Have We Got a Deal for You: Can the East Borrow from the Western Water Marketing Experience?

• Publication year: 2010

HAVE WE GOT A DEAL FOR YOU: CAN THE EAST BORROW FROM THE WESTERN WATER MARKETING EXPERIENCE?

Janet C. Neuman^*

Introduction

In early 2004, Georgia State University College of Law hosted a water law conference to help inform state water planning in Georgia.¹ The invited speakers included a bevy of westerners, including this author. The western visitors addressed a host of issues that are standard fare for western water policy wonks but that are only of recent interest to easterners, such as interstate water allocation devices and water markets.

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Georgia is one of the ten fastest growing states in the country, as is its neighbor Florida.²All but one of the remaining states in the top ten are in the West.³Demand for water in the Atlanta metropolitan region and elsewhere in the State is increasing dramatically, outstripping available supplies.⁴The region has also struggled with several years of severe drought.⁵Furthermore, Georgia has battled for over a decade with its neighboring states—Florida and Alabama— over their shared interstate rivers.⁶Georgia's current water challenges suddenly look very western indeed. Perhaps it is no surprise that the State is turning toward the sunset in search of help and ideas. After all, the western states have struggled for more than a century to manage a relatively small amount of water for numerous and conflicting needs.⁷As a result, western states and their water users have developed a panoply of legal devices to allocate scarce water.

In contrast, until recently, the East has been relatively water-rich. As a consequence, the East has never had as much use for a comprehensive body of law to allocate water.⁸Instead, the developing American states on the east coast borrowed from English common law, which developed in a fairly wet place and allocated water on the basis of owning riparian land.⁹Courts resolved the occasional water disputes case by case, developing and applying a loose set of tort principles.¹⁰The parameters of common law riparian rights are unclear, creating uncertainty for water users concerning how much water they can use and discouraging investment in water development.¹¹Further, common law riparianism is inadequate to manage water for increasing and competing demands, especially in times of significant shortage.¹²

Spurred by failings of the "pure" riparian doctrine, several eastern states have adopted administrative permit systems and other regulatory devices to manage water use.¹³The phrase "regulated riparianism" describes legislative efforts to codify and partially amend the common law riparian rights doctrine.¹⁴The statutory changes moved some of the water use decisions from courts to administrative agencies and from ongoing disputes to the time before an individual initiates the water use.¹⁵By issuing permits upfront, regulated riparian systems may clarify how much water a user has available and may promote certainty and economic investment.¹⁶

Western states have also modified aspects of their prior appropriation systems in recent decades to address that doctrine's shortcomings.¹⁷The problems with prior appropriation systems are the opposite of the problems with riparianism. The prior appropriation states have had comprehensive water codes and prospective permit requirements for many years.¹⁸Since water scarcity is an annual reality in arid states, prior appropriation systems also have a very clear rule for dealing with shortages—"first in time, first in right."¹⁹Therefore, uncertainty about water rights, fuzzy rules of use, and after-the-fact decision making on water use have not been the West's major problems.²⁰What the western doctrine has never done well is control excessive water use, balance uses against each other, and protect watersheds.²¹Riparianism has done a bit better in this regard.²²

To address the prior appropriation doctrine's failings, the western states have added provisions to their already-extensive water codes. Reforms include a variety of measures to restore and protect instream flows, to curb excessive water use, to reverse groundwater overdraft and surface water over-appropriation, and to address damage done to aquatic ecosystems by over one hundred years of aggressive water development and consumptive water use.²³

The changes in the riparian and prior appropriation doctrines have brought western and eastern water management closer together.²⁴ However, the 100th meridian dividing the relatively wet eastern states from the mostly arid western states, though perhaps not as bright a line as it once was, is still an important physical and legal divide. This line on maps happens to coincide with the zone where average precipitation drops below about 20 inches annually and where irrigation is necessary to support farming.²⁵The 100th meridian also represents the original dividing line between riparian systems of water allocation and states that use prior appropriation.²⁶ The division is still particularly evident in terms of water marketing.

