Mike Young has a well-deserved reputation as a water guru who helped craft Australia's water right trading system. Unbeknownst to many he has applied his talents to Western water issues. A recent report he authored for Duke University's Nicholas Institute provides a blueprint for the West in the following report: Unbundling Water Rights: A Blueprint for Development of Robust Water Allocation Systems in the Western United States.
This report lays out a blueprint for transitioning to robust water rights, allocation, and management systems in the western United States—a blueprint ready for pilot testing in Nevada’s Diamond Valley and Humboldt Basin. If implemented, the blueprint’s reforms would convert prior appropriation water rights into systems that keep water withdrawals within sustainable limits, allow rapid adjustment to changing water supply conditions, generate diverse income streams, and improve environmental outcomes.
The blueprint’s essential element is unbundling of existing water rights. In law and economics, property rights are often described as a bundle of sticks. When applied to a water right, unbundling involves separating an existing right into its specific, component parts.
In an unbundled system, each part is defined and can be managed and traded separately. During the unbundling process, as proposed here, the value of each component is enhanced, and the taking of property rights is avoided.
Unbundling brings clarity to water rights and reveals the true value of the water, because willing buyers and sellers are able to trade with one another with dramatically reduced transaction costs. “Liquid markets” emerge. Shares, a primary product of the unbundling, can be used to enhance innovation, and opportunities for improving environmental outcomes are increased through the transparent value of water rights shares and allocations.
If water managers in Nevada find that an unbundled water rights system is more desirable than the current system, they can use this report’s proposed reforms and schedules to facilitate the transition to it. Although the state engineer and governor’s office may have sufficient perquisites to proceed without the support of new legislation, implementation would be easier if underpinned by legislation.
Read more about the Diamond Valley situation here.
Young has also written a more general paper, Water Allocation in the West: Challenges and Opportunities.
Here are the first few paragraphs of Young's paper:
When considering the role of water in an economy, it is useful to reflect on the “Diamond-Water Paradox” made famous by Adam Smith: “Nothing is more useful than water: but it will purchase scarcely anything; scarcely anything can be had in exchange for it. A diamond, on the contrary, has scarcely any use-value; but a very great quantity of other goods may frequently be had in exchange for it.”
This paper explores the proposition that water management could be one of the U.S. economy’s undiscovered jewels. It searches for opportunities to increase water’s contribution to the economy without compromising environmental or social objectives.
Section I gives an overview of Australia’s successful water reforms. Section II discusses water markets and allocations. Section III identifies 10 opportunities to improve water use in the United States. Section IV considers how the United States could proceed with water reform.
Thanks to Margaret Matters of the Oregon Department of Agriculture for bringing all the above to my attention. Great stuff!
“Under the current prior appropriation system, there is little incentive to innovate and ensure water use is maximized." - Mike Young