Tapping Water Markets

Terry L. Anderson, Brandon Scarborough, Lawrence R. Watson

• Publisher: Routledge
• Year: 2012
• eBook ISBN: 9781136486067
• Topic: Technology & Engineering
• Subtopic: Ecology
• Index: Technology & Engineering

Tapping Water Markets is about the past, present, and future of water markets. It compares water markets with political water allocation, documents the growth of water markets, and explores the ways in which water markets can be improved and implemented further. This book provides up-to-date information of where and why water shortages are occurring and where and why water markets are evolving to resolve conflicting water uses.

Though the main focus is on the United States, it includes examples from other parts of the world to show how water markets are beginning to thrive. It contains institutional detail that is accessible to people who are not economic or hydrologic experts, and comes alive with numerous examples and case studies of water markets.

The book begins with an analysis of water institutions as they have varied over time and location. It then covers a range of discrete water management topics including surface water allocation, groundwater management, environmental flows, and water quality trading. The book concludes with predictions about the future of water scarcity and the ability of water markets to shape that future more positively.

1

WHY THE CRISIS?

If you were an alien heading toward the “Blue Planet,” you might be surprised by the barrage of predictions of water shortages. From global organizations to local newspapers, water crises dominate reports and headlines even in the absence of droughts. In 2008, the United Nations estimated that 450 million people (roughly 1 in 15) were experiencing water shortages and predicted that the number could expand to 1.8 billion people (UNEP 2008). The World Health Organization estimates 884 million people rely on unimproved and often unhealthy drinking water sources, while a staggering 2.5 billion have limited or no access to improved sanitation facilities and waste disposal¹ (WHO and JMP 2008). The World Bank warns that fresh water consumption is rising quickly, and the availability of water in some regions is likely to become one of the most pressing issues of the twenty-first century (World Bank 2003, 2).

Mainstream media is similarly fond of water crisis, too, especially when there is a drought or water contamination. Newspaper headlines consistently deliver the water gloom and doom message: “Northern Kenya Pupils Miss School over Drought” (Daily Mirror January 3, 2011), “Kampala Water Crisis Intensifies” (Daily Monitor, December 22, 2010), “A National Water Crisis is on the Verge of Gushing” (U.S. News and World Report May 27, 2007), and “Widespread Pollution Taints Iowa Streams” (Des Moines Register 2009).

Peter Gleick, one of the world’s foremost water experts, reports that perceptions of water security are incorrect: over-pumped aquifers under breadbasket regions, such as the Ogallala Aquifer in the western United States, threaten agriculture, wasteful irrigation practices continue to deplete stream and river-based water systems, and water supply infrastructure is in a state of disrepair in urban centers worldwide (Gleick et al. 2006). According to businessman T. Boone Pickens, water has become “the new oil” (Berfield 2008).

Predictions of increasing water scarcity are usually driven by growing human populations running up against fixed supplies. The title of Jeffery Sachs’ book, Common Wealth: Economics for a Crowded Planet (2008), echoes this perspective which dates back to the Rev. Thomas Malthus’ work in the seventeenth century. Like Malthus, Sachs hypothesizes that population growth will increase demand exponentially relative to fixed resource supplies. The inevitable result is that we will face resource shortages, including that of water.

Regarding what is often called “Blue Gold,” Sachs argues that securing safe and plentiful global water supplies will prove to be one of our most daunting challenges. Sachs says that water scarcity is already a grim reality in many regions and that climate change will only further disrupt global water cycles, thus worsening the crisis (Sachs 2008, 115). This is because rural and urban societies around the world use more water than ever before, they use it at increasing rates, and they use it without regard for the future consequences of their consumption pattern (Sachs 2008, 121). Sachs further warns that privatizing water rights may be contrary to sound ecological management, especially for already overdrawn groundwater basins (Sachs 2008, 116).

