Climate Change and Water:

This week the National Research Council released a report on the potential consequences of sea-level rise on the United States. Today's NYT notes that this is only the latest study to highlight the threat of sea-level rise due to global warming. If global warming causes the seas to rise, low-lying developing countries are not the only places at risk.

While sea-level rise tends to get the most attention, the potential impact of climate change on fresh water supplies is likely to be a greater problem in the United States. Dealing with increased sea-level could be costly, particularly in places like southern Florida, but it would be manageable. The disruption of water resources, on the other hand, could have profound consequences in much of the nation. Water supplies are already stretched, prompting political conflict in the west and southeast, and existing water management institutions are proving incapable of addressing current water allocation problems. Even modest changes in the distribution of water supplies due to climate change could push water institutions past their breaking point.

I discuss the threat climate change poses to water resources, and a recommended institutional response, in this draft paper, forthcoming in a Hamline Law Review symposium on water resources. Here is the abstract:

Demographic changes and existing water use patterns have placed tremendous pressures upon water supplies, particularly in the West. Global climate change will exacerbate pressures on water resources. The gradual warming of the atmosphere is certain to change the distribution and availability of water supplies, with potentially severe consequences for freshwater supplies. While climate change will have a significant impact on water resources through changes in the timing and volume of precipitation, altered evaporation rates, and the like, the precise nature, magnitude, timing, and distribution of such climate-induced changes are unknown. This uncertainty complicates the task of water managers who are already faced with escalating demands. This article argues that climate change, and its projected effects on water use and supply, calls for a fundamental reexamination of water institutions. In particular, this article suggests that market-based institutions are well suited to address the additional pressures on water supplies due to climate change. Many aspects of water markets, including their flexibility, decentralized nature, and ability to create and harness economic incentives, make them particularly well suited to address the uncertain water forecast. A gradual shift toward water marketing and market pricing will improve the management of water supplies, ensure more efficient allocation of available water supplies and encourage cost-effective conservation measures.

The basic point of the article is that insofar as climate change will disrupt existing water supplies in somewhat uncertain and unpredictable ways, we need water institutions that are flexible and adaptive, and that encourage greater efficiency in water use and allocation. In this way, climate change strengthens the already-strong case for water markets. Market-driven transfer and pricing of water resources will not eliminate the consequences of warming-induced changes in water supplies, but they will make these changes more manageable.

The "Progressive" Case for Water Markets:

As part of its symposium on "What's Next? The New Progressive Agenda," the webzine Democracy: A Journal of Ideas includes "tradable water rights" among the "progressive" ideas our nation's leaders should adopt. In a short essay, MIT environmental economist Michael Greenstone explains how tradable water rights could help overcome water allocation and scarcity problems, particularly in the West. According to Greenstone:

There are clear gains from having an active market in water rights. It would help solve the problems posed by current water shortages in the West, and it would provide the flexibility necessary to confront the impact of climate change on water supplies in the coming decades. It would be, in a word, fluid.

In his view, the federal government should take three steps to facilitate the development of water markets:

First, the restrictions that prevent the trading of water rights across state lines should be removed. The median price for a one-year lease of an acre-foot of water in Colorado is 10 times the median price in Utah. Additionally, as much as possible, other restrictions on trades and the requirement that all trades be reviewed by bureaucrats should be removed.

Second, property rights for water must be clarified. The practice of usufruct rights, in which the state holds all water "in the public trust," with the ability to retract or reassign rights, should be eliminated. The uncertainty caused by these policies prevents beneficial investments from being made.

Third, federal and/or state governments can reduce transaction costs in several ways. They could, for example, set up a monitoring system to determine withdrawals from the Colorado River and other important water sources. Moreover, the government could help fund a centralized market for trades if one doesn't develop in the private market naturally. Finally, government involvement would likely be necessary to construct water transportation systems that aid trading or to clear the legal hurdles to developing these systems.

The case for water markets is particularly urgent when one considers the potential consequences of climate change, so it is promising to see water markets embraced as part of a "progressive" agenda.