Decoupling environmental water markets from water law

Abstract

Environmental water markets have emerged as a tool for restoring flows in rivers across the world. Prior literature suggests that certain legal conditions are necessary for these markets to function. However, we find substantial market activity has occurred without these legal conditions through market and legal data collected in five core U.S. Colorado River basin states (Arizona, Colorado, New Mexico, Utah, and Wyoming) from 2014 to 2020. Ninety-five percent of the 446 water transactions sidestepped formal legal processes to transfer water rights to the environment. We also find that government regulatory and conservation programs, not private-sector investment, have driven most environmental water market activity. Government spending is the dominant funding source, with 90% of the $53 million spent coming from governments and 68% from the U.S. federal government alone. Finally, our analysis finds that current market activity would be insufficient to stave off future curtailment of critical water users under the Colorado River Compact and that $86–89 million annually in new investment is required to do so. In a basin experiencing a historic megadrought, our analysis suggests prioritizing such new investments over legal reform. Global implications are that such flow restoration is possible where legal regimes for environmental water markets do not already exist.

Using financial contracts to facilitate informal leases within a Western United States water market based on prior appropriation

“…Agreements to coordinate this type of conservation would function as "informal leases" in which water is effectively leased from a more senior to a more junior water rights holder, but via a process that does not require any institutional changes to the water rights of either party. Similar types of informal leases in many Western states use conservation agreements to create unprotected flows intended for ecosystem restoration (Szeptycki et al, 2015;Womble et al, 2022). This work generalizes the concept of informal leases by contributing a framework in which informal lease agreements are facilitated through index-based option contracts that compensate third parties for any potential negative impacts, incentivizing cooperation instead of litigation.…”

“…In the second case, the right holder is able to resume diversions using their existing (junior) water rights, informally leasing the water without acquiring formal approval. This form of informal leasing has been used by environmental groups to increase instream flows, but has yet to be adapted for the purpose of transferring water amongst rights holders (Szeptycki et al, 2015;Womble et al, 2022). This study presents an analysis of an alternate form of informal transfer in which financial contracts coordinate conservation activities across multiple right holders to ensure that junior water rights, particularly those dedicated to higher value activities (e.g., urban uses), can continue to be fulfilled during drought using the volumes conserved (i.e., not diverted) by more senior rights holders.…”

“…) where PL = potential losses of individual right holder (m 3 /month); u = uncertainty of return flow estimation (%); MC = total mitigation cost from individual right holder caused by informal leases (m 3 /month); MNB = marginal value of water use at right holder r; r = index of basin right holders (-), t = index of timestepsThe marginal value of water use for a right holder depends on the end use of diversions for that right holder. For agricultural right holders, the marginal value is determined by type of crop being irrigated, as a function of the crop's typical price, yield, and water consumption.Municipal and industrial water uses are assumed to have a marginal value of $0.73/m 3 ($900/acre-foot), based on the revenue losses municipal water providers in the C-BT service area experience due to conservation (City of Boulder, 2021) and environmental water uses are assumed to have a marginal value of $0.093/m 3 ($115/acre-foot), based on the prices paid for short-term water leases with explicit ecological objectives in five Colorado River Basin states(Womble et al, 2022). For more information about calculations of marginal value, see Supplement A.Annual, up-front option fees for each third-party right holder can be formulated as a function of this distribution of potential losses.…”

Using Financial Contracts to Facilitate Informal Leases Within a Western United States Water Market Based on Prior Appropriation

“…In the second case, the right holder is able to resume diversions using their existing (junior) water rights, informally leasing the water without acquiring formal approval. This form of informal leasing has been used by environmental groups to increase instream flows, but has yet to be adapted for the purpose of transferring water amongst rights holders (Szeptycki et al., 2015; Womble et al., 2022). This study presents an analysis of an alternate form of informal transfer in which financial contracts coordinate conservation activities across multiple right holders to ensure that junior water rights, particularly those dedicated to higher value activities (e.g., urban uses), can continue to be fulfilled during drought using the volumes conserved (i.e., not diverted) by more senior rights holders.…”

The patchwork governance of ecologically available water: A case study in the Upper Missouri Headwaters, Montana, United States

“…We contribute to a small, but growing body of law‐based work that uses empirical methods, including interviews and a focus on a specific place (e.g., Kaiser & Binion, 1998; Loomis & Ballweber, 2012; Robison et al, 2021) and analysis of water‐related planning documents (e.g., Arnold, 2010) to examine how water‐related laws operate and are perceived by key stakeholders. We extend existing work dealing with environmental water (e.g., Kaiser & Binion, 1998; Loomis & Ballweber, 2012; Robison et al, 2021; Womble et al, 2022) by going beyond surface water flows to examine the broader context of EAW (Box 1).…”