Is Groundwater Marketing Legal? Does the Public Trust Doctrine Apply?

Professor Noah Hall at the Great Lakes Law blog picked up on my recent T. Boone Pickens post with his own post (whose title I have partially appropriated), Is Groundwater Marketing Legal? Since I did not deal with this issue in my post, and a similar one about Claytie Williams' groundwater marketing efforts, I'm glad to see Hall tackle this issue.

The long answer is contained in a note by Dean Baxtresser, Antiques Roadshow: The Common Law and the Coming Age of Groundwater Marketing, that appears in the Michigan Law Review. Baxtresser's note provides a complete analysis of the legality of groundwater marketing in the USA.

My students would enjoy this. I told them in class the other day that groundwater laws in the USA are a 'mess' (technical legal term).

Baxtresser's abstract:

"Groundwater law in the United States is ill suited to deal with the issue of groundwater marketing. As freshwater shortages become more common with increasing population and a warming climate, scholars and business people are touting water markets as the solution to conservation and distribution, as well as a source of hefty profits. T. Boone Pickens—the famous oil tycoon of Texas—has turned this concept into reality with his attempt to exploit the groundwater of the Ogallala Aquifer in the Texas Panhandle for thirsty Texas cities. Despite the looming water shortages, however, states have not adapted their laws to deal with the marketing issue. As a result, the legality of groundwater marketing like the Pickens Plan is currently decided by outdated laws that were never meant to deal with groundwater marketing. In general, groundwater marketing is only legal where the law permits off-tract use—an old distinction that bears no relationship to the policy issues that must be raised by state legislatures to seriously address upcoming severe water shortages. This Note examines the various legal doctrines in the United States governing groundwater and determines that, whether for or against water marketing, states should affirmatively address the policy issues presented by the potential of marketing by updating their laws so that they can deal with the new paradigm of high-value groundwater in a thirsty age."

This next part of Hall's post is interesting:

Baxtresser also takes aim at recent debates over using the public trust doctrine to guard against groundwater marketing:

“The current interpretation of the public trust doctrine has no bearing on the legality of groundwater markets in any given state. Based on the logic the courts have used to extend the doctrine, it is unlikely to be extended to groundwater without redefining what the doctrine protects (an unlikely proposition). Were the doctrine to apply to groundwater based on its effect on surface water, the legality of groundwater marketing would be unaffected. Were the doctrine applied to all groundwater, the legality would remain unaffected because of the unwillingness of courts to wreak economic havoc on groundwater users. As a result, states will be unable to rely on the public trust doctrine as a source of law that will decide the issue of groundwater marketing for them.” [emboldening mine]

That last sentence is a real eye-opener. I've heard several people say that don't worry, the public trust doctrine will protect us.

Hall concludes:

So here’s the bottom line: The legality of groundwater marketing depends on common law doctrines that vary by state and were created long before massive groundwater water marketing was even possible.  The public trust doctrine does not apply to groundwater and does not prohibit water marketing, at least as currently applied by courts.  (I reached a similar conclusion regarding the public trust doctrine and groundwater in my recent article on bottled water).  So whether you are for or against groundwater marketing, it’s clear that the issue should be addressed directly through state legislation that considers both private property rights and public interests in water resources, and not left to courts applying common law doctrines in ways never intended.

Great way to start the month of May. Enjoy!

"Learn from yesterday, live for today, hope for tomorrow." -- Albert Einstein

Comments

[chris corbin]

I'm not an economist, but I'm jumping on Zetland's bandwagon -at least part of it.

1. quantify rights (doesn't have to be adjudication).
2. require to mitigation or aquifer recharge for new groundwater development.
3. trade, trade, trade.

http://www.activelymovingwater.com/2009/12/water-bank-slideshare.html

[dfb]

In that regard, some states have already modified their laws specifically to address groundwater marketing. For instance, California makes groundwater transfers/marketing difficult but not outlawed. Remaining states should look at California for ideas about what can be done and improved upon. California is not perfect or the best example but its legislature has definitely debated and addressed the issues mentioned in the paper. In addition, the Public Trust Doctrine may still protect groundwater in some states or in specific areas where groundwater withdrawals will affect public resources.