To be sure, global population growth has increased water use substantially. Over the course of the twentieth century, most worldwide population estimates tripled while water use estimates increased more than sixfold. The world not only has more water users than a century ago, but each user is consuming more and more water (Cosgrove and Rijsberman 2000, 26). In The Skeptical Environmentalist (2001), Bjørn Lomborg reports that, per person, we have gone from using about 1,000 liters per day to almost 2,000 liters per day over the past 100 years² (Lomborg 2001, 151). By 2025, water withdrawals are predicted to increase from current levels by 50 percent in developing countries and 18 percent in developed countries (Zimmerman et al. 2008, 4251). Moreover, approximately 50 percent of precipitation recharges to groundwater in a natural system, whereas only 15 percent recharges in a highly urbanized environment, suggesting that population growth impacts water supplies in more subtle ways than simply increased withdrawals.

Access to Water

A closer look at the issue reveals that the primary concern is not absolute water supply but limited water access. In contrast to the inventory-based Malthusian theory of water shortages, water access relates to the distribution of water relative to human populations and the infrastructure that allows for water delivery, water storage, and basic sanitation. The statistics on water access are troubling. Though the planet holds approximately 326 million-trillion gallons of water, less than 0.4 percent is available and suitable for human consumption. The remaining 99.6 percent is either in the wrong place, the wrong form (such as ice or water vapor), or otherwise unfit for human consumption.³ By World Bank (2003, 3) estimates, more than one billion people lack access to safe drinking water. Lomborg (2001, 154) reports that, though water accessibility has been getting better, there are still widespread shortages and limitations of basic services such as access to clean drinking water, and that local and regional scarcities occur.

The distribution of water supplies around the world simply does not match the distribution of people. North and Central America have 15 percent of the world’s water, and only 8 percent of the world population. In contrast, Asia has 60 percent of the world’s population but only 36 percent of the world’s water. South America has 26 percent of the world’s water and 6 percent of the world’s population. Africa and Europe each have 13 percent of the world’s population, and 11 percent and 8 percent of the world’s water, respectively (Zimmerman et al. 2008, 4248). Given this asymmetry in water distribution and population density, almost a quarter of the world’s nations currently lack sufficient fresh water to meet the needs of their burgeoning populations.

Most of the water-scarce countries are located in the Middle East and Africa, and most are poor. According to the United Nations Environment Programme, “[i]n Africa alone, it is estimated that 25 countries will be experiencing water stress⁴ by 2025” (UNEP 2008). Water shortages in these areas threaten the health of humans and riparian ecosystems and hamper economic development. It is projected that by 2025, the Middle East, India, and most of North Africa will be withdrawing well over 40 percent of their total available water supplies, compared to less than 10 percent withdrawal of total supplies in Central Africa, South America, Australia, Canada, and Southeast Asia, and 20–40 percent in the United States, Russia, and Western Europe (UNEP 2007, 4252).

A look at the geography of water reveals that freshwater resources are often located at great distances from population centers and unevenly distributed. While there are approximately 263 river basins worldwide, some of the largest run through areas that are thinly populated (UNEP 2008). The Great Lakes of the United States, usable only by parts of the United States and Canada, comprise 20 percent of all surface fresh water, and Lake Baikal in southern Siberia holds another 20 percent. Rivers around the world hold only about 0.006 percent of total freshwater reserves (USGS 2009). According to the United Nations Development Programme, “[s]ome 1.4 billion people live in river basins where water use exceeds recharge rates.” In these areas, “the symptoms of overuse are disturbingly clear: rivers are drying up, groundwater tables are falling and water-based ecosystems are being rapidly degraded” (UNDP 2006, 6).

Lack of access to clean water and sanitation has catastrophic effects on human health and productivity. Current estimates are that poor water quality, sanitation, and hygiene result in 1.7 million deaths per year internationally (Craft et al. 2006). Water-borne diseases are the greatest cause of infant mortality around the world. According to the World Water Council (2006, 224), “[i]n Central and Eastern Europe and Western Asia, it is estimated that greater than five percent of all childhood deaths are attributable to diarrheal disease, which is often a result of poor-quality drinking water, inadequate sanitation, or improper personal hygiene.”

