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 t's tough for environmental scientist Brent Haddad
to address California water policy issues in the wake of the
movie Chinatown and the book Cadillac Desert. Even
Californians who know little about the state's pending water
crisis know enough history to fear that thirsty cities and greedy
developers will do anything to get their hands on water, even
destroy prime agricultural land.
 But Haddad,
an assistant professor of environmental studies at the University
of California, Santa Cruz, is determined to make room for new
ideas. In his new book, Rivers of Gold: Designing Markets
to Allocate Water in California (Washington, D.C.: Island
Press, 2000), Haddad has developed a formula for water reallocation
that pays uncommon attention to issues of equity between cities
and farms. He envisions a system of water markets for the Golden
State that embraces historical usages while satisfying the growing
thirst of urban areas.
Virtually
all water in California is already spoken for by farms, cities,
and environmental interests. With no new sources on the horizon,
the challenge becomes one of reallocation. Agriculture consumes
the lion's share of developed water -- about 85 percent -- and
agricultural irrigation districts typically have direct water
rights or contracts with the state and federal government.
The need
for an effective allocation system is clear: cities are growing,
and they have the demographic, economic, and political power
-- as well as the financial clout -- to get more water. Some
cities are willing to pay $10,000 for a permanent acre-foot of
water, which is enough to supply two to four houses a year, said
Haddad. There are very few rules governing where cities can buy
land, and without an effective water reallocation system, Haddad
predicts that cities will get into the business of "water
ranching," or buying up farmland. That occurred in the Owens
Valley area of southern California, a saga that is depicted in
both Cadillac Desert and Chinatown.
"Because
water is so critical to the well-being of the region in which
it is being used, you're bound to hurt somebody if you transfer
water," said Haddad. "You have to compensate the losers,
in this case farmers and rural communities, which is why the
institutional design is so important."
For two
decades, policy makers and academics have been talking about
using a market system to allocate water, but they have been unable
to create an effective design, said Haddad, who has extensive
professional experience with designing markets for natural resource
management and environmental protection.
Haddad's
proposal would create:
- A system of smaller regional markets that
would operate under statewide transfer limits set by legislators.
- Specific review procedures for proposed transfers
that would be slightly broader than existing environmental impact
reviews and would include consideration of the economic and social
interests of the region that would be losing water.
- Incentives to encourage urban regions to
develop a long-term commitment to the well-being of the region
from which they are taking water.
- Requirements that farmers demonstrate, at
the end of a multiyear lease-transfer, their ability to put the
water to its original agricultural use.
Farmers
would have to meet the requirement in order to continue to hold
the rights to the water; such a rule would prevent farmers from
becoming water dealers, said Haddad.
"Everybody
loses a little, but nobody loses everything, and the state could
gain an effective water reallocation system," said Haddad,
whose book includes detailed case studies of the three major
historical water transfers in California: the Metropolitan Water
District of Southern California's attempts to acquire water from
the Palo Verde Irrigation District and the Imperial Irrigation
District, and the Castaic Lake Water District's efforts to acquire
water from the Devil's Den Water District.
Under Haddad's
proposal, the concepts of "feasibility" and "appropriateness"
would be weighed as heavily as the traditional economic notion
of "efficiency" when evaluating proposed water transfers.
"Some
proposals have been too cumbersome, or too politically unrealistic,
or too economically problematic to ever have a hope of accomplishing
the end goal, so I'm saying that projects have to be feasible,"
explained Haddad. "By appropriateness, I'm stressing that
these processes need to be consistent with the basic values governing
California society and that transfer proposals should be compared
in that light, with support going to the ones that are most in
line with the state's values."
Such concepts
represent a significant departure from traditional market design
and might be dismissed as "ivory tower optimism," concedes
Haddad, whose accomplishments prior to joining academia suggest
otherwise. Haddad was one of the nation's first emissions traders
under air pollution regulations, and as a financial adviser he
held a number of securities licenses. As a scholar, Haddad specializes
in environmental policy, investigating the use of market-based
methods to manage natural resources. As a well-established tool
to manage air and water pollution, such strategies involve the
creation of property rights that allow companies and individuals
to trade their shares.
Markets
have the potential to help solve California's water problems,
asserts Haddad. The scope of urban need is not nearly as large
as many imagine, said Haddad, suggesting that history -- with
the aid of popular culture and special interests -- has distorted
the picture.
"Agriculture
is by far the biggest water user in California, but even if we
doubled urban water use to 30 percent of the supply, which is
way more than cities would need, agriculture would only drop
to 70 percent," said Haddad. "It's not like we're going
to lose farming in California, even in the worst case scenario."
That margin
allows for creativity, he added. "Economists tout the efficiency
of open markets, but in this case we don't have to have the most
efficient system to satisfy our policy goals," said Haddad.
"We can afford to lose some transfers that make sense in
theory in order to get transfers that work in practice."
If water
ranching is discouraged and no new allocation system is put in
place, Californians will have three options, according to Haddad:
conservation, which is already taking place; water recycling,
which many find unpalatable; and desalination of seawater, which
is prohibitively expensive.
"Farmers
are worried about losing their water rights, but it's inevitable
that they are going to lose some water," said Haddad. "Here's
a way to do it while preserving as much of the agricultural way
of life as possible." 
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