22 Jul 2008

Environmental Flows

In this post on All-in Auctions, I proposed that "some" water should be reserved for environmental flows and that remaining water should be sold, at auction, to the highest bidder. At least one commenter objected to this "exclusion for fish" -- an objection that another stated very well in an email to me:
Does the establishment of minimum environmental flows effectively give environmental values a "free pass" under your system? Seems to me that is the crux. Failure to publicly finance environmental requirements is a good part of the conflict we face today.

What you should do instead is put it all up to the market. If the people want to protect fish and other environmental values, they can form coalitions to spread the cost of that and then go into the market and buy up that minimum environmental baseline. Otherwise the minimum environmental baseline is very much an unfunded value choice being imposed upon the minority (holders of the water rights) by the majority (through the ESA or whatever other mechanism is used to enforce the minimum environmental flows).
While I agree that "fish" first is a form of entitlement, it's a political outcome that most voters are willing to support -- as they do with the water rights of American Indians, taxing pollution, etc. It's politically useful, I think, to reserve this water before marketing the rest. (In the same way as my proposal to give some water away before selling the rest for a bundle.)

My economic rationale is that rivers, etc. are not only scenic but also provide environmental services that are a public good. Allowing those who have water rights to divert an entire stream will destroy those ecosystem services. (Unfortunately, we've got an excellent example of this in the over-appropriated Colorado River.) I propose these minimal flows so that nobody can "buy a river dry."

There are some valid objections to privleged environmental flows:
  • Who decides how much flow to reserve?
  • Who loses their rights if the enviro flows encroach (junior rights holders)
  • Should someone pay/be paid for these enviro rights?
I am most worried about the first bullet, since predicting what fish want is tough. The third bullet is a budget decision, but I am willing to defend the notion of "taking water back" from junior holders because a river was over-allocated. (After all, most water rights were given for free and without considering ecological impacts.) But I'd think it fair to pay partial compensation for such a taking.

Bottom Line: We need environmental flows. How much and who's going to pay are big questions. I'd put the property rights back in State hands (Public Trust) and give some compensation to those few who lose water so that we many can have rivers.


  1. Could we not also say that failure of major private beneficiaries to publicly financed infrastructure (dams, roads, airports, police, courts, wars)"is a good part of the conflict we face today"? What has PGE paid for the dams that give them so much? What has Exxon-Mobile been charged for middle eastern wars? What has big ag been charged for the subsidies (publicly financed) that benefit them to such a great degree? Yes, then they would pass these charges on to consumers, and we would then have an economy closer to the Pareto optimum (I'm learning the jaron, but probably misusing it).

  2. In principle, the environmental flows should probably be price-dependent; if the prices obtained at auction are coming in low, more water should be left unsold, while in times of particular shortage, it could be sold down to levels that wouldn't be ecologically sustainable for longer periods of time. Including this in the system may complicate the politics, though; an inelastic demand curve by the fish may simply be more practical.

  3. Forming coalitions to spread the cost is essentially what we do through the political system. For the purpose of covering the cost of public goods, it is useful to think of it as a political willingness-to-pay, in the form of taxes. The critical part is creating institutions that give taxpayers confidence that they will get what they are paying for.

  4. Agree with ronen. The political system is the way of forming coalitions to forward sectorial interests. It should work.

    Israel Water Authority guarantees 10% of the original flow of rivers and springs for nature maintenance. For example, the Yarkon river of Tel Aviv had originally 90 million cubic meter per year flow, the current flow should be 9 MCM. In fact 1 MCM is drinking water and the rest treated terciary sewage. The cost is maintaining nature is included in the national budget.
    Please keep in mind that 10% is a lot of water in dry Israel.

  5. PS The water allocation for Nature was fought over and won after years that NOTHING was left for it and Israel had no rivers nor springs nor nature reserves with water. It was a great victory for the greens.

  6. Disagree with ronin. Taxes are a cost-spreading mechanism to pay for government expenditures. In the case of many environmental statutes - for example, the Endangered Species Act - what the government actually spends is a small fraction of the total cost of the statute, and the vast majority of the cost is actually borne by private parties. Do the analysis on this. It is uninformed to just say, "I pay my taxes, the environment is covered."

  7. David, for practical reasons, at least initilly I'd support a minimum environmental baseline?

    Why? Not so much that the "public good" aspects are so significant, but because government interference has prevented the markets developing to bargain for what now are considered "public goods", like the salmon fisheries that were once privately owned and managed by Indians and the federally-built dams whose streamflows are fiercely fought over by various private interests.

    I have more discussion and links up here: http://mises.org/Community/blogs/tokyotom/archive/2008/07/24/destroying-the-salmon-the-socialized-commons-and-climate-change-part-ii.aspx



  8. TT -- Salmon are a lot easier to manage as a community resource than rivers, and rivers are easier than the air. That said, I'm all for local solutions, as they are more flexible AND can be private.

    [On your Mises post, I lamented the dead hand of the Feds.]


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