This is the second part of the Arizona Water Grab series, following Arizona Water Grab Part One: Water Rights and Water Markets. This is also accompanied by two supplemental pages for more information on the Walton Family Foundation and GRIC in the interest of keeping this article shorter than it would’ve been.
Water conservation deserves much more skepticism than you might think, especially when the heirs to the Walmart fortune are involved.
Recently, a few related water agreements have been made with the Gila River Indian Community (GRIC) to address the water level at Lake Mead and the state of Arizona’s continued access to Colorado River water. Of the more troubling facts is that one of the agreements involves the Walton Family Foundation, run by billionaire Walmart owners and family.
The Walton Family Foundation’s activities around water have been almost exclusively to develop a water market. It has funded various reports, programs, and non-governmental organizations (NGOs) in the interest of water marketization, including the sale of water offsets (in Arizona and elsewhere) to companies like Coca-Cola.
Further development of a water market in Arizona would likely mean a rise in water prices and redistribution of water to those with more money.
It is important to understand that it is under the guise of water conservation that certain interested parties seek to gain access to water and develop investment opportunities. Conservation under these sorts of agreements may not even mean what you think it means.
Arizona is in trouble. The state could face uncertain consequences left up to the Secretary of the Interior if the water level in Lake Mead drops below the three shortage tiers for which plans have been in place for water reductions. Hydropower could suffer and energy costs could rise dramatically. Arizona officials are trying not to leave this up to chance, so they are taking measures to keep in the lake some of the water they’d normally be taking.
This is where GRIC water agreements with the City of Phoenix, ADWR, and Walton Family Foundation come in. Arizona needs solutions, but moving in the direction of a water market may bring dire consequences. These agreements are portrayed as shortage sharing but in reality they are meant to secure access to water for those uses deemed more important.
This “shortage-sharing” seems to disproportionately impact tribes, although GRIC does have incentive to avoid cuts to its lower-priority non-firmed “non-Indian agricultural” (NIA) water*. Additionally, while it has the largest portion of water rights to Central Arizona Project (CAP) water, the community didn’t get as much water as they had fought so long for, and years after its water settlement members have not yet been able to recover entirely from settlers’ impacts on the Akimel O’odham, or River People’s water sources, which led to famine and multi-generational economic, health, and cultural effects.
Current Arizona Department of Water Resources (ADWR) director, Tom Buschatzke was quoted when he was Phoenix City Water Manager in 2004 as saying, “We believed, and still do believe that without settlements, (Indian tribes) are threats to our water supply.” GRIC’s settlement that year provided them with a CAP entitlement so that the City of Phoenix can keep using the majority of the water from the Gila and Salt Rivers. And now GRIC will make further compromises which Phoenix will not have to make (the City of Phoenix’s has also proposed market solutions to water problems with its Arizona Water Exchange Platform).
The Drought Contingency Plan (DCP) and DCP+ are the current plans, both still in the works, meant to arrange voluntary reductions in order to leave more water in Lake Mead, delaying the shortage triggers and federally mandated cuts. The DCP would be an agreement among Arizona, Nevada, and California, while DCP+ is an arrangement between parties (such as tribes) in Arizona to make cuts as part of the DCP and which go beyond it. Negotiations around the DCP create opportunities for those interested in developing a water market to influence water policy.
There are two ways that entities such as the tribes can contribute to keeping water in Lake Mead, both of which have been described as market-based solutions: Intentionally Created Surplus (ICS) and system conservation (in the form of the Pilot System Conservation Program and the System Conservation Implementation Agreement). The pilot conservation program that some tribes already have been participating in, which is being expanded, was likely modeled on Walton Family Foundation-funded NGOs’ plan for a market-based compensation program.
While these projects mean that less Colorado River water would be flowing into Arizona, cuts have to be taken either way, so the projects function to facilitate water transfers, in that it allows various uses that are seen as more valuable to continue, while others have to be reduced.
Use-it-or-lose-it water law policies can encourage wasteful water use, yet water marketing as an alternative will likely not reduce consumptive use, just redistribute it to cities, industry, and the wealthy.