California law, at least theoretically, provides the necessary tools that would allow for groundwater marketing. As mentioned in the law review note, California Common Law (created by courts) follows the correlative rights doctrine. In essence, water may be exported out of a particular county when the groundwater aquifer has surplus water and when the appropriator has senior rights relative to other water users. The legislature has implicitly, perhaps even explicitly, approved of this doctrine and has effectively given counties that overlay an aquifer veto rights. State law provides that a county can prohibit groundwater transfers beyond the groundwater basin/aquifer/county. The law is based on old common law created by the California Supreme Court in 1933. “[C]onservation of subterranean waters” is a legitimate exercise of the police powers. In re Maas, 219 Cal. 422 (1933).

California can be divided into two segments based on groundwater management. The first is the adjudicated part, such as the L.A. region, where cities, other agencies, and even some private companies have adjudicated their rights to groundwater and closely manage withdrawals. They also regularly recharge the aquifers to maintain a permanent reservoir to utilize when needed and keep the seawater at bay. In the second segment of California, such as the Central Valley, overdraft is the norm and things more closely resemble Texas than areas of California with adjudicated groundwater. Clearly, situations like in the first segment would provide an opportunity for groundwater marketing. Unfortunately, the water is most needed in the majority of areas with adjudicated groundwater rights so little water transfers will come from those areas. As such, any significant water transfers will come from the second segment. Places where water is relatively plentiful, such as the Sacramento Valley, could adjudicate their groundwater rights, adding surplus water into the aquifer when available, and selling off some water during dry years. On the other hand, areas of overdraft will likely never have an opportunity for groundwater marketing.

As for the Public Trust Doctrine, it is applied differently in the various states. Some states do not accept it at all. That's likely why the author says it won't be used in a majority of states. The Public Trust Doctrine is tantamount to a nuclear option for courts. They generally use it as a last resort when other laws do not offer protection or the outcome would otherwise seem unfair. The failure of a legislature to do its job and/or address a need is generally when you see the doctrine used. You can bet that California (and other states of that bent) will likely see its use, at least by lower courts, if correlative rights do not apply. The Public Trust Doctrine will also be used to protect various public resources that clearly do rely on subterranean waters or a high groundwater table. For example, Devils Hole and its pupfish. http://en.wikipedia.org/wiki/Devils_Hole I do not doubt the Michigan courts would use the Public Trust Doctrine if other laws are not at its disposal and the court feels the state is truly threatened by large scale groundwater pumping operations that significantly affects the high water table.

[dfb]

I disagree to some extent with the law review note. He paints a broad brush assuming all states are backwards like Texas and tries to make a complex issue seem more cut and dry than it ever can be. It is also clear he has not lived out West or considered it from our perspective. Otherwise, he would not consider our laws quaint with little modern relevance or relationship with our actual needs.

"In general, groundwater marketing is only legal where the law permits off-tract use—an old distinction that bears no relationship to the policy issues that must be raised by state legislatures to seriously address upcoming severe water shortages."

To the contrary, off-tract use of groundwater is highly relevant to the policy issues that legislatures need to debate. This is especially true in areas that already have water shortages. Off-tract use affects local users, their environment, and may encourage subsidence if not controlled. Each issue is highly relevant to any discussion about groundwater transfers/marketing.

[David Zetland]

Yes, we're here -- the economists -- and we have the solution to your problem. It's NOT lawsuits. It's either:
1) Self regulation by ALL overlying property owners;
2) Taxes on withdrawal to stabilize water tables; or
3) Quantification (adjudication) of individual rights.

After that "cap" you can trade.

I'll link from aguanomics too :)

[Eric Perramond]

Fab-u-lous post MC, will link to this soon. I view this as the hydrological equivalent to trading derivatives (secretive, invisible, unregulated) in many ways - perhaps a poor analogy, but...