1961, one of the treasures in a trove of old California books Lissa recently rediscovered in a box in the garage.

Phoenix, Lake Mead and “the anticommons”

Here’s a good example of why fixing the west’s water problems is going to be so difficult.

Phoenix wants to do something really simple. It currently has more Colorado River water than it needs, and it would like to just leave its unused apportionment in Lake Mead. This seems like a no-brainer – Phoenix gets to stash some water now as a hedge against things getting worse. Las Vegas should love this, because more water in Lake Mead means less risk to Las Vegas’s water intakes, which are increasingly vulnerable as Mead drops. In general, this helps reduce the risk of a shortage declaration by propping up Lake Mead’s levels. What’s not to like?

Except, under the rules, Phoenix cannot do this.

A member of the Inkstain brain trust, who I’ll call “Deepwater”, recently pointed me to an interesting body of academic literature on “the anticommons”. We all know about the “tragedy of the commons”, where multiple users all have access to the same common pool resource, creating a risk of overgrazing of a pasture or overpumping of an aquifer. The anticommons is a sort of reverse version of this, where multiple actors have the ability to block attempts to come up with sane solutions to the tragedy of the commons. Here’s Lea-Rachel Kosnick’s explanation:

The commons can lead to the “Tragedy of the Commons,” where uncoordinated utilization of a good can lead to its overuse, and symmetrically, the anticommons can lead to the “Tragedy of the Anticommons,” where poor collective management can lead to suboptimal use of the resource…. The anticommons approach explains much of the inefficiency and waste that currently occurs with water use in the United States today.

Phoenix’s current inability to stash unused water in Lake Mead is a great example of how this works.

As Peter Culp and colleagues note in a new paper out this week suggesting new approaches to western water management (it’s really good, suggested reading, pdf), Phoenix has already been a big part of the western municipal water conservation craze:

Thanks to investments in water efficiency, many of the West’s largest cities, such as the City of Phoenix, use less water today than they did several decades ago—despite the doubling or tripling of their populations during that period.

That creates a dilemma that may sound surprising – Phoenix is legally entitled to more Colorado River water than it is using. Phoenix currently has rights to 186,557 acre feet per year of water via the Central Arizona Project, the big aqueduct that carries Colorado River water uphill to the state’s populated middle. But Phoenix is only currently using ~130,000. First, good for Phoenix for not using it all. But what to do with the surplus?

The simplest thing, it seems, would be to just leave it in Lake Mead, right? Ah, but this is the Colorado River. It’s not simple. This is one of those areas where the rules by which we allocate and distribute water are crazy weird and difficult to explain to folks outside the water world who just want things to work sensibly. This does not work sensibly, but the rules are what they are.

Prior to 2007, water use on the Lower Colorado River among Nevada, California, and Arizona was pretty much use-it-or-lose-it. The 2007 shortage sharing guidelines, an agreement among the states and the federal government, created a new management widget that changed that, called “Intentionally Created Surplus.” Lower Basin water users holding contracts with the Bureau of Reclamation could conserve water, jump through some bureaucratic hoops, and leave the water in Lake Mead for later. By the end of 2013, there was 1.1 million acre feet of ICS water in Lake Mead. In other words, this new institutional widget encouraged Lower Basin water users to conserve enough water to raise Mead’s elevation by something like 10 feet.

But Phoenix can’t use the ICS mechanism, because it is not a direct contractor. It gets its water instead through the Central Arizona Project, which as holder of the contract is the only one eligible for ICS. So CAP can store water in Mead, but Phoenix can’t. Next week, the Phoenix City Council will discuss efforts underway to change that. From the staff report (see below for the full document):

[T]he seven Basin States are engaged in negotiations to address declines in Lakes Mead and Powell. As part of this effort, the City is in preliminary discussions with the Arizona Department of Water Resources (ADWR) and Central Arizona Project (CAP) to explore the possibility of storing some of the City’s water in Lake Mead to improve current reservoir levels.

I’ll leave it to others who better understand Arizona’s crazy water politics to explain why these folks are palavering rather than just doing this, but one fruitful area of inquiry might involve what happens to the excess water once it’s in the CAP system and Phoenix doesn’t use it. CAP may have institutional motivation to do something else with it?