Some tribes who have settled their water rights claims already lease their water to cities and companies, and some in tribal leadership are in favor of water marketing. But some questions arise: Who would benefit from these arrangements and who would not? How voluntary are these agreements considering preexisting economic disadvantages of the tribes? Are tribal members being adequately informed and are their voices included in the decision-making? Are these decisions taking into account that there may never be a recovery from the current drought? Are industries like the the Resolution Copper mine and Nestlé water bottling facility in Phoenix able to access the water they need into the future because of others’ cuts? And perhaps the most important, how will arrangements like this contribute to a broader water market?
Walton Family Foundation Seeks Liquid Assets
The Walton Family Foundation (WFF) will provide funding and capacity for the projects associated with a non-binding, not very specific agreement made with GRIC, the City of Phoenix, and ADWR signed in March.
WFF has been funding a lot of conservation projects as part of its Freshwater Initiative Strategy for several years. Its California activities have been discussed in Walmarting the Rivers and Oceans and other articles by Dan Bacher, showing how business and the wealthy can benefit from so-called conservation efforts. WFF’s conservation activities come from a tradition and network of other such foundations like the David and Lucille Packard Foundation, Pew Charitable Trusts, Rockefeller Foundation, etc. seeking political stability and national security through population control and uninterrupted access to natural resources for the US and corporations.
Many are familiar with the problems of Walmart’s business model, but few may be aware of the family’s “environmental” activities. WFF has funded big pro-corporate “environmental” NGOs (sometimes called “Gang Green” or BINGOs for big NGOs) such as the The Nature Conservancy (TNC), Audubon Society, and the Environmental Defense Fund (EDF) that have a history of water market/conservation schemes. Sam R. Walton’s position as president of the EDF since 2005 likely influenced the direction of WFF.
Also learn more about TNC and the Audubon Society’s relationship to the Resolution Copper mine in Arizona, or the Sonoran Institute and EDF’s involvement in a market-based water agreement between the US and Mexico.
The first of four strategies WFF lists in its 2020 Environment Strategic Plan for the Colorado River is “show water markets work for agriculture, cities and rivers.”
There are many more reasons to believe that WFF is interested in markets for water for access and financial interests than for philanthropic or environmental reasons. A water market could increase Walmart’s own water security and that of its associates (for similar reasons as Nestlé and Coca-Cola are interested in a water market) by facilitating reallocation, potentially allowing them access to more water (and to more “ecosystem services, i.e. benefits to humans provided by ecosystems, which require water) using their plentiful capital. To reallocate means to “assign or allot to a different purpose or person from the one originally intended.”
Water transfers are not necessarily always a bad thing, but while reallocation could mean conservation in Lake Mead, at least temporarily, it could also mean that water may be made available on the market for whomever can afford it. Money could be made from a water market, even without any permanent change to water rights for now, through water storage trading and complex financial instruments like derivatives.
Based on the vague media coverage on the agreement with GRIC, WFF, etc., they will not be limited to the existing options. “‘This agreement will allow for the creation of tools that will be effective in protecting Lake Mead,’ said Buschatzke.”
So what kinds of tools might they create?
Let’s first consider some Walton-related activities in Arizona. A WFF-funded organization called Bonneville Environmental Foundation (BEF) has been selling “water offsets” (yes like carbon offsets) in Arizona and elsewhere to massive corporations like Coca-Cola and Intel Corp (a sponsor of the Summit). While they continue to use vast amounts of water, companies’ “water footprints” are allegedly reduced by voluntary purchase of offsets as Water Restoration Certificates (WRC) from BEF, an example of water marketization.
It is important to keep in mind the parallel with the carbon market. Carbon offsets, which BEF also sells, are largely regarded as a scheme to allow companies to continue to pollute while supporting a market intended to make money for investment companies (including through derivatives), in tandem with taking credit for protecting parcels of nature that should be left alone anyway.
