Australia’s Drought Strategy Would Work for California


Australia’s Drought Strategy Would Work for California

Allow markets to work, and bottom-up solutions will quickly emerge

California is in the midst of a water crisis that threatens to do enormous damage to the economy and ecology of the state. In response, Gov. Jerry Brown recently signed an executive order requiring a reduction in water use, along with subsidies to convert 50 million square feet of lawns and turf to “drought-tolerant landscapes.” But neither this, nor the $7.5 billion water bond approved by voters in November, will solve the underlying problem.

Instead, California should follow the example of Australia, which dramatically reformed its water laws in the 1990s. Like California, Australia has a highly variable climate and has been plagued by droughts. Also like California, for most of its history, Australian governments sought to address increases in demand for water through taxpayer-funded infrastructure projects and mandatory environmental diversions. The infrastructure projects failed to keep pace with demand, especially during droughts, while the mandatory diversions resulted in conflicts, especially between agricultural users and environmental pressure groups.

Then, during a particularly severe drought beginning in the 1990s, Australia reformed its system for allocating water, creating better-defined and more readily tradable water rights and replacing mandatory diversions with voluntary purchases. As a result, Australia’s water prices now reflect both its scarcity and its delivery cost, farmers have stronger incentives to invest in water conservation, and environmental groups are able to purchase additional water for conservation purposes.

Such a solution sounds similar to the approach taken early in California’s history, when miners and farmers developed highly functional and effective systems of water ownership and trading. Even today, some California cities and farmers who place a high value on water have been able to purchase it from rights holders who value it less. But such trades are rare because water rights have been overallocated, most are held by government agencies, and there are often insurmountable restrictions on moving water from one place to another.

About five times as many water “rights” have been allocated in California as there is water in an average year. That is a recipe for uncertainty and conflict. California needs an efficient and inexpensive means of determining the actual amount of water allocated to each rights holder. Since rain and snow varies from year to year, such allocations would ideally be shares of the total precipitation, rather than absolute amounts.

California also should change its “beneficial use” requirement so that rights owners may store their water. Currently, they must use it or lose it. Rights owners would then conserve water during wetter years, so that it might be available for use during years of drought.

Restrictions imposed by state and federal agencies on trading water must be eliminated so that water can be put to its highest-valued uses. Meanwhile, water storage and transportation infrastructure owned by state and federal governments should be sold or leased to private companies or nonprofits that have stronger incentives to ensure the infrastructure is maintained, improved and used to store or move water where it is most highly valued.

Similarly, municipal water agencies could be converted into private, mutually owned companies. Prices would then be determined by the shareholders, i.e. water users, and would better reflect both scarcity and supply costs. Consumers might then choose to use less water but would not be forced to do so.

California should also end mandatory diversions for environmental uses, as Australia did when it created a state agency for environmental water purchases. Having opened up the market for water, an even better approach would be to allocate funds (perhaps including some of the voter-approved $7.5 billion water bond) to match those raised by nonprofit conservation groups to purchase water rights.

Rather than lobbying for “free” water transfers, conservation groups would have to take into account the market value of water and the costs imposed on others when prioritizing their investments in conservation of species and habitat.

It’s clear that central planning won’t fix California’s water crisis. It’s time for the state to follow Australia and adopt a more sustainable approach: Allow markets to work, and bottom-up solutions will quickly emerge.

Julian Morris is vice president of research at Reason Foundation. This article originally appeared in the Orange County Register.