Wellspring of Ingenuity

The town of Eureka, Nevada, has 610 residents. Located over 200 miles from Reno, down a stretch of highway known to travelers as the ‘loneliest road in America,’ it’s a quiet place. The economic mainstay is the growing of hay, which takes place on the irrigated plains of the Diamond Valley surrounding the town.

Eureka looks to be the last place to find a policy revolution underway. But what’s happening in this town could change the way communities and governments manage water throughout the American West. The town’s irrigators face a crisis: their groundwater is running out. In the face of a dwindling essential resource, the community has two choices. They can accept the drastic cutbacks to groundwater use mandated by the state government, or they can devise their own policy to conserve and share the resource, and convince the government that their policy will work.

The context, and a key cause, for this crisis, is the legal doctrine that dominates western US water law. There are two key components to this doctrine. First, prior appropriation says that water is allocated according to seniority. The farmer whose water right is the oldest gets the water first, while the most recent purchaser must wait. If the water runs out in the meantime, the new user is out of luck. Second, the doctrine of beneficial use says that water must be put to an economically productive endeavor, or it will be confiscated by the government. In other words, ‘use it or lose it’.

Both doctrines made a lot of sense a century ago: the first ensured that newcomers could not usurp the livelihood of established farmers; the second ensured that water was harnessed for the greater economic good. But as droughts and population growth continue to squeeze rivers and groundwater basins, these laws are getting in the way of much needed efficiency.

Consider the conundrum facing Eureka’s Diamond Valley irrigators. For decades, groundwater consumption has dramatically outstripped the rate of recharge: the groundwater has essentially been mined. Consequently, use must be cut by more than 60 percent over the next 50 years. Prior appropriation means that the remaining water will be allocated only to the oldest of water rights, those issued prior to 1960. The majority of farmers will be left with nothing, and as they leave their farms for jobs elsewhere, the town’s vitality will dry up too. Meanwhile, beneficial use means that any farmer who doesn’t use all of his/her allocation risks losing it. Rather than being considered virtuous, saving water is being penalized.

In the face of this, the farmers are petitioning the government to adopt their local plan, devised with input from Australian economist Mike Young from the University of Adelaide. Specifically, the farmers propose to spread the 60 percent cut among all irrigators, adjusting the cut faced by an irrigator by the age of his/her water right (rather than simply canceling more recent rights). Secondly, they want set up an exchange that will allow them to trade unused portions of their own allocations, much like a cap-and-trade system for pollution control. This market-based approach won’t refill the aquifer, but it may incentivize the improvements in water efficiency needed to get Diamond Valley irrigation on a sustainable footing.

Eureka’s key innovation, which is inspired by Australia’s well-developed water markets, is to ‘unbundle’ the use of the water, from the entitlement to the water. Traditionally, a farmer has a permit stating how much water can be extracted in absolute terms, what can be done with it, and where it can be used. This rigid, ‘bundled rights’ arrangement doesn’t leave much room for creativity or efficiency.

The new proposal says that each farmer gets a share of the total water available. In line with the need to reduce extraction, the total is slowly decreased over time until the lower, sustainable target is reached. Farmers would be free to apply all of their share to their fields, as per usual, or to save a portion of it – either for their own future use or to trade with their neighbors. Those trades would be made for money, incentivizing efficiency. Water shares will shrink in quantity as the total amount of water available decreases, but will increase in value as water became scarcer. Relative to the existing approach, trading should see water move to the most water efficient farmers, those who can make the most profits from each drop (and thus are prepared to pay the most for it on the new exchange). This efficiency keeps production higher than it otherwise would be, lessening the total economic pain caused by the water cuts.

No one can be sure how this experiment will go. There are plenty of problems to be ironed out: all farmers will need expensive new water meters, just to start. And older rights holders, who don’t want to face any cuts to their water entitlement, are going to grumble. Legal uncertainty about changes to water rights could lead to lawsuits, stopping the plan in its tracks.

But the extent of the crisis and the Diamond Valley irrigators’ enthusiasm present an opportunity for bold reform. The population is small, and the farmers know each other, helping them reach agreement. The Governor and State Engineer are said to be supportive. The water in question is not troubled by state boundaries or by conflicts with urban users. Simply put, Eureka’s Diamond Valley is a policy test-lab, where the problem is contained and the impact of the treatment is easily measured.

If it goes well, this reform could spread to other basins ­– places with many more policy and environmental complexities. If Eureka can show that that ‘unbundled rights’ can drive economic efficiency and improved environmental outcomes, and that the rigid system imposed by the current, century-old, laws should be overturned, then farmers in in Diamond Valley will be growing much more than hay. They’ll be growing a new future of water efficiency for the American West.


Image originally published by S&S on April 8, 2016.


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