A new Verde River Exchange Water Offset Program, similar to and associated with the BEF offsets but more local is among the projects in the Verde River basin in which WFF, along with the BEF, EDF, and TNC (whom WFF also funds), are involved. Various issues with this program are explored on this blog’s Verde River page (which discusses other programs these NGOs are involved in like the Salt-Verde Valley Water Fund as well), including TNC’s role and platform.
In March of 2016, the City of Phoenix sponsored and took part in the Business of Water Summit in Phoenix, which was put on by organizations that recently announced their merger with BEF. The Summit may have marked a big step in the direction of marketization of water in Arizona. Nestlé, who also desires a water market beyond the water bottling plant it announced shortly after the Summit, was a sponsor and participant as well.
There are many examples of WFF’s efforts to develop a water market and other ways it may try. WFF funded several other reports exploring ways to implement water markets for the Colorado River, Arizona specifically, and/or the U.S. West in general, several of which were authored in part by Peter Culp.
See Water Marketing Reports and Media for a wide range of relevant reports
Peter Culp moderated a workshop at last year’s Summit called “Market-Based Solutions for Maximizing Liquid Assets.” For several years, Culp worked for Squire Patton Boggs and Squire Sanders Dempsey (he is now with his own law firm). Squire Patton Boggs has been a lobby firm for Walton Enterprises and Walmart. TNC and Sonoran Institute, which have received WFF funding, have employed Peter Culp as well.
Culp and the other authors of a WFF-funded 2015 report, “Liquid Assets: Investing for Impact in the Colorado River Basin believe there’s a strong potential for impact investing in the Colorado River Basin. Impact investing brings finance capital into the philanthropic realm, in this case in conservation. This allows for profits to be made. The authors specifically suggest that WFF could powerfully leverage relatively small contributions into private-capital funded large-scale impacts. “Properly supported, such impact investment… could create momentum for regulatory reforms, and could powerfully shape the development of water markets as they begin to emerge in the Basin.” The authors also state, “A basic objective of [WFF’s] exploration of potential water investment tools was to evaluate the means” to accomplish that task.
Read more of the details on Walton Family Foundation and water marketing
According to Conservation Finance and Impact Investing for U.S. Water, foundations and NGOs “can guide the development of pilot projects that demonstrate how impact investing can benefit the water sector while generating financial profit. Once blueprints are established for structuring deals, the transaction costs and perceived risks will decrease, opening the water market to private and corporate capital.”
In many cases, foundations and NGOs play useful roles to those who would benefit financially through a market such as a water market, through partnerships, collaboration, governance, research, development, quantification, monitoring, and legitimizing corporate and market activities.
Can conserved water still be considered conserved if its use is just shifted elsewhere? In the book Water and Agriculture in the Western US: Conservation, Reallocation, and Markets, Gary Weatherford characterized various understandings of conservation. While some have regarded conservation from a preservationist standpoint, for aesthetic, ecological, and recreational purposes, others have seen water that is not being used as wasteful. Conservation, in this sense, has meant efficiency of use, maximum productivity, and elimination of losses.
Although the agreements in question are meant to keep water in Lake Mead, the conserved water could be made available to others. The authors of the “Cornerstones Report: Market-Based Responses to Arizona’s Water Sustainability Challenges” refer to “pilot forbearance agreements” and “interstate water marketing through [ICS]” as “reallocation efforts.” These have their limits for water transfers, but water market advocates see opportunities for expansion. Reforming existing programs may be among the tools created by the agreements.
A 2016 journal article called, “Marketing Conserved Water” proposes a strategy for developing a water market based on lessons learned from the Australian water market. Its authors (one is a water official from Australia) were based out of the Getches-Wilkenson Center for Natural Resources, Energy, and the Environment at the University of Colorado, which has multiple connections with WFF.
The article summarizes, “Innovative water conservation strategies supported by arrangements that allow saved water to be transferred to other uses hold great promise for addressing stresses on water supplies…” (my emphasis). The conservation discussed here is not for the purposes of water storage and makes no mention of Lake Mead. Nonetheless the ideas are still useful to WFF.
