The Libertarian Perspective On California Water

Private property rights in all water, combined with full-cost pricing in free water markets, is the best (and indeed only) way to match California's vast water supplies to its growing water demands. In practice, this means

• ending the subsidies that make water for agriculture often cost ten times less than urban water, in exchange for giving farmers secure and fully transferable property rights in whatever grandfathered allotments they reasonably deserve;
• defining secure and fully transferable private property rights not only in all surface water but also in all groundwater, so that (for example) environmental groups are given full ownership of water shares needed for ecosystem maintenance;
• making all urban and agricultural water customers bear the full cost of the water they get, while also receiving the full profits when they use less than they are alloted and thus release (i.e. sell) water back into the system;
• allowing efficient and transparent market transfers of water rights 1) among users within water distribution systems, 2) between water distribution systems, 3) between water basins, and 4) between states (such as those with shares of the Colorado River);
• resisting calls for expensive and ecologically suspect new water projects as long as the above policies are not yet implemented.
  

This libertarian prescription of free water markets has been well presented by free-market think tanks like the Pacific Research Institute and the Reason Foundation. The best analysis I've seen so far is Ending California's Water Crisis - A Market Solution to the Politics of Water by Erin Schiller and Elizabeth Fowler (Pacific Research Institute, 1999). Its themes are underscored by Why Water Markets Can Solve California's Water Crisis - Amy Kaleita (Pacific Research Institute, 2008). An earlier study is Water Marketing In California - Richard Wahl (Reason Foundation, 1993).

For up-to-the-minute analysis, I recommend the blog http://aguanomics.com. For example, just today Dr. Zetland posted his analysis of California's draft 2009 water plan. His prescription:

1. Amend state law to require that ALL water rights (ground, surface, riparian, etc.) be adjudicated.
   
2. Retire ALL water rights that have not been exercised for over 10 years.
   
3. Direct DWR and SWRCB to formulate "plain vanilla" procedures to facilitate short term (<1 yr) water transfers within water basins and between basins.
   
4. Require that water resellers raise rates if water consumption rises above long-term (50+ year reliability) average water supplies. Keep raising them until consumption is below sustainable yield.
   
5. Require that ALL directors of a water district or agency resign if a shortage is declared and require a one-term cooling-off term before they can seek reelection.
   
6. Allocate space on "oversubscribed" conveyance according to market mechanisms (i.e., auctions).

Here's his Water Plan: "Structure rates such that everyone gets a human right allocation of water, allow trading among those who have (ground/surface) water rights, and make sure that the price of water fluctuates with water scarcity." Exactly.