02 December 2010

Water auctions in Arizona

I recently came across the details [doc] of the Central Arizona Project's ADD water program [Acquistion, Development and Delivery. Cute.] to bring new supplies (Colorado River water, imported groundwater and brackish groundwater) into the region, i.e.,
ADD Water available in each phase will be distributed using a market-based allocation process (i.e., an auction) where the price for ADD Water will be increased until demand equals supplies.
I am pleased to see CAP proposing an auction mechanism for water allocation. This would be a big step forward for CAP, which has recently slogged through multiple stakeholder processes to figure out how it ought to allocate excess water supplies among the water "haves" and "have nots", while ignoring the "water is plentiful" price signal being sent to water users. Auctions will significantly improve the efficiency and equity of this allocation process, which at present is strongly influenced by the increasingly capricious opinions of the CAP board.

OTOH, I wonder why the CAP doesn't just auction the entire volume of water it diverts from the Colorado River each year (using all-in-auctions to allow current users to benefit if they decide not to continue drawing on their rights). For example, wouldn't the Indian tribes with CAP allocations be pleased to have annual leasing options built into their allocations, rather than having to develop a marketing plan for their supplies?

Any help?

Bottom Line: Two steps forward, one step back, but don't give water away if you're trying to convey "scarcity." Use markets for ALL water rights.

2 comments:

  1. David -

    This sounds like a great first step toward implementing the sort of ideas you've been talking about.

    In response to your question - why don't they do this with *all* their water? You need a first step, like the one they're considering, before you can take a second step, like the broader auction you're suggesting. It gains operational and institutional experience, which then would allow them to consider more broad application.

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  2. @Fleck -- agreed. It's useful to start somewhere, to make sure that people don't catch on fire from these crazy market ideas :)

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