There is some evidence that water access is improving, but it still poses a significant threat to human health and welfare in most developing countries. Access to improved water supply increased 3 percent globally and 5 percent across Africa, Asia, Latin America and the Caribbean during the 1990s, while access to sanitation increased 5 percent globally and 9 percent across Africa, Asia, Latin American and the Caribbean during the same period (WHO and United Nations Children’s Fund 2000).

These improvements in water access are significant and worth celebrating, but water scarcity poses a threat to human health that cannot be eradicated. Mismanagement and inefficient allocation can quickly reverse improvements in water access and sanitation, as could population growth, political instability, and climate change. No water source is inexhaustible, as we are observing throughout the world.

Changing Sources of Water Withdrawal

Related to the issue of water access are changes in the source of water withdrawals, particularly from surface to groundwater. According to Alley et al. (2002),

during the past 50 years, groundwater depletion has spread from isolated pockets to large areas in many countries throughout the world. Prominent examples include the High Plains of the central United States, where more than half the groundwater in storage has been depleted in some areas, and the North China Plain, where depletion of shallow aquifers is forcing development of deep, slowly replenished aquifers with wells now reaching more than 1000 meters.

Villagers in the northern Hebei province of China are digging wells 120 to 200 meters deep to find clean drinking water where wells were only 20 meters deep a decade ago (Gleick et al. 2009, 86). In southern India, the 21 million wells drilled are lowering water tables in most of the country—in Tamil Nadu, for example, the falling water table has dried up 95 percent of wells owned by small farmers. A similar story exists in northern Indian states such as Gujarat, where the water table is purportedly falling by 6 meters every year (Pearce 2006).

The problems created by excessive groundwater withdrawals are neither recent nor confined to developing countries. In sections of Kansas and Texas, the Ogallala Aquifer had dropped 150 feet by 1980 (Glennon 2002, 26). The United States Geological Service estimates water in storage in these parts of the aquifer has declined approximately 190 million acre-feet⁵, a 34 percent decline since large-scale irrigation began (McGuire et al. 2003). As a result, groundwater depletion may be the single largest threat to irrigated agriculture worldwide.

Water Pollution

Pollution of both surface and groundwater poses an additional threat to future water supplies and access. In 1975, the U.S. Water Resources Council was optimistic that “water-quality conditions will be improved substantially. With the emphasis on more intensive use and reuse of available supplies, improvement of quality should become an important facet of water-management procedures” (U.S. Water Resources Council 1978, 78). Unfortunately, that optimism has not blossomed into reality.

The World Resources Institute (2008) has identified 415 eutrophic and hypoxic coastal systems worldwide.⁶ Of these, 169 are documented hypoxic areas and 233 are areas of concern, while only 13 are systems in recovery. In the United States, 78 percent of the continental coastal area and 65 percent of the Atlantic coast are eutrophic.⁷ In Asia, only 35 percent of wastewater is treated, compared to only 14 percent in Latin America and less than 1 percent in Africa.

In the United States, the Great Lakes remain plagued by phosphates from household laundry detergent, toxic chemicals discharged by industry, pesticides that have drifted on air currents and settled in the lakes, and fertilizer runoff. The Chesapeake Bay receives toxic industrial wastes, harmful substances from solid waste, and pesticides from farms and other non-point sources. Both public and private efforts have been undertaken to restore the quality of these water bodies, but little progress has been made.

The Potential for Water Markets

The regulatory response to water scarcity is to restrict withdrawals and consumption. Low-flow technology mandates, water rationing, and use restrictions can alleviate short-term and small-scale water shortages through forced reductions in demand. Such regulatory responses ignore the economic forces that produce and perpetuate worldwide water scarcity.

