Colorado Water Workshop, 2006: the Developed Resource “Water As A Commodity” Professor Emeritus Chuck Howe University of Colorado-Boulder

“Water as a Commodity” versus “Water as a Public Good”: A False Dichotomy in Need of Definition & Clarity

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Water as a commodity presumably means water allocated by a market process.

Water as a public good can have several meanings: --

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Water “open to all”, “open access resource”; Water allocated by a public authority Water allocated through processes that are supervised by a public authority so as to take broad public values into consideration, e.g. water markets Market processes for water allocation can be (and are) supervised to assure protection of certain public values: municipal gov’t or PUC’s for urban water and the water courts for appropriation and transfers of raw water supplies.

Public water suppliers (urban utilities) treat water as a commodity.

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Public suppliers face a competitive market for raw water supplies and supply 7% of total Colorado withdrawals.

Public suppliers allocate water to customers through increasing block rate structures that allow: low prices for small volume users individual customers to determine how much water to withdraw Note: publicly supplied water is typically underpriced by failing to reflect the opportunity cost of raw water. Boulder example.

Irrigated agriculture accounts for 90% of total State withdrawals and certainly treats water as a commodity.

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The modern farmer and rancher treats water as other inputs in planning acreages and cropping patterns, subject to limits set by ownership of water rights.

Agricultural water rights can be bought and sold in loosely organized “water markets” as they have been for more than 100 years.

The water market allows the farmer to capitalize on the rising prices of water (retirement fund).

The water market makes the farmer aware of the real value of water (opportunity cost) in contrast to historically determined district or ditch fees.

The farmer as speculator.

The most efficient water market in the United States is that of the Northern Colorado Water Conservancy District

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Allotments (shares) are freely saleable subject to Board approval Water court review is avoided Transaction costs are very low Trading is essentially continuous and typical transactions are small Characteristics of this market are not generally transferable (imported water and no resale of return flows) but it demonstrates the importance of low transaction costs in stimulating transfers.

DISTRIBUTION OF NATIVE SOUTH PLATTE TRANSFERS BY SIZE

40 30 20 10 0 90 80 70 60 50 300 600 900 1200 1500 1800 2100 4000

INTERVAL(ACRE FEET)

6000 8000 10000 20000 & greater

Median: 367.17 Mean: 3425.31

DISTRIBUTION OF NCWCD TRANSFERS BY SIZE (1979-1999)

1200 1000 800 600 400 200 0

SIZE OF TRANSFER (Acre Feet)

Median: 16.8 Mean: 34.00

DISTRIBUTION OF NATIVE ARKANSAS VALLEY TRANSFERS BY SIZE

6 5 4 3 2 1 0 0 50 1 00 1 50 200 250 300 350 400 450 500 550 600 650 700 750 800 850 900 950 1 000

INTERVAL (ACRE FEET)

Median: 366.82 Mean: 6199.09

“Water As A Human Right”

• There exist many ways of providing basic needs to people and agriculture while allowing the market to maintain informed, flexible allocation of the majority of supply: examples • Urban utility low block rate • Allocation of efficient quantities to small farmers, with charges for added water (Rio Fuerte Commission in Mexico) • The “Pasten” system of irrigation water allocation in Indonesia with same allowance at the tail of the canal as at the head

Monetizing Non-Market Values

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Non-market values include many types of recreation, values of increased streamflow, improvements in water quality, valuation of unique geological/geographic features, ecosystem maintenance… Monetizing such values can be helpful in deciding trade-offs against other values, e.g. leaving water in stream vs. irrigation Techniques have been developed that credibly quantify some of these values, esp in recreation area, maybe not for species preservation.

Sandhill Crane site preservation; boating vs fishing on the Upper Arkansas.

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The Increasing Importance of Water Markets

Long active markets in Idaho, California, Arizona,Colorado.

As water values increase, maintaining flexibility in allocation of existing supplies is vital.

Small % of agricultural water candidate for urban transfer Colorado has legislative approval of “water banks” and “rotating fallow” arrangements, needs approval for “dry-year lease-outs” The Arkansas River water bank experiment and lessons learned.

Potential adoption by the basin roundtables and the Interbasin Compact Council.

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Policy Changes for More Efficient Markets

Salvage legislation needed to clarify benefits of improved irrigation methods, motivate efficiency

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The “spook” of “speculation” needs to be debated and re-thought. Speculation is vitally necessary in other markets. It allows foresighted persons to reserve resources for possibly important future uses

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The High Plains case as a case in point (Vidler, 1979 against speculation & profit).

Balance between protecting property rights and loss of flexibility & benefits from systems management, e.g. 2003 ruling on S. Platte pumping denies advantages of the aquifer as storage, distributary and insurance.