Stakeholders interested in decisions of water allocation include "agencies at state and federal levels, river basin commissions, state courts and engineer offices, publicly sanctioned water trading organizations (water banks), special districts and even citizen-initiated watershed groups" (pp. 25-26). Final disposition, however, rests with political or legal regulating bodies in a multi-tiered structure at the basin, local, state, or regional levels. Periods of shortage or surplus might cause adjustments to the rules and market allocations.
Two authors addressed the question of the interplay between the governmental and legal framework and market forces in their study of Arkansas Valley transfers. Howe and Ingram (2005) queried, "to what extent can expanded roles for the private sector, including markets and market-like processes, be beneficially utilized within a politically determined institutional framework? Insofar as water markets are used, how are public values not reflected in private transactions to be protected" (p. 26)? In Colorado the Northern Colorado Water Conservancy illustrates a purely market approach, which manages the operations and maintenance of the Colorado-Big Thompson project and rents its water.
Scarcity prompts water allocation. Prior appropriation and riparian rights form two of the rules governing scarcity. Sectors vying for water include municipal and industrial uses, agriculture,
and environmental. These designate the broad categories of water interests. In semi-arid areas, such as Colorado, agriculture consumes approximately 80 percent of "all surface water and groundwater diversions and about 90 percent of all consumptive use" (p. 27). The authors attributed the high percentage of consumption to multiple factors: "inappropriate regional location of agriculture, inefficient irrigation techniques and wasteful cropping patterns result from policies of water and crop subsidies that fail to confront the water-using region and the individual user with the correct scarcity value (or 'opportunity cost') of the water and the real social value of the crops being produced" (pp. 27-28).
Since 1902, water trends have shown a shift from agriculture to other uses. Specifically, within the Northern Colorado Water Conservancy District incorporated in 1957, water has moved from agriculture to municipal and industrial uses. This reality supported the concept that 'water runs uphill towards money' and the fear that municipal interests could afford to buy out agricultural water rights owners. Outdoor landscaping consumes one-half of the municipal and industrial water providers withdrawals. To curb water waste and motivate conservation, municipalities employ block rates, raising the cost of water with higher use. Despite these measures, the cost of water does not cover the expense of water purchases and operations and maintenance of utilities.
In regions with informed and ecologically engaged citizens, the public advocates for environmental interests--water-based recreation, species biodiversity, aesthetic values, and water quality. The authors described a conflict between these groups, who hold new values, with those with established, agriculture-based tendencies. The authors propose a solution, "this is where voluntary transactions through water markets can play an important role by generating price information and offering higher prices to the traditional users. Environmental interests can buy water rights for these new uses (as recommended by Colorado Supreme Court Justice Greg Hobbs, 2002" (p. 30).
Logically, water management should conform to the hydrologic unit, the basin. However, often this is not the case. Citing the 1922 Colorado Compact as an example, the authors pointed to the "disjunction of basin and political boundaries" (p. 30). Economists call this condition "'jurisdictional externalities', that is, losses of basin-wide benefits through failure to recognize gains or losses to other political jurisdictions" (p. 30). As a consequence, in the case of the Colorado Compact, the authors concluded, "no state has motivation to recognize the value of additional water to the other states" (p. 30).
Because the United States ceded authority of water administration to the states, the structure limits water markets within states and thwarts markets between states, areas of greatest inefficiencies, according to the authors. "In 1991, California proposed an interstate marketing arrangement for temporary (annual) Exchanges of water among states with the state water authorities acting as marketing organizers (State of California, 1991). The idea was quickly shot down by Colorado" (p. 30). More complicated than determining geographical allocations are decisions on allocating renewable and non-renewable water resources--using resources now or saving the resource for the future. The vulnerable non-renewable Ogallala aquifer could have extended life through "some type of regulation and the use of economic instruments (taxes)" (p. 32), the authors suggested.
Among the strategies of water management, economic efficiency, equity, and sustainability are the most prominent. The authors defined the terms in this manner: "Economic efficiency refers to an allocation of scarce resources that maximizes the difference between benefits generated and cost incurred . . . equity . . . serves as a label for important social values that are tied to the distribution of benefits and costs among impacted groups . . . sustainability . . . relates to the supply side, that is, the ability of a society to maintain the outputs of vital economic and environmental goods and services over time" (pp. 32-35).
The authors listed a number of issues that require future solutions: "continued separation of water quantity and quality management . . . missed opportunities for surface water-groundwater conjunctive management . . . lack of congruence of hydrologic and administrative boundaries" (pp. 36-38).
Howe and Ingram examined the impact of the private sector on water allocation and management, resulting from its growing influence internationally. The authors attributed this trend to "a global quest for improving the availability of water and wastewater services, service reliability, cost reduction, water quality, technological resources, and the timely maintenance and replacement of aging water infrastructure" (p. 39). Small utilities lack resources to achieve these goals. The authors suggested '''regionalization' or consolidation" (p. 39) to realize economies of scale to confront challenges. Although privatization takes many forms, most utilities choose to outsource operations rather than sell infrastructure, with the goals of protecting water quality and sustaining assets economically. The authors surmised that economic goals might supersede social and cultural values and customer preferences. In contrast, private operators have fewer political pressures to make staffing and administrative decisions. The authors concluded, "a major impact of the increasing competition from the private sector has been to stimulate improved performance in publicly owned and operated water agencies" (p. 39).