Markets of one sort or another have played a role in western water allocation for many decades, and this role is on the rise for a variety of reasons.²⁷In contrast, water markets have not played a significant part in water allocation east of the Great Plains states.²⁸Eastern markets have not developed for two main reasons. As long as there was plenty of water to go around, there was little pressure to move water from one use to another—something that markets can help to accomplish. Also, because laws poorly defined riparian rights for so long and usually limited riparian water to use on riparian lands, what was there to buy? However, now that statutory changes have begun to firm up the parameters of some water rights, while also loosening restrictions on the places of use, there is more room for eastern markets to develop. As the East looks to the West for help in managing an increasingly scarce resource, markets are one device attracting interest. Whether western tools will be useful in building Georgia's water plan is ultimately up to Georgians to determine.²⁹ This Article offers one tool for consideration—using water markets to preserve instream flows. Part I briefly describes the use of markets in the West, particularly streamflow markets, and addresses some of the pros and cons of water marketing. Part II considers the similarities and differences between eastern states like Georgia and the western states where these markets are flourishing. Part III offers some thoughts on what a streamflow market might offer to an eastern state in Georgia's situation.

I. Using Markets to Restore Instream Flows in Western Rivers

A. Western Water Markets: The Evolution of Buying Water for Rivers

A decade or two ago, new water markets began emerging in the western states. The buyers were looking for water to put back into depleted streams and rivers instead of water to divert and consume. These streamflow markets did not develop spontaneously like springs flowing from the ground but instead merged like a tributary with a meandering, but perennial, market for consumptive uses of water.

In the dry intermountain and southwestern states, water and consumptive water rights have been trading hands since the early 1900s.³⁰Many of the West's major metropolitan areas would not exist but for water wheeling and dealing because local water supplies are insufficient to support significant populations.³¹For example, Salt Lake City receives an average of about 16 inches of annual precipitation; the Los Angeles and Denver areas receive an average of about 15 inches; Phoenix receives less than 8 inches; and Las Vegas receives only about 4 inches annually.³²These population centers contain millions of people—many more than local water supplies alone could support.³³

Water acquisition fueled the western growth engine—water that westerners purchased, "horse-traded," or (according to some) stole from afar.³⁴Even many easterners have heard the tale of Los Angeles and the Owens Valley, if only the partially fictionalized version depicted in the movie Chinatown³⁵ In the early 20th century, the Los Angeles Water and Power Department purchased land with appurtenant water rights in the Owens Valley northeast of Los Angeles on the eastern slope of the Sierra Nevada.³⁶Eventually, the

City acquired enough water rights to effectively control the Owens River and send most of its flow through pipelines and aqueducts over 200 miles southwest to Los Angeles.³⁷Deception and secrecy tainted the purchases, but they took the form of a market transaction all the same; the City paid money and in exchange many Owens Valley landowners gave up their water rights.³⁸

At that time, the Los Angeles population was only a fraction of what it is today, and the City did not yet need the imported water.³⁹ However, bringing in the water was part of a larger plan for growth and development in the area.⁴⁰In fact, the officials and business interests promoting the boosterism created a false water crisis to encourage the City's voters to pass a bond measure to pay for the Owens Valley aqueduct project.⁴¹

Perhaps the Los Angeles-Owens Valley "black hat and white hat" drama is not the most appealing example of a water market since there is some question about how fully-informed and truly willing all the buyers and sellers were. In fact, this story might be enough to scare plenty of southeasterners away from water marketing if they envision Atlanta as the thirsty villain—a sweet-talking Los Angeles with a southern drawl. However, the point is this: Los Angeles needed water to grow, and the City used the market, in part, to get it from other parties. This transaction has enabled millions of gallons of water to flow hundreds of miles for nearly a century, helping to supply a population that now exceeds 17 million people.⁴²Indeed, when present-day Los Angeles residents take showers or fill swimming pools, not only do they draw Owens Valley water from their taps and...