This review appeared in the June 2016 issue of Water Economics and Policy, Vol. 2, No. 2.

Is there a panacea for addressing water scarcity throughout the world? In Chasing Water Brian Richter argues that if communities understand their water resource and work together to implement sustainable water allocation schemes, many of the issues associated with water scarcity, and even scarcity itself, can be alleviated. The key, Richter argues, is to move away from “centralized, top-down, government technocracies” and towards a list of seven sustainability principles that he believes can guide effective water management. The book is geared for a general audience interested in water issues, and provides a plethora of examples from throughout the world to both illustrate and substantiate the book’s theses. The book provides a nice overview of the issues associated with water scarcity, but economists will likely be frustrated at times by its lack of meaningful discussion of tradeoffs and incentives.

The book’s key proposition is that sustainable water use, with allocations first to the environment and basic human needs, increases overall welfare. Suggesting that ecological health suffers when a river system is depleted by more than about 20%, Richter draws an analogy between freshwater accounts and bank accounts. Net inflow, after accounting for necessary ecological flows, is income that can be spent or saved for future shortages; consumptive uses are expenses. By following a water budget that balances inflows and consumptive use, he argues that a community can resolve recurring water shortages.

The book culminates with the example of Australia’s Murray-Darling Basin (MDB) as an illustration of a basin that has followed sustainability principles in tackling a serious drought. In many ways, MDB faces the same issues as the western United States and other arid regions: growing urban populations and concern over the degradation of aquatic and riparian ecosystems increase pressure on institutions to move water out of agriculture, historically the largest user. Somewhere around 15-16 million acre-feet of water from the MDB are available for use by humans and the environment. Coincidently, this is nearly an identical amount allocated under the Colorado River Compact, which Richter routinely cites as a failed water governance regime. Unfortunately, the book provides no systematic comparison to the Colorado, or any other basin, making it unclear which, if any, of the lessons from the MDB could be applied elsewhere.

In the MDB, a total cap on use was implemented in 1997, a type of policy Richter refers to as a “cap-and-flex.” Under this system, total consumptive use in a basin is capped, and shares to water are allocated. Economists would generally refer to this as “cap-and-trade,” although Richter emphasizes two classes of entitlement asset: high-security allocated entitlements to supply basic needs to urban and environmental flows, and tradeable low-security entitlements for years when flow is above the lower threshold. Data back up the book’s assertion that private sector trade in water entitlements in the MDB has incentivized water use efficiency. Water trades in the MDB create $300-$700 million in gains per year, depending on water availability (Grafton et al, 2012).

The accomplishments in MDB, making significant cutbacks in water use to accomplish environmental goals and increasing the efficiency of consumptive water use, are impressive. However, providing water to the environment has an opportunity cost. Of the total $12.6 billion price tag for MDB reform, $8.9 billion was used to subsidize projects for rural water users facing cutbacks, with $3.1 billion directly spent for water buybacks. It is not clear whether Richter is suggesting irrigators, general taxpayers, or environmental groups bear the cost of protecting water resources and the associated ecological benefits. Richter cites the example of environmental degradation caused by Los Angeles’ water use drying Owens and Mono Lakes. To reduce environmental impacts, Los Angeles had its access to Mono Lake tributaries cut back by the State of California. Because the city was not compensated, the cutbacks led to a contentious and costly legal battle (Brewer and Libecap 2009). Similarly, Richter sees the depletion of the High Plains Aquifer as a serious issue. While Richter does not go as far as to suggest a mechanism for reducing pumping, the examples of MDB and Mono offer two potential institutional arrangements with distributional and efficiency consequences.

Richter defines water scarcity as “a condition that occurs when there is insufficient water available at a reasonable cost to fulfill human needs and to sustain the health of freshwater ecosystems.” This sounds like any scarce good, and when water is viewed as such, Richter’s thesis that preserving ecological health is always valuable suggests, in some cases, an absurdly high valuation of environmental amenities. In the Antofagasta Desert in northern Chile, water for copper mining is extremely valuable and policies designed to protect small wetland ecosystems have costs in the range of $6 billion and cause mining firms to pump desalinated water to elevations over 3,000 meters (Edwards et al, 2016). These policies, which environmental advocates point out still allow some depletion and are not fully sustainable, lead to massive greenhouse gas emissions and likely decrease aggregate social welfare. For the reader, a challenging aspect of the book is the apparent inconsistency of maximizing welfare and achieving sustainable water use in all cases.

While not fully convincing readers of its thesis, the book is optimistic and written to advocate local water engagement and activism, especially protecting the natural water system and its associated ecosystems. Local cap and trade policies like those advocated by Richter are effective in some cases, like controlling groundwater depletion that affects surface water flows in Nebraska (Kuwayama and Brozović 2013). Local management of water resources can also solve common-pool problems in groundwater, such as local depletion problems addressed by management districts in Kansas (Edwards 2016). The sweeping scope of the cases cited in this book provides readers with scores of examples of water management challenges. While Richter tries to provide an equally broad set of solutions, the costs and incentive structures necessary to achieve them are not fully articulated, leaving the reader simultaneously hopeful and skeptical. Perhaps this is exactly what Richter intended.

-Eric Edwards, March 8, 2016

Sources Brewer, J. and G.D. Libecap. 2009. Property rights and the public trust doctrine in environmental protection and natural resource conservation. Australian Journal of Agricultural and Resource Economics, 53(1), pp.1-17. Edwards, E.C., O. Cristi, G. Edwards and G.D. Libecap. 2016. An Illiquid Market in the Desert: The Role of Interest Groups in Shaping Environmental Regulation. NBER Working Paper No. 21869. Edwards, E.C. 2015. What Lies Beneath? Aquifer Heterogeneity and the Economics of Groundwater Management. Accepted for publication at the Journal of the Association of Environmental and Resource Economists. Grafton, R.Q., G.D. Libecap, E.C. Edwards, R. J. O'Brien, and C. Landry. 2012. Comparative Assessment of Water Markets: Insights from the Murray-Darling Basin of Australia and the Western USA. Water Policy, 14(2): 175-93. Kuwayama, Y. and N. Brozović. 2013. The regulation of a spatially heterogeneous externality: Tradable groundwater permits to protect streams. Journal of Environmental Economics and Management, 66(2), pp.364-382.