Amoral Water Markets?

• Author: Karrigan Bork/Sonya Ziaja
• Position: Acting Professor of Law, University of California, Davis/Assistant Professor, University of Baltimore School of Law. Ph.D. in Geography, University of Arizona
• Pages: 1335-1405

Amoral Water Markets?

KARRIGAN BO

¨RK* & SONYA ZIAJA**

Severe water scarcity in the western United States is prompting legiti-

mate questions about the best way to decide which places, people, indus-

tries, and species need it most. Water markets, which allow for trading

water like a commodity, are perennial proposals during times of scar-

city. Water markets have an innate allure: promising to efficiently real-

locate water to the highest value uses, minimize risk, and preserve the

environment, while relying on the invisible hand to brush aside politi-

cally painful values-based questions. This view portrays markets as an

amoral arbiter of the best use of water. But water markets are not

amoral; they express the historic value judgments baked into the exist-

ing western water law system, and layering market approaches over

the existing system will both exacerbate the negative impacts of those

values and further entrench existing law. In this Article, we show that

the West is not ready for water markets.

We rely on institutional economics, environmental justice, and com-

mons scholarship to identify three core faults of water markets. First, an

institutional economics perspective removes the veil of neutrality and ef-

ficiency of markets. Markets are embedded in a political economy and

physical geography that makes market failure inherent. Markets depend

on legal institutions (property rights, courts, etc.) for their existence and

cannot be separated from the value judgments embodied by those institu-

tions. Ultimately, water markets do not determine values—they express

them.

Second, drawing from environmental justice literature, we argue that

markets impede equity and fairness. Markets express the antiquated val-

ues baked into the initial distribution of property rights, with lasting con-

sequences for justice today. Markets also displace the participatory

governance environmental justice requires.

Third, applying commons literature to water markets, we conclude that

markets impede reinvigorated water governance by both decreasing

* Acting Professor of Law, University of California, Davis; Ph.D. in Ecology (Conservation

Biology), U.C. Davis; J.D., Stanford Law School; B.A. in Environmental Policy and B.S. in Biology,

University of Kansas. © 2023, Karrigan Bo

¨rk & Sonya Ziaja.

** Assistant Professor, University of Baltimore School of Law. Ph.D. in Geography, University of

Arizona; M.Sc. in Water Science, Policy, and Management, University of Oxford; J.D., U.C. Law San

Francisco. The authors would like to thank the participants in The Foundation for Natural Resources and

Energy Law Natural Resources Law Teachers Works-In-Progress, Brigham Daniels, Lingxi Chenyang,

Ruhan Nagra, Tracy Hester, Faye Matthews, Alyse Bertenthal, Mike Pappas, Dave Owen, Vanessa

Casado-Pe

´rez, and many other colleagues for their helpful feedback on this Article.

1335

current governance and creating incentives and concentrating political

power in a way that frustrates future governance.

Market advocates argue that water markets maximize social welfare

by maximizing economic efficiency, but our analysis shows that this fails

in our current institutional setting. Our analysis also suggests a way for-

ward that everyone who wants a better water future could agree on, mar-

ket advocates and market skeptics alike. Improved water governance,

either as an end in and of itself or as a first step toward deployment of

markets, should be the priority for anyone seeking to address water scar-

city in the western United States.