One mechanism for water allocation, water markets, conforms to the basic private sector model, allowing water transactions between buyer and seller, from traditional applications of water to more environmental purposes. The authors listed specific safeguards for the transactions: "(1) flexibility in allocation over time; (2) security of tenure for water owners; (3) reflection to the water user of the real opportunity cost of the water being used; (4) fairness to the participants in the water system; and (5) allowance for water users to adjust the levels of risk they face from hydrologic uncertainty" (pp. 39-40). The contractual nature of water markets between buyers and sellers generally satisfy these criteria. Market forces reveal the actual cost of water and set the stage for purchases, if buyer or seller experience shortages due to drought or growing need.
The authors claimed that within the state Coloradoans have transacted exchanges in water markets for over 100 years. Examples include, the exchange of share of the Northern Colorado Water Conservancy and the planned water market in the Arkansas Valley "to facilitate temporary trades with the hope of preventing further out-of-basin sales" (p. 40).
Some water stakeholder groups voice concerns about the private sector models of water administration. They adhere to two basic values regarding water, equity and a public good. They view water as a resource that "can be enjoyed by many people without diminishing the benefit for others; and (2) it is usually impractical to require people to pay for the benefit" (pp. 40-41).
These values counter the objectives of private water operation and maintenance concerns, who aim for upgrades in system efficiency and water quality, objectives only accomplished by raising water rates. Southwestern communities that continue to utilize the traditional, communal Spanish acequia systems and farming communities where farmers retain their homes after selling their water rights demonstrate two groups outside the constraints of the free market framework.
Four developments in the Western United States have evolved from the interaction of the private and public sectors, according to the authors: "confusing and contradictory legacy of water rights and water law that recognize both the prior appropriation rights of individual users and the water-dependent public welfare of communities: great variety of water agencies that have evolved over time, creating fragmentation and conflict but, at the same time creating flexibility and permeability so that parties holding conflicting values have continuing access to decision making; Legacy of independent grassroots water entrepreneurship that has co-existed with a strong federal emphasis on centralized planning, construction, and management
legacy of state government involvement in water market arrangements that has had both positive and negative effects on the potential of this mechanism" (p. 42).
Within the context of water resources in the West, the federal government, the authors stated, played a positive and negative role. The Army Corps of Engineers managed water transportation and flood control projects and the Bureau of Reclamation built water projects that served multiple functions. The authors identified several important federal tasks in Western water development : "the first task was to settle and legitimate water rights [e.g., the Colorado River Compact of 1922] . . . the second task was to undertake comprehensive water planning and development . . . the third task was to undertake multipurpose water development . . . a fourth task was to apply the disciplines of efficiency and safety . . . a final task of federal involvement in water development was to address equity and environmental issues unlikely to be of concern to private developers" (pp. 45-46).
The dominance of federal control in water construction decision-making has waned since the 1960s. Its role has metamorphosed from builder to balancer of multiple stakeholder interests, the tasks of federal agencies and policy statements. Organizations, such as the Environmental Protection Agency and the Department of Interior, actualize this function and and strategies, such as the Endangered Species Act and adaptive management, serve this purpose. "Adaptive management involves creating strong feedback from researchers to managers in the effort to learn how some of the environmental damage of past water projects can be undone" (p. 47). Public action groups, conservationists and watershed and basin grassroots groups seek to exert a stronger role in water policy decision making. History has yet to determine the effectiveness of these efforts. Finally, water markets and similar arrangements offer an underused potential solution to changing water uses. Future use of water markets must overcome resistance from entrenched opposition and legal barriers.
Finally, the authors articulated lessons from their research: "Any move towards privatization should also take place within a transparent, accountable framework that has the capacity to monitor system performance and to protect public values . . . attempts to privatize ownership of the basic water resource through the establishment of tradable water rights have had mixed results . . . the river basin remains the natural unit for water development and management . . . water and land use must be dealt with together in planning, permitting and regulatory processes . . . the fundamental needs of the poorest of the poor must be kept in mind in designing governmental and market institutions . . . The continued subsidization of major crops through price support programs and underpriced irrigation water stands in the way of increased efficiency in national water use" (pp. 60-62).
Noticeable changes in water quantity, quality, and ecological degradation are conditions that promote changes in water policy management. The authors anticipated an increase in activity internationally during the next two decades.
Howe, C. W. & Ingram, H. 2005. Roles for the public and private sectors in water allocation: Lessons from around the world. In Douglas S. Kenny, ed., In search of sustainable water management: International lessons for the American West and beyond. Northampton, MA: Edward Elgar.
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