Water Marketing in Western Prior Appropriation States: a Model for the East

• Publication year: 2010

Water Marketing in Western Prior Appropriation States: A Model for the East

James L. Huffman

Introduction

One suspects that more words have been written on the subject of water marketing than acre feet of water have been marketed. That is often the case with a new idea, even a really good one. Because water marketing is newer in the East than in the West, a western perspective will be helpful to Georgia residents and to residents of other eastern states that are considering it.

This Article consists of three parts. Part I responds to the apparent concerns of those in the East about water marketing. Part II discusses the inherent constraints on water marketing under traditional appropriation water rights doctrine; other legal, cultural, and political obstacles to water marketing; and recent water marketing activity in western states. This Article concludes, optimistically, that the future will lead to more water marketing and, as a result, to better use and protection of scarce water resources.

I. Water Marketing—Why the Anxiety?

Water marketing has long been a subject of mostly reasoned discussion in the American West.^[1] Both policy makers and academics have studied the existing water allocation regimes with an eye toward making water and water rights more readily transferable among private and public users.[2] There has been limited progress in reforming the deeply rooted constraints on water markets, and there has been some hand wringing by environmentalists who object to the commodification of water,^[3] but for the most part the conversation has been both reasonable and constructive.

In Georgia, and perhaps more generally in eastern states, proposals for water marketing have generated much anxiety and forecasts of doom. Why the anxiety? Several years ago, I proposed at a conference in Canada, attended mostly by Canadians, that the United States and Canada should make water more freely transferable across the national border.^[4] I pointed out that the two countries had a long history of conflict over many transboundary waterways and that the countries might resolve these conflicts by allowing water markets to influence the allocation of international waters.[5] I also suggested that, as a water rich nation, Canada would likely profit from transboundary water sales. The listeners did not receive this proposal well; I might as well have suggested that Canada cede Alberta and British Columbia to the United States.

There is no doubt that much of the Canadian antipathy to my suggestion of water marketing springs from national loyalties in the same way that much of the conflict in the Apalachicola-Chattahoochee-Flint River Basin ("ACF Basin") in Georgia, Alabama, and Florida is rooted in state loyalties. However, the objection to water marketing in both political contexts also reflects the widely embraced environmentalist view that water should not be for sale—that water is special and different from the many goods and services that Americans buy and sell every day.^[6]

The claim that water is special has several roots. Opponents of water marketing argue that water is a basic human need that should not be subject to the vicissitudes of markets.[7] They understand water to be a critical component of ecosystems that water consumption and transfer will inevitably disrupt.[8] Opponents also claim that water belongs to the people or to the state and, therefore, is not subject to sale by either individuals or corporations.[9] Moreover, because water is a basic human need, they believe that every individual has a right to equal access regardless of personal wealth or circumstance.[10]

It seems that proposals for water marketing in Georgia have been set back by the argument that water is a basic human need.[11] For this reason, according to The Atlanta Journal-Constitution, Georgia State Representative Bob Hanner backed off his proposal for water marketing: "[Hanner] won't push precedent-setting legislation that could privatize Georgia's water, turning it into a commodity like electricity."^[12]

On the scale of basic biological human needs, water no doubt ranks higher than electricity. However, from the perspective of most Americans, electricity is likely as important as shelter, health care, transportation, food, and clothing. People who lived in caves, or even in 19th century American cities, lived comfortably without electricity, yet in the modern world, people suffer real hardships without electricity. In Oregon, there is an ongoing debate about the future of Portland General Electric, a subsidiary of Enron.^[13] Those who advocate for a public takeover urge that, because electricity is special, private parties should not manage or sell it.[14]

If water and electricity are so special that they require protection from market allocation, what about food, shelter, and health care? Not surprisingly, there is a strong lobby for public health care, and undoubtedly, there are some who would do the same with food and shelter despite the tragic record of central planning in Eastern Europe and other regions of the globe.

Ironically and sadly, the argument for treating water as a special resource is almost entirely backward. "Specialness" implies scarcity or at least a concern about future scarcity. If clean water was abundant everywhere and at no risk of running out, its allocation would not warrant attention, even as a basic human need. However, water draws our attention because it is not abundant everywhere in a useable condition that meets humans' basic needs. Scarcity requires some set of social institutions for allocation, and a well functioning market is the most effective and efficient institution to allocate scarce resources.^[15] The invisible hand of the marketplace is demonstrably far more efficient in the allocation of scarce resources, in the sense of maximizing net social welfare, than the invisible hand of politics.[16]

This is not to say that markets always work or that maximized net social welfare is the only or most important goal of public policy. Markets sometimes fail due to high transaction costs, free riders, government interference, and poorly designed or laxly enforced property and contract regimes.^[17] Putting these considerations temporarily aside, it is abundantly clear that no social institution yet conceived will yield greater net social welfare from a scarce resource than a well-functioning market. Many market opponents cannot accept this assertion because they are unwilling to put the other considerations temporarily aside, but they should give markets a chance when dealing with a resource as special as water.^[18]

Some critics of water marketing concern themselves less with the human consequences than with the ecosystem impacts.[19] This objection is arguably well founded if rooted in what has been called the "biocentric" perspective.^[20] Markets involve people—what they need and desire. If the policy objective is to protect ecosystems independent from the value humans place on them, markets will not be helpful. In reality, however, policy is unavoidably about human values.^[21] Neither policy makers nor individual market participants can escape choosing among alternatives on the basis of what they believe to be important. Simply calling one's thinking "biocentric" does not make it so.

The argument for biocentric, as opposed to anthropocentric, thinking about environmental and resource allocation issues is actually a moral claim that other species, natural objects, and the "natural" ecosystem warrant respect and protection.[22] Every moral claim is, by definition, anthropocentric and therefore deserves the attention of both policy makers and private actors. It is not clear, however, that markets fail to consider morals. Indeed, the various "green" marketing and certification schemes depend on the influence of moral considerations on market choices.[23] Unless society is willing to mandate particular resource allocations on the basis of moral considerations, and thus constrain human freedom, markets are social institutions in which moral factors can influence allocative results.

Critics also argue that water markets run counter to the long established principle that water belongs to the people or the state.^[24] State constitutions, legislation, judicial opinions, and commentaries frequently articulate this principle.[25] Even if such language is more than mere rhetoric underscoring the importance of water as a matter of public policy, the principle does not conflict with water markets. Riparian and appropriation water law doctrines both grant "usufructuary" rights.^[26] While these rights have a limited nature, they are nonetheless property rights that individuals can buy and sell.[27] Because multiple users may have rights to successive use of the same water, regulatory approval of a market transfer is often relied upon for protection of such rights. This requirement does not imply that the state can arbitrarily prohibit transfers in the name of the public good any more than the state can take vested rights in water without compensation. Even when the state owns water or other resources in a proprietary sense, it inevitably grants use rights to individuals and other legal entities.^[28]

Public ownership proponents further argue that water markets provide a windfall to water rights holders.^[29] In a nutshell, they contend that the state has granted water rights to individual users without charge, except perhaps for administrative fees.[30] If the state allows these individual users to sell what they received for free, they realize an undeserved windfall.[31] The argument is unpersuasive for several reasons. First, most individuals who own water rights, particularly the more senior rights with the highest value in the appropriation system, actually purchased them from a prior owner, either as outright acquisitions or as appurtenances to land where the water right was a part of the land's value...