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Major droughts in the American West have caused water levels in Lake Mead, Lake Powell and the Great Salt Lake to fall to historic lows. Although climate change and population increase undoubtedly play a role, water-rights rules make conservation efforts problematic. Reforming the property rights of water ownership and making water a tradable commodity under market-based water pricing schemes can go a long way in forestalling and managing the water crisis in the West.
Agriculture uses 80% of the West’s water. For over 100 years, water has been an asset subject to the rule of use-it-or-lose-it. Western water laws ensure that unused water is forfeited back to the common pool.
People tend to overconsume any resource subject to such a rule. Farmers don’t make money on water saved. Instead, their future water use is penalized for current conservation efforts. The lack of incentives for conservation with use-it-or–lose-it is especially counterproductive with greater scarcity.
For example, farmers could save water by using sensors to apply water only where and when it is needed. Sensors on central pivot sprinkler systems that facilitate variable water use typically cost $40,000 to $50,000 each. Under use-it-or-lose-it, a farmer has no incentive to invest in such a system. However, the investment makes sense if the saved water is a sellable commodity. Other substitutes include cultivating crops that require less water. Some potato varieties use less water than the commonly grown Russet Burbank. If the saved water can be commoditized, such substitutions will be forthcoming.
Colorado and California are experimenting with water banking and allowing the sale of unused water without giving up permanent water rights. Utah just passed a law enabling rights holders to lease water for environmental benefits like refilling lakes. Pricing water gives agricultural users an incentive to conserve. As important, pricing ensures water flows to its highest-valued uses.
Conserving and rationalizing residential use typically relies more on restricting specific uses of water than on pricing. Las Vegas consumes about the same amount of water today as 30 years ago yet has twice the population. This has been accomplished by various water-use restrictions, such as prohibiting ornamental grass and outlawing water falling on paved surfaces. The city’s water police fine violators of these restrictions.
After people, water is the world’s most valuable resource. As water becomes scarce, we suspect pricing will play an increasingly important role in its management.•
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Bohanon and Horowitz are professors of economics at Ball State University. Send comments to ibjedit@ibj.com.
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Yes, we obviously need new water policies across most of the country. Why not try using the advantages of pricing before more blunt actions like regulation?