Valuing water at its true worth

If a resource is scarce, we ought to put a price on it that reflects its value.

Tom Graff EDF's water pioneer and founder of our California office

The problem with water in California is not that it is too scarce but that it is so cheap. California is actually blessed with an abundance of water supplies. The problem lies with antiquated rules that set up a perverse incentive to "use it or lose it," a policy that rewards waste and discourages efficient and equitable use of water.

For three decades, EDF has pioneered market-based methods to counter such unsustainable practices. One proven solution is well-designed water markets, or transfers between willing sellers and buyers.

We advocate transfers as a means to encourage the most efficient use of water so that areas with plentiful supplies will conserve water to sell to areas of greater need. Such transfers can ease demand for diverting water from the natural environment.

"California has always been a leader in energy efficiency. Now, by learning how to conserve it, we can become a leader in water efficiency as well," says EDF economic analyst Spreck Rosekrans.

The elements of well-designed water markets

Water markets reward efficiency. In many parts of California, our current system provides no incentives for people to use water efficiently.

Consider this example: In 2009, the price of water for agriculture was less than $10 per acre-foot in many areas on the east side of the San Joaquin Valley. Meanwhile, many farmers on the west side of the Valley (with "junior" water rights) paid $450 per acre-foot to keep their orchards alive.

The east side farmers, whose water is cheap, tend to waste water through inefficient irrigation and cultivation of water-thirsty crops. But west side farmers, who pay more for water, have installed enough water-saving drip irrigation to reach the moon. If the east side farmers could reap more benefits from saving water, they, too, would use it more efficiently.

Water markets alleviate pressure for new water supplies. If we use water more efficiently, there will be less demand to build more dams for water storage or take more water from the environment.

In the late 1980s, Tom Graff, the founder of EDF's California office, was tapped to find alternative water supplies for Los Angeles to replace water siphoned from threatened Mono Lake in the Eastern Sierra. Graff worked with two irrigation districts in the San Joaquin Valley to improve their operations so they could grow crops with less water. The surplus the districts created through more efficient usage was then sent via aqueduct to Los Angeles, replacing some of the water supplies from the Mono Basin. These same innovative ideas could be applied to saving the Bay-Delta.

Water markets bring predictability to water supplies. Many farmers don't know how much water they will get from year to year, making long-term planning for planting crops difficult. The agricultural industry on the west side of the San Joaquin Valley (see above) has been hard hit by unreliable supplies in recent years because of severe drought. The area was already suffering from recession and unemployment rates above the national average. Improved markets could help the economies of these communities.

Types of water transfers

Farm to farm. Most transfers in California are from one farmer to another. Many typically buy or sell some of their supplies in a given year, but most of these transactions are not publicly reported. In dry years like 2009, the west side San Joaquin farmers with junior water rights eagerly buy supplies from more senior water rights-holders on the east side. In turn, the prospect of making money has prompted some east side farmers to install drip irrigation so they have more surplus to sell.

Farm to city. California’s growing cities have sought to increase their supplies by purchasing supplies from agricultural areas. The Metropolitan Water District, which provides drinking water to 19 million people in urban southern California, has an “option” agreement with the Palo Verde Irrigation District to buy water in dry years. Importantly, the deal stipulates that no land will be permanently taken out of production.

Challenges to setting up water markets

Water markets are a powerful tool, but they are not perfect. Stakeholders' concerns over water transfers revolve around losing supplies that "belong" to a community, or forfeiting legal rights to water, and the idea that access to water is a public right that shouldn't be privatized. There are also fears that urban interests could outbid rural water users and that selling water could use up aquifers.

We're working with stakeholders to mitigate these concerns through well-designed water markets.

EDF's expertise in well-designed water transfers

Designing fair and efficient markets means engaging all participants and addressing all concerns to come up with equitable solutions. EDF has built up years of experience in water transfers:

• Our 1982 ground-breaking report Trading Conservation Investments for Water paved the way for the voluntary water-transfer deal with the Imperial Irrigation District that led to more efficient use of Colorado River supplies.


• We worked with Congressman George Miller and Senator Bill Bradley in 1992 on the Central Valley Project Improvement Act (CVPIA), a major reform of California's water law that authorized the use of water markets.


• Our California water team engages with key legislators to build on the legal foundation of the CVPIA so more districts can participate in water transfers.


• We also work with major water users and other environmental groups to win wider use of transfers.