Markets could aid solution to water issues in American West

“Prices serve as signals to users about the scarcity of a resource,” wrote R Street senior fellow Josiah Neeley in a report released recently. “If water prices are kept artificially low — as they often are for a variety of reasons — people will act as if it is plentiful and will be less likely to conserve. By contrast, higher prices create incentives for individuals and businesses to find more efficient ways to meet their water needs.”

According to the report, a 10 percent increase in the price of water reduced agricultural water demand by 5 percent, with 3 percent to 4 percent decreases in short-term residential use. Meanwhile, long-term residential use declined by 6 percent. This sort of reduction in water usage will be more and more necessary if global temperatures continue to rise, the report states, pointing to the recent California drought as a sign of what future weather could look like.

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“The prior appropriation system can also unintentionally undermine incentives to be frugal with water use, as many states currently incorporate a “use-it-or-lose-it” doctrine into their water rights,” Neeley wrote.

Market-based incentives would help to balance competing water needs, however, while at the same time encouraging efficient use of water resources. Regulatory changes including the elimination of restrictions on water use, allowing the collection, storage and sale of rainwater, and the expedition of the review process for short-term water leasing would allow for more efficient use of this resource.

Although water rights have primarily been a concern for western and southwestern states, climate change means that water rights are an issue the entire country should look at, Neeley said.

“Rising temperatures are going to affect all parts of the United States, so it is a national issue. However, there are large differences between how the eastern and western parts of the country handle the legal rules regarding water,” he said.