Phoenix does have a smart alternative, announced earlier this month – a deal with Tucson, which is downstream on the CAP and has a big groundwater recharge operation, to stash some of the Phoenix excess underground. Later, when, if and when Phoenix wants the water, it would do a paper water swap, using some of Tucson’s CAP water while Tucson pumps the stored groundwater to replace it.

Here’s the full Tucson City Council meeting staff report, which has some other neat things in it:

 

Phoenix drought planning

Could Jerry Brown become “the most important water manager on Earth”?

Brett Walton evaluates Jerry Brown’s drought and water governance, comes away impressed:

The last ten months are an impressive record of achievement, evidence of a governor taking seriously the duties of governing. What Brown is orchestrating in California is distinctive, perhaps unique in the United States during this frustrating age of division. In most other states policy changes and investments necessary to adapt to new environmental conditions have been impeded by leadership fogged by the politics of austerity and ideology. The results are that the nation’s transport, water, and power infrastructure are reaching the end of their design lives and not being modernized, expanded, or replaced.

And here is Brett quoting Phil Isenberg, one of the smartest water politicians I’ve had the pleasure of knowing:

“The water supply is limited and demands are limitless,” said Isenberg, of the Delta Stewardship Council. “Because of this we will have enduring problems with water in California. There’s no way to guarantee all the interests all the water they want every year. Most people would not want to hear that.

“We have to get used to living within our means. How you convince people to buy into that is the art of politics, and Jerry Brown is a damn good political artist.”

The entire piece is worth a click.

Mead, Powell monthly data update

It is no surprise that Lake Mead ended the “water year” Sept. 30 at the lowest level it’s been since the government began filling it in the 1930s. Perhaps more importantly, combined storage in the two big reservoirs, Lake Mead and Lake Powell, ended the water year at its lowest level since 1968, when they first began filling Powell. I don’t know that we need to freak out here. This is what reservoirs are for, right? Fill ‘em up when it’s raining, use the water when it’s not?

  • Data source: USBR 24-month study (pdf)
  • My transcribed version of the data set, assembled from various sources to get it back to the dawn of time and including the 2015 forecast, is here.

Change, stasis and (or?) resilience in New Mexico water policy

I spent a thoroughly fascinating couple of days last week at a workshop organized by the University of New Mexico’s Utton Center (legal wonks thinking about water institutions) on resilience in New Mexico water management. It was a lot of fun, made all the more so by the fact that I was invited Thursday evening to yammer on about my stuff (Colorado River institutions and governance etc.). Thanks to Adrian and Marilyn and all the Utton Center folks for making this happen.

UNM Law Professor Reed Benson, in a short post-conference blog post, captures one of the key messages when he describes the nature of the problem we face:

Since I am certainly no expert on resilience thinking, I emphasized a quote from a recent article by two authors who are, Melinda Benson and Robin Craig:  “[A] resilience approach would reorient current research and policy efforts toward coping with change instead of increasingly futile efforts to maintain existing states of being.”  In my view, a top priority of western water policy–especially in New Mexico–has been maintaining existing states of being.  Having allocated as much water as possible to some “beneficial use,” New Mexico and other states now mostly protect the water use status quo, even where changes would be legally sound, economically preferable, and environmentally beneficial.

In a recent paper, Melinda Benson and colleagues offered a menu of changes that might be implemented to enable more resilience in the Middle Rio Grande:

First, more institutional flexibility is needed to build adaptive capacity into the operation of the many dams and reservoirs involved in MRG water supply and allocation…. Second, water allocation strategies must be re-examined…. Third, more aggressive forest management will be needed, both in the MRG’s cottonwood riparian system and its upland forest systems…. Fourth, managers need to embrace a new flood management paradigm, one that better accommodates the flood regimes we can anticipate in the future, including the need to address shifting hydrologic conditions and floodplain needs, with more emphasis on localized flooding risk. Finally, managers must face that, in some situations, ecological regimes shifts are occurring, and more adaptive capacity is needed to facilitate transformation when necessary.

For those interested in New Mexico water or in a manageable case study in this way of thinking about water problems, I recommend the full paper. My question to Melinda Benson over coffee last week was, “How do we this?” This seems like a reasonable list of things we might usefully do differently, but it seemed to me at the time that we are missing the “social capital” piece – the network of people, relationships and institutions (both formal and informal) that can do the necessary collaborative heavy lifting to head down this path.

