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.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.)
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).
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?
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.