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Monday, February 26, 2007

Glennon et al. on Water Resources

Robert Glennon (University of Arizona) and collaborators have posted four articles on water resources on SSRN.  Here they are:

Robert Glennon, Jedidiah Brewer, Alan P. Ker, and Gary D. Libecap, Water Markets in the West: Prices, Trading, and Contractual Forms:

Rising urban and environmental demand for water has created growing pressure to re-allocate water from traditional agricultural uses. But, for a variety of reasons, water markets are more complicated than are those for other resources. In this paper, we first explain these differences by examining water rights and regulatory issues. Second, we place our research in the context of other economics literature on water marketing. Third, we present new, comprehensive data on prices and the extent, nature, and timing of water transfers across 12 western states from 1987-2005. Prices are higher for agriculture-to-urban trades versus within-agriculture trades, in part, reflecting the differences in marginal values between the two uses. Prices higher for urban use are also growing relative to agricultural use over time. Markets are responding. The number of agriculture-to-urban transactions is rising over time, whereas the number of agriculture-to-agriculture transfers is not. Further, there is a shift from using short-term leases to using multi-year leases of water and permanent sales of water rights. This pattern underscores the need to consider the amounts of water obligated over time, rather than examining only annual flows in assessing the quantities of water traded as is the common practice in the literature. Considering committed water, we find that more is transferred and the direction of trading is different than if the focus is on annual flows. Finally, the data reveal considerable variation in water trading across the states.

Robert Glennon and Michael J. Pearce, Transferring Mainstem Colorado River Water Rights: the Arizona Experience:

As one of the fastest growing states in the country, Arizona faces a problem: where is it going to find water to support this growth? The problem arises because most surface water supplies are completely allocated and groundwater is being pumped at an unsustainable rate. This leaves, as the only viable source of new water, Colorado River water available through the sale, lease or exchange of existing water rights.

The United States is entering an era of water reallocation, when demand for new supplies will be satisfied by shifting water use from existing users to those with new demands. Voluntary transfers between willing sellers and willing buyers is, we believe, the best way to bring about this reallocation. Water marketing should be especially embraced by the environmental community because the alternatives are unsatisfactory: more diversions of water from the few remaining free-flowing rivers; an increase in groundwater pumping; or the construction of new dams.

This paper explores the opportunities for marketing Colorado River water by examining case studies of individual transfers that have occurred or been proposed. We consider a recent proposal by the seven Colorado River Basin States that would alter the Law of the River with a set of incentives that would encourage water conservation by allowing cities to pay farmers and irrigation districts to undertake extraordinary conservation measures. We conclude that there substantial impediments to water marketing: the legal constraints are formidable; the transaction costs substantial; and the emotions highly charged. Procedural pitfalls and bureaucratic oversight of transfers constitute substantial impediments to the transfer of even modest quantities of water. These regulatory obstacles drive up transaction costs and discourage the development of a market in water.

Robert Glennon, Tales of French Fries and Bottled Water: the Environmental Consequences of Groundwater Pumping:

This article is a substantially revised version of the 19th Annual Distinguished Visitor lecture at Lewis and Clark Law School in September 2006. Drawing on my 2002 book, Water Follies: Groundwater Pumping and the Fate of America's Fresh Waters (Island Press, 2002), I use stories about common activities in our daily life, such as drinking bottled water and eating French fried potatoes, to illustrate the horrible environmental consequences of groundwater pumping. Excessive groundwater pumping has dried up rivers and lakes around the country, including some very surprising areas, such as Florida and Massachusetts. The phenomenon comes from a disconnect between law and science: the science of hydrology understands that surface and groundwater are integrated parts of the hydrologic cycle, but the legal system governs ground and surface water by different legal doctrines. Rather than reforming the system, we have devised Rube Goldberg solutions, such as refilling dried-up lakes by pumping more groundwater. This illustrates a remarkable trait of human beings: we have an unlimited capacity to deny reality.

Robert Glennon, Christopher Avery, Carla Consoli, and Sharon B. Megdal, Good Intentions, Unintended Consequences: The Central Arizona Groundwater Replenishment District's Search for Renewable Supplies of Water:

The 1980 Arizona Groundwater Management Act is widely celebrated as a progressive piece of legislation that attempted to halt excessive groundwater pumping. A key component of the Act was its requirement that developers demonstrate an “assured water supply” [AWS] before receiving permission to build. In the early 1990s, the legislature created an optional method for securing AWS compliance: membership in the Central Arizona Groundwater Replenishment District [CAGRD]. This option has turned out to be far more attractive than was originally envisioned. This paper explores the good intentions but unintended consequences brought about by the CAGRD option.

As membership in CAGRD has skyrocketed, so has the CAGRD's obligation to obtain additional supplies of renewable water. From where, and at what price, CAGRD will obtain these supplies is very problematic. This article offers a set of options that would reform how CAGRD operates. Without significant change, CAGRD will find itself required to accept additional members but without access to long-term water supplies to meet it replenishment obligations.

Ben Barros

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