Interstate Water Trading: Can We Learn From Australia?
Rights to water from the Colorado River were allocated to seven states in the Southwest in 1922 based on a period of high streamflow. Streamflow over the previous few decades that provided the basis of the allocation averaged about 16.4 million acre feet (maf) (one acre foot is defined as the volume of water in one acre at a depth of one foot). Therefore, the upper basin states (Colorado, New Mexico, Utah, and Wyoming) were allotted 7.5 maf, the lower basin states (Arizona, California, and Nevada) 7.5 maf, and Mexico 1.5 maf (Colorado River Compact).
Unfortunately, the delegates who allocated the water were unaware at the time that the actual average flow over the past few centuries has been approximately 13.5 maf. Therefore, the water from the Colorado River is currently over allocated. Even worse, according to tree-ring records, during severe drought streamflow can be as low as 4.4 maf. If the Basin states were to experience a drought this severe, there would be extreme water shortages in the region. The primary reason there aren’t currently shortages in the region is because of a large amount of storage in Lake Mead and Lake Powell which provides the lower basin states with a rather large buffer against drought. However, with temperatures expected to increase 7-8 degrees F by the end of the century, increasing evaporation rates from reservoirs and canals, combined with a fast growing population and predicted decrease in precipitation, this buffer is probably not large enough to sustain the region in the 21st century.
In my last blog, I discussed how western U.S. cities are adapting to the impacts of climate change, and I wonder how they are going to adapt during years of extremely low streamflow combined with a larger population. The basin states are very hesitant to go through a huge legal process to re-allocate Colorado River water; they prefer to figure out ways to work within the already established framework. This seems to limit the number of potential adaptation strategies. Even so, the basin states came to a shortage sharing agreement in 2007 entitled the Colorado River Interim Guidelines for Lower Basin Shortages and the Coordinated Operations for Lake Powell and Lake Mead. The agreement plans for shortages, encourages conservation, and allows for flexibility to deal with future climate change and drought.
Another potential strategy for adaptation is an interstate water trading market, according to a recent publication in the Journal of the American Water Resources Association by Wildman and Forde. The study, entitled “Management of Water Shortage in the Colorado River Basin: Evaluating Current Policy and the Viability of Interstate Water Trading”, explains thatan interstate water market allows trading between states at prices that reflect the current demand and water availability, and they can be traded temporarily or permanently. This type of system could allow the basin states to keep the established framework and allocations while having the capacity to deal with a time of low streamflow. States such as Arizona and Nevada, that are only allotted 2.8 and 0.3 maf/year, respectively, could potentially purchase water from the upper basin states that may have a surplus.
The Murray-Darling Basin in Australia has adopted such a system to deal with times of water shortage. The Basin is very similar to the Colorado River Basin— it covers five states, average runoff is 17.2 maf/year, agriculture is the primary user of the water, and climate change is predicted to reduce runoff.
In order to adapt to water scarcity, the region began an interstate water market in 1989. In 1996, drought conditions and increased demand spurred more intense water trading, and again from 2005 to 2009, severe drought led to more water trading in the region. During times of wet conditions, when each state had more than enough water, water was sold at low prices to regions that could store it for future use. According to the authors of the study, in 2008 and 2009, during a time of extreme aridity, water trading allowed the state of South Australia to buy water for municipal use, avoiding a water supply emergency. This market created the flexibility needed for municipalities and other traders to manage water shortages and avoid potential disaster.
Multiple federal agencies are charged with administering the water supply and water trading in the Basin. The Murray Darling Basin Authority is one of these agencies and has been given the task of developing a plan that sets withdrawal limits and water trading rules, among many other management activities. Another regulatory agency is the Australian Competition and Consumer Commission, which monitors and enforces the water trading.
Could this type of water market work in the Colorado River Basin? Wildman and Forde say yes. There is already stable intrastate water trading in the western states, usually between cities and farmers, implying that an interstate water market may be a viable option. In addition, some states are willing to pay large sums of money to acquire water. Arizona and Nevada have limited water resources within each state, and Phoenix, Tucson, and Las Vegas rely on junior water rights, meaning they will be affected sooner by water shortages than those with senior rights. The way water is currently distributed to the lower basin states, Nevada’s share of deliveries will remain constant while Arizona can receive additional water only after all of California’s water rights are met. Therefore, California will suffer reductions only during extreme shortages, while Arizona and Nevada will feel the effects immediately. Thus, these two states are willing to pay a lot more money to provide water to its municipalities, as is evidenced by the proposition by Las Vegas to build a pipeline to bring groundwater from rural areas in Nevada to Las Vegas.
There are some potential barriers that would have to be surpassed before a system like this could work. For example, a central authority must exist in order to regulate the trading, meaning that states would have to cede some authority. In addition, the upper basin states have little incentive to change how things are run currently since they are unlikely to face shortages in the near future. However, an incentive may be that they can earn money by selling additional water to the lower basin states, and at no time are they required to sell any water.
In my opinion, and the opinion of Wildman and Forde, interstate water trading seems like a viable option for adapting to future water shortages in the Colorado River Basin, and especially in Arizona and Nevada. There would be no need to re-allocate Colorado River water, and states that need more can buy it, and states that have too much can sell it. We even have a “test case” to learn from. An interstate water market has been working in the Murray-Darling Basin in Australia, a river basin very similar to our own, for many years, and has prevented some cities there from experiencing emergency water shortage situations. If we can learn from the existing market in Australia, we may be able to adapt to future water shortages in our own backyard.