The Pilot System Conservation Program in which GRIC and the Tohono O’odham Nation (TON) and others have been participating in 2015/2016 was listed as an example of an Alternative (water) Transfer Mechanism (ATM), defined as “various methods, activities, and frameworks that have been established to transfer water on a temporary or intermittent basis, primarily from agriculture to other uses,” in a report on ATMs by the EDF and WestWater Research. System water, however is supposed to stay in Lake Mead, so it is uncertain as to how it would function in water transfers.
WFF has already been involved in funding a System Conservation program for the Upper Basin. This and Lower Basin program seem to have been modeled on a proposal called “Conservation Before Shortage” (CBS) which was described as a market-based mechanism by its creators. Peter Culp and other Walton-funded NGOs including EDF were involved in developing the proposal. CBS was incorporated as an alternative in the Environmental Impact Statement for the 2007 Shortage Guidelines for the Colorado River Lower Basin states, although not ultimately adopted (it did strongly influence the development of Intentionally Created Mexican Allotment (ICMA) in the Minute 319 agreement with Mexico, however). On his law firm’s website, Culp takes credit for both CBS and the pilot program, as well as related projects.
The EDF, particularly Jennifer Pitt and Tom Graff were especially enthusiastic about the replacement of “conventional rights-based shortage allocation with market-based allocations [that] could protect municipal water users.”
EDF, whose economists are also credited for their role in the development of emissions trading, the carbon market, REDD+, etc., has worked with California’s Metropolitan Water District and others for decades on market-based, so-called water conservation projects and farms-to-cities water transfers, which caused a decrease in flow of water into the Mexicali aquifer and the Salton Sea, leading to massive problems still yet to be resolved years later.
See Water Funder Initiative to find out more about WFF and others’ plans for the Salton Sea, Colorado River Delta, and Arizona
In fact, a major example of these projects is the lining of the All-American Canal, the consequences of which may have been a strong impetus for an agreement with Mexico as an attempted fix. This complicated agreement called Minute 319, signed in 2012, discussed in “Desert Water Market,” incorporates elements of CBS (e.g. ICMA), and involved Culp, EDF, Sonoran Institute, and others funded by the WFF. One issue that arose with this deal is that in exchange for some of Mexico’s water delivery (primarily for Arizona and California cities), the Mexican government supposedly received compensation (by water entities including CAP) to fund conservation projects (e.g. canal lining) that, years later, have not been completed even while Mexico’s water deliveries were reduced, with farmers questioning the whereabouts of the funds.
At least on a temporary basis, these agreements reallocate water in the sense that certain water users maintain their access to water despite necessary reductions, which are made by others (such as Mexicans and tribes) instead. The purpose of these types of projects may primarily be actual long-term water transfers, however. Especially if temporary or pilot programs are seen as successful, they may function to transition Arizona to a more developed water market.
Water Storage Trading
“Water storage trading” may be one of the tools Buschatzke mentioned. It is a market-based mechanism through which WFF could gain. This is one of nine blueprints for investing contained in the “Liquid Assets” report; one that is related mostly to ICS but perhaps also to system conservation (and possibly to groundwater storage).
According to the report, water storage trading would involve a reservoir or aquifer as a water bank and allow for trading of credits. The mechanism is also “structured to generate ongoing returns from the establishment and operation of a water storage trading facility,” using existing reservoirs (such as Lake Mead) or underground storage, in a situation where water is limited. The report gives ICS as an “excellent example of this type of storage program,” but says, “However, this particular program does not presently allow for the active trading of storage credits.”
The WFF’s Ted Kowalski praised ICS in an interview in April 2016, saying that this kind of “flexible arrangement is something we’ll want to see more of in the future for both the upper and lower basins.”
ICS and the Pilot System Conservation Program or the newest version, System Conservation Implementation Agreement (SCIA) mechanisms, in which GRIC, the Tohono O’odham Nation (TON), and potentially other tribes may participate, involve forbearance (i.e. holding back) of a quantity of delivery of CAP water in Lake Mead to keep the water level up. Both have been promoted by WFF and associated NGOs as market-based.