TABLE OF CONTENTS

INTRODUCTION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1337

I. WATER RIGHTS AND WATER MARKETS . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1345

A. EVOLUTION OF WATER RIGHTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1346

1. The Adoption and Transformation of Riparian Rights . . . . 1346

2. The Creation and Spread of Appropriative Rights . . . . . . . . 1348

3. Failures of Water Rights Systems . . . . . . . . . . . . . . . . . . . . . . 1353

4. A Brief History of Water Markets . . . . . . . . . . . . . . . . . . . . . . 1357

B. WHY WATER MARKETS? . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1360

1. Economic and Policy Efficiency . . . . . . . . . . . . . . . . . . . . . . . 1361

2. (Re) Allocation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1363

3. Redistribution to Minimize Risk . . . . . . . . . . . . . . . . . . . . . . . 1364

4. Environmental Preservation . . . . . . . . . . . . . . . . . . . . . . . . . . . 1365

5. Political Palatability . .. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1365

II. WHY NOT WATER MARKETS?. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1366

A. MARKETS ARE NOT VALUE-NEUTRAL TOOLS THAT IMPROVE WATER

MANAGEMENT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1367

1. Economic Efficiency of Water Use May Not Maximize

Social Welfare . . .. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1368

2. Water Markets Do Not Determine Values; They Express

Them . .. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1371

3. Market Failure Is Inevitable in Water Markets . . . . . . . . . . . 1376

1336 THE GEORGETOWN LAW JOURNAL [Vol. 111:1335

B. MARKETS IMPEDE MODERN PRINCIPLES OF EQUITY AND FAIRNESS . . . 1378

1. Unjust Historic Water Right Allocations Thwart Equity

and Fairness in Water Markets . . . . . . .. . . . . . . . . . . . . . . . . . 1379

2. Markets Frustrate Meaningful Participation in Water

Governance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1385

C. MARKETS HINDER WATER GOVERNANCE . .. . . . . . . . . . . . . . . . . . . . . . 1388

1. Markets Decrease Governance of Water Rights and Can

Exacerbate Scarcity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1390

2. These Changes Are Durable and Frustrate Future

Governance Efforts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1397

CONCLUSION: LOOKING FORWARD . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1400

INTRODUCTION

We begin with two stories about water rights and water markets. In both cases,

water right holders initially obtained their rights to use the public’s water for free,

as is usually the case.

1

In the first story, a company in Washington that no longer

needs its right is selling it back to the public at a rate of $2,750 per acre-foot

(AF),

2

Water Bank Overview, TRANSALTA, https://static1.squarespace.com/static/5de6de886324a3666

3a8cdee/t/5f7e1a6a1247d326375e2d25/1602099848007/TransAltaWaterBank_FAQ_10-2020.pdf [https://

perma.cc/JQ77-LDCY] (last visited May 1, 2023). An acre-foot is a volume of water that would cover one

acre of land one foot deep and is typically considered enough water for two households for one year in the

arid West. See Acre Foot, WATER EDUC. FOUND., https://www.watereducation.org/aquapedia/acre-foot

[https://perma.cc/SA42-HS5G] (last visited May 1, 2023).

ultimately offering it via craigslist.

3

In the second, a water right holder in

California lost its water right by failing to use it, and the newly available water is

being redistributed to existing junior right holders.

In 1999, TransAlta, a Canadian power company, bought a coal fired power

plant in Centralia, Washington.

4

Bloomberg News, Canadian Utility to Buy U.S. Power Plant, N.Y. TIMES, May 11, 1999, at C10,

https://www.nytimes.com/1999/05/11/business/canadian-utility-to-buy-us-power-plant.html.

The purchase included a usufructuary right to

take 51.6 cubic feet per second (CFS)

5

One CFS is a rate of flow equivalent to one cubic foot of water passing by a given point each

second; it is roughly 7.5 gallons per second. See Glossary, WATER F., https://perma.cc/HYE8-VB7Y

(last visited May 1, 2023).

of water, up to a maximum of 28,033 AF

1. Typically, no one pays the state for the right to use water. E.g., Robert Glennon, The Price of

Water, 24 J. LAND, RES. & ENV’T L. 337, 340 (2004). Irrigation districts or other providers charge users

for infrastructure, energy, treatment, and administrative costs associated, but the state does not charge

the right holder for the water itself. See id. Those who purchase water from other water right holders pay

for it, but the public is not paid for the water use. W.M. Hanemann, The Economic Conception of

Water, in WATER CRISIS: MYTH OR REALITY? 61, 76–77 (Peter P. Rogers et al. eds., 2006).

2.

3. TransAlta Skookumchuck/Chehalis River Water Bank, CRAIGSLIST (on file with authors).

4.

5.

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