What is in this article?:
- The ABC's of apples, bees, and connections hydrologic
- A market failure example: Buy and Dry
- Remedies for hydrologic externalities
- Hydrologic externalities can no longer be ignored
- Exploding municipal, energy, agricultural and environmental water demands are colliding with limited or declining supplies. New infrastructure to increase water supplies has become economically prohibitive and environmentally indefensible. Environmental issues and changing patterns of water use are forcing water managers to search for new ways to reduce demand and redistribute supply.
- Agriculture is often viewed as the principal target of reallocation.
Remedies for hydrologic externalities
There are four general policy responses to remedy externality caused market failures: (1) Pigouvian tax on a negative externality or subsidy on a positive externality, levied to align the market price with the social price; (2) technological elimination; (3) markets or internalization through pricing; (4) regulatory or administrative fiat.
Idaho's Eastern Snake River Plain Comprehensive Aquifer Management Plan (CAMP) included language to "recognize the value of incidental recharge [from surface-water irrigation]." To fund the reallocation through buyouts or other means and increase water supplies from aquifer recharge, increased storage, or other ways, CAMP proposed a fixed per-acre rate charge. The highest rate was set for groundwater users—a rudimentary fixed rate Pigouvian tax, to discourage pumping damage on surface water. Ironically, funding of CAMP was legislatively blocked by some of the very canal companies who might have become subsidy recipients.
Canal lining is a widespread prescription to conserve water by technologically eliminating seepage. The touted benefits are decreased diversions, with the assumption that the "saved" water will be dedicated to other uses. Benefits must be weighed against the explicit costs of construction and the foregone benefits of seepage to groundwater users. However, deliberations typically ignore the reduction of recharge and the resulting impact upon aquifer users. In Oregon for instance, a portion of “conserved” water can be used to expand irrigation or transferred to other consumptive uses. Economically sound analysis requires that benefits be weighed not only against construction costs but also against the foregone benefits to groundwater pumpers and spring users. However, the U.S. Bureau of Reclamation (BOR) mandate is to provide surface water and private canal companies are authorized to assess for deliveries of surface water. Since the benefits to groundwater users are external to the mission and/or revenues of decision makers, groundwater users’ benefits are likewise generally external to deliberations.
Internalization through pricing requires ownership and control of the priced commodity. In the Grant County Blacks Sands Irrigation District, Columbia Basin of Washington, the BOR is attempting to assert ownership of groundwater, where that water can be directly attributed to canal seepage (Family Farm Alliance, 2010). Internalization by ownership would pave the way for pricing the benefit generated by seepage. However, this potential remedy for externalities, contravenes a long standing principle of prior appropriations; once one loses physical control of water—whether through surface returns or percolation to aquifers- the water reverts to public ownership.
Following the legacy of the prior appropriation, regulatory fiat is perhaps the most often invoked mechanism to remedy externalities. Within each of the past three years in Idaho, junior groundwater pumpers in the Eastern Snake River Plain have been “called out”—subjected to prior-appropriation regulation. However, when calls are stayed by legal action, the market failure persists. Another example of attempting to address externalities by fiat is Oregon's practice of regulating groundwater pumping " in unconfined alluvium—sands and gravels—within 1/4 mile of the banks of a stream or water surface." (Oregon Department of Water Resources). As with any regulatory remedy, arbitrary set back regulations implicitly rank the damages of induced seepage incurred by surface water users as greater than the economic benefit of groundwater users within the setback band. An additional problem with regulatory fiat is the lack of comprehensive consideration of all externalities and hydrologic effects. In Idaho, for instance, aquifer calls and conjunctive management rules have attempted to address the externality that groundwater pumping imposes upon surface water, but the larger externality of recharge from surface water irrigation was ignored until CAMP.