by Robert Marcos
In a nutshell, the American West’s water crisis is not just a climate or a supply problem, it’s also a governance and an allocation problem. Nature has provided us with a finite supply of water, but our laws and our historical systems are directing that water to be used in inefficient ways. 1 There’s no more glaring example than Imperial Valley farmers who pay a base rate of $20 per acre foot for raw Colorado River water that they use to flood irrigate thousands of acres of forage, to feed cattle.2 Meanwhile just 100 miles away, water districts in San Diego pay $1,579 per acre foot for the same untreated water. 3
The Core Concept: Unbundling Water from Land
In the American West, water rights are legally tied to the land. If you sell the land, you sell the water; if you don’t use the water on that land, you lose it. Australia solved this in the 1980s and 1990s through “unbundling”. They legally separated water rights from land ownership.4 Because water is unbundled, it can be bought, sold, or leased on an open, transparent exchange—completely independent of the land. 5
• Water Entitlements: Treat water like shares in a company. A farmer owns a permanent right to a specific percentage of whatever water is available in the river system that year.
• Water Allocations: The actual volume of water credited to that share each season, fluctuating based on rain and dam levels. 6
How This Fixes the West’s Inefficiencies
If the Imperial Valley operated under the Australian system, the economic landscape would shift immediately:
• Eliminates “Use It or Lose It”: An alfalfa farmer wouldn’t have to flood their fields just to protect their legal rights. If a drought hits, they can choose to leave their fields fallow and sell their seasonal water allocation on the exchange to a desperate city or a high-value orchard. 7
• Puts a Clear Price on Water: Right now, Western water is artificially cheap for senior holders. A market creates a real-time price signal. When water is expensive, growing a low-value, thirsty crop like alfalfa in the desert can be financially foolish compared to selling the water itself. 8
J.H. Cullum Clark – a fellow at the George W. Bush Institute, said, “The simple case for allocating essential commodities like water through market mechanisms is that freely fluctuating prices bring supply and demand into equilibrium. If the amount of a commodity demanded by users exceeds the available supply, higher prices signal to suppliers that they should bring more supply online and to users that they should conserve”. 9