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Promoting Conservation Through Better Water Marketing

Congress: 2015
Author(s): Mark Squillace, Anthony McLeod

University of Colorado Law School1, Murray-Darling Basin Authority, Canberra, Australia 2

Keyword(s): Sub-theme 15: Water law,

Introduction: The western United States and much of the arid world are seeing a growing interest in innovative water conservation strategies to improve water use efficiency. Implementing these strategies is hampered, however, by barriers to transferring saved water from underdeveloped water marketing or water trading policies. Such lost opportunities reduce the economic output from irrigated lands even as they impose adverse environmental effects. Several promising water conservation strategies have emerged over the last decade including -- (1) Deficit irrigation, where carefully timing and applying water allows crops to grow with substantially less than their normal irrigation water requirement (Fereres, 2007; Geerts, 2009); (2) Rotational fallowing, where less productive parcels of land are taken out of production every season to free up a fixed amount of water annually (McMahon, 2013) and; (3) Crop-switching, where farmers temporarily or permanently transition from high water consumptive crops to low water consumptive crops (McDonald, 2002).


Research on innovative water conservation mechanisms is ongoing but less attention has been paid to the institutional barriers to transferring saved water. In Colorado, for example, conserved water cannot legally be transferred or sold for urban, industrial, environmental, or any other uses because Colorado defines water rights only in terms of the type and place of use, and the amount authorized for diversion. Thus, while a Colorado farmer can use agricultural water rights to grow any crops that farmer may not sell water that is conserved by switching crops or fallowing land. Moreover, since future transfers of agricultural water rights are based upon historical consumptive use, the Colorado farmer has a perverse incentive to consume as much water as possible over the long-term to maximize the value of the right.


Although the legal systems differ, Australia confronted similar barriers to water markets until the development and implementation of new legislative and regulatory standards, beginning in 1994. These reforms helped promote robust water markets, especially in the Murray-Darling Basin, home to Australia's most pressing water resource issues (Young, 2010). This paper asks whether the lessons from Australia can be adapted to other regions, including the western United States.

Methods/Materials: The paper begins with a review of past and current technical research that describes how actual and theoretical water savings can be achieved through water conservation strategies. An analysis of the technical, legal, and policy obstacles that may arise when seeking to transfer conserved water to other uses follows. (Grafton et al., 2010; Easter & Huang, 2014). Four particular questions are addressed: (1) Assuming water savings can be achieved, will conserved water be available at the time and place needed by other users? (2) What obstacles exist to verifying the claimed water savings? (3) What legal and institutional barriers exist to employing water savings strategies that will make water available for other uses, and can those barriers be overcome? (4) What challenges arise in moving from theory to on-the-ground implementation?

Results and Discussion: Among the key lessons from the Australian experience is the importance of separating land and water titles and defining water entitlements in terms that facilitate trading so they are fungible within a particular basin or geographic region. (Young, 2010). Ongoing efforts to minimize transaction costs, which discourage trading, also characterize the Australian water trading experience. (e.g., Coase 1960). Thus, the historic western U.S. practice of defining agricultural water rights in terms of seasonal diversions must change before robust water markets can evolve. (McCormick, 1994; Michelson, 1994). The simplest solution could be to redefine water rights in terms of historical consumptive use. The consumptive amount, perhaps with a modest reduction to account for errors, might then be deemed fungible, and thus presumptively marketable, within a selected watershed or geographic area. (Squillace, 2012). As in Australia, further distinctions might also be made between permanent and temporary water rights. Where an action is taken to conserve water permanently, a portion of the water right can itself be transferred. But an active market for temporary rights -- based upon short-term conservation practices -- might prove especially popular and should be encouraged to address cyclical water shortages.

Beyond these structural changes, western U.S. water laws must be changed to allow certain de minimis injuries that sometimes result from water transfers from events such as a change in the timing of return flows. This is an especially important for prior appropriation systems where junior water users often make extensive use of senior return flows. Current U.S. law precludes any injury from a transfer. A modest change that would tolerate de minimis injuries would be consistent with other U.S. policies that allow minor injuries from crop switching, recapture and reuse, and allocation errors due to crude measuring devices.

Conclusion: Innovative water conservation strategies supported by arrangements that allow saved water to be transferred to other uses hold great promise for addressing stresses on water supplies caused by climate change and overuse. Such strategies are likely to prove more efficient and more protective of environmental values than water development projects that are often promoted as a necessary response to water supply stresses. In order for these strategies to succeed, however, certain legal and institutional obstacles to transferring the water saved must be overcome. This paper considers mechanisms for responding to those obstacles based in part on the Australian experience. 1. Coase, R.H., The Problem of Social Cost. Journal of Law and Economics, Vol. 3. (Oct., 1960), pp. 1-44.

2. Easter, K.W. and Huang, Q. (Eds.), Water Markets for the 21st Century: What Have We Learned? (Global Issues in Water Policy Book 11) (Springer, 2014)

3. Fereres, Elias & Soriano, María Auxiliadora, Deficit Irrigation for Reducing Agricultural Water Use, Journal of Experimental Botany, Vol. 58, No. 2, pp. 147-159 (2007)

4. Geerts, Sam & Raes, Dirk, Deficit Irrigation as an On-Farm Strategy to Maximize Crop Water Productivity in Dry Areas, Agricultural Water Management, Vol. 96, No. 9, pp. 1275–1284 (September 2009)

5. Grafton, R.Q., G. Libecap, E.C. Edwards, R. OÂ’Brien and C. Landry, Comparative Assessment of Water Markets: Insights from the Murray-Darling Basin, Australia and the Western USA Water Policy 14: 175-193 (2012)

6. McCormick, Zachary, Institutional Barriers to Water Marketing in the West, Journal of the American Water Resources Association, Vol. 30, No. 6, pp. 953–961 (1994)

7. McDonald, Brian, Evaluation of Alternatives for the Middle Rio Grande Regional Water Plan: A11—Low-Water Crops (2002), available at,

8. McMahon, Tyler G. & Smith, Mark Griffin, The Arkansas Valley “Super Ditch”— An Analysis of Potential Economic Impacts, Journal of the American Water Resources Association, Vol. 49, No. 1, pp. 151–162 (February 2013)

9. Michelson, A. M., Administrative, Institutional, and Structural Characteristics of an Active Water Market, Journal of the American Water Resources Association, Vol. 30, No. 6, pp. 971–982 (1994)

10. Squillace, Mark, Water Transfers for a Changing Climate, Natural Resources Journal, Vol. 53, No. 1, pp. 55-116 (Univ. of New Mexico, 2013)

11. Squillace, Mark, The Water Marketing Solution, Environmental Law Reporter, Vol. 42, pp. 10800-10817 (Environmental Law Institute, September, 2012)

12. Young, M.D., Environmental Effectiveness and Economic Efficiency of Water Use in Agriculture: The Experience of and Lessons from the Australian Water Reform Programme (OECD, 2010)

13. The National Water Market Home Page, Government of Australia, available at,

14. Mission 2012, Clean Water, Agriculture Plan, MIT, available at,

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