Water Conservation in the Instream Flows Market In California

Capital Markets Fall 2011: Presidio Graduate School
This post is part of the capital markets open letter project by MBA students at Presidio Graduate School.

Open Letter To Governor Jerry Brown

By: Kimberly Morris, Philip O’Connor, Megan Redford, Gomathi Sadhasivan

Dear Governor Jerry Brown:

Thank you for your continued support of water conservation in California. As concerned citizens, and MBA students at Presidio Graduate School, we write to you with the intent of improving California’s ecological health. We are concerned specifically with the use of water right transfers for instream flows, a $155 million market from 1998 to 2005. We propose the fortification of this market as a way to conserve essential stream flows.

California, in all her majesty, is a state with many ecological issues looming on the horizon.  With the population expected to grow to 52 million by 2030, strain on environmental resources will dramatically increase in the near future. This strain will find no greater realization than in water availability. The added effects of global warming, with an estimated 90% reduction in Sierra snowpack by 2100, will create a hydrological reality difficult to imagine from the present, already strained, point of view.

The need for instream flow conservation and protection has been well documented through California’s unfortunate struggles with native fish species preservation. These species have often been the driving force behind the largest steps forward in water conservation. This was seen in the landmark decision by the Department of Water Resources to restore 214,000 acre-feet of water to the Delta ecosystem, ensuring the long term survival of fish species.

Instream flows are essential to the health of all ecosystems in California, providing countless, irreplaceable services that are often taken for granted. While instream flows have been used for fish habitat preservation, they are essential for the preservation of almost all flora and fauna, including humans. This is especially true when considering the impact of stream loss on the economy and lifestyle of Californians.

The conservation of instream flows has found success in several forms in the western United States, but none as promising as transfers through water markets. On heavily used streams, transfers may represent the only effective option for protecting flows. As the population and consumptive demands continue to grow, well-defined and exchangeable water rights have proven viable and efficient in comparison to costly and burdensome regulation. A California water district comparison found that sourcing water through water rights transfers would cost less than $300 per acre-foot as compared to $1,800-$2,700 per acre-foot for desalination and $1,300 per acre-foot for recycling.

While the use of water transfers for instream flows have preserved over 6,000,000 acre-feet of water in the west, this mechanism can be improved. Currently in California, water rights can be transferred to instream flow, however state law does not allow new appropriations. The transfer standards are rigorous and include vague and prohibitive features, such as having to prove the transfer will result in no harm to other appropriators. It is clear that this market is impeded by convoluted and complicated procedures, high transaction costs, lack of access for private participants and lack of a system for establishing instream flow standards.

As such, we recommend the establishment of a system for minimum instream flow standards, the permitting of new appropriations for instream flows by federal, state and private parties, and the creation of a regulatory body to facilitate these transactions and allow the water market to function efficiently.

The water transfer market for instream flows represents an efficient way to protect the crucial streams and rivers in California. This is an opportunity to recognize the reality of our water future and secure your place in history as a true Californian visionary.

Cordially yours,

Presidio Graduate School MBA Candidates

Kimberly Morris, Philip O’Connor, Megan Redford, Gomathi Sadhasivan

, philip.oconnor@presidioedu.org, megan.redford@presidioedu.org, gomathi.sadhasivan@presidioedu.org

image: Trey Ratcliff via Flickr creative commons

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