But Reed Benson’s blog post, and some of the discussion I heard at the conference, made me realize I may not be using this “social capital” tool quite right. Reed’s argument implies that we do, in fact, have an existing body of social capital, functioning quite capably in maintaining the status quo and not admitting new thinking into existing networks. It may not be a lack of social capital, but rather an existing body of social capital that is functioning all too well, but that is maladaptive.

Stuff I wrote elsewhere: an inordinate fondness for beetles

In central New Mexico, the salt cedar beetle seems here to stay, enforcing the Law of Unintended Consequences:

Introduced in the 19th century to protect railroad bridge abutments, praised for its ability to protect riverbanks from erosion, vilified for alleged water-sucking ways while simultaneously defended as wildlife habitat, the story of the Eurasian tamarisk – also known as salt cedar – is a textbook example of unintended consequences.

 

The newest Colorado River management widget: the “System Conservation Program”

tl;dr The new Colorado River conservation program may not conserve a whole lot of water. But growing the “civic community” needed to solve the basin’s water problems may be far more important.

Longer Version:

The Colorado River Pilot System Water Conservation Program crept forward last week, in the process demonstrating an endearing quirk of Colorado River Basin water governance – no one is in charge. This no-one’s-in-chargeness is one of the central themes of my book. With the System Conservation Program, the folks not in charge are handing me an easy story line.

The news was the announcement Wednesday (press release here, scroll to the bottom of this post for the full solicitation document) of a “Funding Opportunity for Voluntary Participation in a Pilot System Water Conservation Program.” It’s a modest effort among basin water agencies to pool some cash to “conserve Colorado River System water for storage in Lakes Powell and Mead.” The $11 million involved is not nearly enough to fill the empty reservoirs, and no one expects that it should. Rather, it is an experiment in the construction of a new kind of water management widget aimed at staving off a particular kind of disaster – a tragedy of the commons among the nine states (seven in the U.S., two in Mexico) trying to figure out how to share the shrinking river.

Boulder Harbor, Lake Mead, Oct. 18, 2010

Boulder Harbor, Lake Mead, Oct. 18, 2010

When I say “no one is in charge,” I’m not describing a state of either anarchy or chaos. It’s actually a pretty orderly system. Rather, the system operates via a set of emergent properties based on existing rules and institutions, developed collectively, and people who know one another and are trying to figure out how to solve problems together by collectively developing new widgets. As opposed to, say, Secretary of the Interior Jean-Luc Picard just saying, “Make it so.”

Here’s how the newest widget would work. The big municipal water agencies representing the basin’s four largest metro areas – Southern California, Phoenix-Tucson, Las Vegas and Denver – pool money in a fund to pay farmers or cities to do something (the request for proposals doesn’t specify what) to “develop short-term pilot projects that keep water in Lakes Powell and Mead through temporary, voluntary and compensated mechanisms.” In other words, we’ll pay you to cut your water use and leave the water in the river, so it can get to the reservoirs. (The proposal letter says the water could come from cities or farms, but who are we kidding? The water’s gonna come from farms. I promise to correct this post if I turn out to be wrong on this.)

It is being done this way because everyone knows there are problems (chiefly not enough water), but no one has the authority to impose solutions, to mandate that water users use less in a way that’s binding across the basin, leaving any individual user with the classic “tragedy of the commons” dilemma – if Phoenix gets real and slashes its use, that would just leave more surpluses for L.A. The two alternatives, therefore, are to continue draining the reservoirs, with confusion and uncertainty about who would bear the brunt of shortages once the shit gets real, or some sort of collective action where everyone gets together and agrees on a plan to avoid said shortages. But wow, that’s sure hard to do.

If you look at the history of basin management widget invention over the last 15 years, the major innovations have emerged from fuzzy collective negotiations that are difficult for outsiders like myself to fully understand. The 2001 Interim Surplus Guidelines, which led to a significant reduction in California’s overuse of surplus water, grew out of seven-state/federal negotiations that dragged on for a painful decade. (See Jim Lochhead’s remarkable history for a great picture of how that deal went down). The 2007 shortage sharing agreement, similarly, was a seven-state/federal affair, with the tent expanded in important ways to include environmental interests in the discussion. I don’t think that story has been written yet. (Buy my book! As soon as I finish writing it!)