This book explores an alternative approach to solving the world’s water problems—water markets. In the most fundamental sense, water markets are a voluntary exchange between willing buyers and willing sellers of legal rights in water. Water markets can be informal trading arrangements between ranching families or inter-basin transfers of enormous volumes across hundreds of miles. The important and distinguishing features of all competitive water markets are (1) the voluntariness of the trade and (2) the legality of the right traded. Markets, whether as simple as a trade between school children on the playground or as complex as international derivative markets, effectively move goods from lower to higher valued uses, utilizing prices, contracts and self-interest to do so. Rarely does one hear of a crisis in condominiums, pick-up trucks or laptop computers, mainly because markets work to eliminate shortages by balancing demand and supply.

Yet opposition abounds to using markets to allocate scarce water resources. Some consider water sacred and a human right (Barlow 2007). Others argue that water is a basic human necessity that should not be withheld from those who cannot pay, be supplied by profit-seeking corporations, or otherwise left to the vagaries of competitive markets (Dosi and Easter 2003). The thrust of these arguments is that, at least in principle, water and markets are incompatible.

Ours is a world of water scarcity, however, so conservation and allocation matter more than claims of right and water sanctity. In this book, we contend that because water is so important, markets are a too-little used tool for allocating scarce water resources. Without markets and prices to provide incentives for both demanders and suppliers, water crises will persist.

Two examples illustrate how water markets can be thwarted or encouraged, both of which involve the complex problem of interstate water allocation. In Wisconsin, the Great Lakes Basin Water Compact disallows water trading outside the compact area, thus creating a water crisis for the town of Waukesha. In Colorado, environmentalists, ranchers, and municipalities are developing innovative market solutions to reduce the effect of other states in the basin calling for more water, thus preventing a crisis. What is the difference between the two?

Waukesha, Wisconsin

This small town just 20 miles west of Lake Michigan has a problem that would surprise most folks from outside the area: it is running out of water. Despite the region’s heavy precipitation and the community’s proximity to one of the largest freshwater supplies in the world, the Waukesha water utility cannot find supplies to meet projected demand. Water scarcity in a humid place like Wisconsin has long been rare, but is becoming more common. Hence, the history and future of Waukesha’s water troubles has broad implications for the Midwest and beyond.

The hydrology of the region explains part of the problem. The deep sandstone aquifer underlying southeastern Wisconsin and northern Illinois is highly confined by subterranean features like the Maquoketa shale (Jansen and Schultz 2009). These features enclose the aquifer and prevent it from recharging quickly. Indeed, hydrologists estimate the aquifer draws only 1.3 million gallons per day directly from Lake Michigan (U.S. EPA and the Government of Canada 2002). That amount may sound like a lot, but it’s not. On average, Lake Michigan loses that much water via surface evaporation every five seconds!

Given this hydrological isolation, decades of pumping by Waukesha and other communities have created a cone of depression 500 to 600 feet below predevelopment levels (Barrett 2009). The water table’s decline means pumping is more difficult and costly than ever before. Adding to the problem, radium and sodium levels in the water have steadily increased with pumping pressures. The U.S. Environmental Protection Agency regulates naturally occurring radioactive elements and has required, along with the state of Wisconsin, that Waukesha reach full compliance with radium concentration standards by 2018—a requirement that could cost millions in treatment costs. In short, groundwater is becoming very expensive in Waukesha.

The second reason Waukesha faces a water crisis has more to do with politics than hydrology. The Great Lakes Basin Compact prevents any new diversions of surface water outside the Great Lakes Basin. Because portions of Waukesha County lie outside the sub-continental divide (the line between the Great Lakes and Mi...

Table of contents

• COVER
• TITLE
• COPYRIGHT
• CONTENTS
• LIST OF ILLUSTRATIONS
• PREFACE
• 1. WHY THE CRISIS?
• 2. CHEAPER THAN DIRT
• 3. WHO OWNS THE WATER?
• 4. WATER IS FOR FIGHTIN’
• 5. BACK TO THE FUTURE
• 6. THE NEW FRONTIER
• 7. BUY THAT FISH A DRINK
• 8. GOOD TO THE LAST DROP
• 9. THE RACE TO PUMP
• 10. YOU CAN’T KEEP A GOOD MARKET DOWN
• NOTES
• REFERENCES
• INDEX