Minute 319, which took some important steps toward clarifying U.S.-Mexico issues of surplus and shortage sharing, was nominally a nation-to-nation negotiation, but it was managed such that the tent was even bigger, including states, water agencies, and environmental non-governmental organizations on both sides of the border. Big, big tent. (See Dan Tarlock, unfortunately behind a paywall, for a lot of that story.)

I’ve been collecting and misusing jargon to make sense of this stuff faster than I can understand its significance (“network governance,” “polycentric governance,” “social capital,” “institutions, both formal and informal”, “social-ecological systems,” “sustainability,” “resilience”). My flavor of the day is “civic community,” from Paul Sabatier and colleagues’ introduction to their book “Swimming Upstream”:

[W]e conceptualize a collaborative process as essentially a set of rules regarding the types of participants, their entry and exit from the process, their authority to undertake tasks, and how their actions lead to policy outcomes…. One causal pathway leads from process and context to “civic community,” which includes human capital (e.g., knowledge about watershed conditions), social capital (e.g., networks of reciprocity), trust of others, legitimacy concerns, and attitudes toward collective action. These civic community variables are conceived as both an end in themselves and a means to better policy outputs.

Sabatier and colleagues are focused on smaller watersheds and a different family of issues, but I think it generalizes

Lake Mead, December 2011

Lake Mead, December 2011

A lot of this is formal, but a lot is informal. As I’ve explained this process in a series of talks I’ve been giving this fall, I’ve been using some schtick about “solving the Colorado River’s problems in hotel bars”. That captures the fuzzy nature of the interactions among the players and how solutions depend in part of the kind of shared understanding that develops through personal relationships among the participants. Plus I have multiple actual hotel bar stories. (They’ll be awesome. Buy my book!) I’ve treated this problem-solving approach as a good thing, but some smart critics of my argument have pushed back, noting the implications of cronyism and who gets left out because they’re not among the cool kids invited to the bar after the day’s meeting. I think that’s a fair criticism, and I think it extends to some of the private grumbling I hear about the System Conservation Program. We have a long history in the Colorado River Basin of decision making that fits the Sabatier model described above, but in which the only participants in the “civic community” were the old “water buffalos”, big powerful water interests, who long marginalized Native American communities, environmentalists, and recreation interests.

We have to remain wary about who’s not being invited to the bar.

But with that caveat, the System Conservation Program has some important characteristics that make it a promising problem-solving model.

The first is the way the big municipal water agencies stepped forward together. This effort – each put down $2 million – sends a “we’re all in this together” message. Up until now, water saved was water saved individually. Under this effort, water saved belongs to all. The fact that the munis are leading also is a recognition that they are the ones who are vulnerable. They’re owning up that that. A corollary to this is the Upper Basin/Lower Basin component. Up until now, each basin has mostly dealt with its problems separately. This is a related version of the “we’re in this together” message.

Lake Mead, Oct. 17, 2010

Lake Mead, Oct. 17, 2010

The second very important characteristic is the program’s potential to build bridges between the big players and smaller agricultural water agencies, who haven’t typically been in the hotel bar. The jargon here is “polycentric governance”, the need to get the links right between basin actors at all scales. Look at the list of players who are getting the System Conservation Program notification letter, which ranges from the big boys and girls like the Southern Nevada Water Authority to the little Bard Water District on the Arizona-California border.

One positive outcome from this would be that it works – that the players figure out how to operate the necessary contracting and water management tools needed to set sane prices, measure outcomes and ensure saved water actually ends up in the reservoirs.

But failure at those outcomes would not necessarily be failure. If this doesn’t work, we’ll have to try something else, and if this process can also maintain and enhance a functional “civic community” with a shared understanding of the basin’s problems and a desire to work collectively to fix them, woot. We’ll need it for building the next widgets, which will certainly be harder.

And even if the pilot program works, come to think of it, we’ll still need to design more widgets. We’ll never solve the Colorado River once and for all, we’ll just need to keep adaptively managing it. So maybe the “civic community” part of the System Conservation Program is the most important piece of this, period.

In her speech accepting the Nobel Prize in Economics in 2009, Elinor Ostrom put it this way (pdf):

A core goal of public policy should be to facilitate the development of institutions that bring out the best in humans. We need to ask how diverse polycentric institutions help or hinder the innovativeness, learning, adapting, trustworthiness, levels of cooperation of participants, and the achievement of more effective, equitable, and sustainable outcomes at multiple scales.

Which bar shall we meet at? What time?

Solicitation letter