System water conserved through the pilot program or SCIA is compensated with money and is meant to keep water in Lake Mead, and therefore cannot be reclaimed. ICS, on the other hand, involves parties (currently the Lower Basin states: California, Arizona, Nevada) earning credits for storing their water in Lake Mead, which they can use to recover that water except under certain conditions. Credits earned from storage can also potentially allow for intrastate or interstate transfer of water between different entities, facilitating limited water marketing.
Currently ICS water can only be recovered in normal and surplus years, but DCP negotiations involve talks on incentivizing ICS by allowing the water to also be taken out during shortage years. The DCP negotiations may open up ICS policy to reform that could enable development of a market and include new participants.
ICS’s role in water marketing is not just the interpretation of NGOs who wish it so. It is included as an example in the Bureau of Reclamation’s 2016 Water Markets report, Water marketing activities within the Bureau of Reclamation.
Implementation of the water storage trading mechanism would likely reform the rules for ICS to allow for active trading. “By creating tradable credits in water storage, this tool can help to create essential conditions for the development of a water market…” notes the report.
A recently published “Water: An Impact Investment Primer” discusses WFF’s “instrumental” role in supporting NGOs and governments in the development of ICS and the similar ICMA as water banks. According to an article on perc.org by the director of the freshwater conservation program for TNC in Colorado, Tom Iseman, “[A] water bank is an institution that uses free-market transactions to facilitate the temporary or permanent transfer of the rights to use water among water users. It does this by acting as an intermediary to bring together those holding legally valid water rights with those in need of additional water supplies.” Again ICS may not quite qualify under this definition, but WFF would like it to.
So water storage trading would allow for impact investment to generate ongoing returns (represented by arrow #7 in the diagram above) and create conditions for development of a water market. Through development of the DCP and DCP+, ICS may be reformed to include participation of additional parties (including GRIC), and other potential drought contingency-related reforms related to this water storage trading model. So while keeping water in Lake Mead will help avoid federal cuts, the role of these projects goes way beyond this.
Leading up to Minute 319, when EDF, TNC and other NGOs needed to obtain water for “conservation” projects, they received a loan from the David and Lucille Packard Foundation to purchase low-cost Mexican water rights through the Colorado River Delta Trust. The Packard Foundation would make a profit on its “impact investment”, if it has been paid back yet, likely with funds from leasing to other consumptive uses some of those water rights purchased for “conservation.”
Generally, this is a type of impact investment called program-related investments (PRI) which “are investments made into non-profit or for-profit organizations that receive below market rate returns. They are most often loans but can also take the form of loan guarantees, credit lines, linked deposits, cash deposits, green bonds, or equity investments.” In some cases, like bonds, the tax payers may even be the ones funding the projects.
Impact investments of various sorts enable an investor to profit without necessarily obtaining property rights over the water. While the system conservation and ICS programs function to redistribute responsibility for maintaining the state of Arizona’s access to water and potentially actually reallocate that water, it provides for profit-making opportunities. But this goes far beyond earning interest on loans.
The “Liquid Assets” report points out that, “Market mechanisms and investment-driven transactions… can be, and in some cases have been, also used to develop sophisticated risk management and distribution strategies,” including financial hedging, creative use of futures and options, and innovative insurance mechanisms. These are highly complex financial instruments called derivatives.
Hedging allows for profits to be made no matter what the outcome, meaning investors may gain from continued drought, drastically increased water prices, etc. In “Turbulent Worlds: Financial Markets and Environmental Crisis,” Melinda Cooper writes,
Derivatives are contracts that allow a business to hedge against the occurrence of unpredictable, adverse events ranging from exchange rate ﬂuctuation to political turmoil and extreme weather. Traded in the ﬁnancial markets, derivatives also allow investors to wager on the relative chances of the derivatives contract itself, effectively transforming the risk-hedging contract into an instrument of speculation.
“…water futures markets will emerge as local phenomena based on local concerns… the futures contracts will emerge from valuations of relative water scarcity or plenitude based on an index of water levels in dams, average precipitation or other indicators and predictors. Ultimately, the financial instrument will have the same basic structure as the index funds which brought unprecedented levels of speculation to the global grain market, increasing the volatility in prices — volatility that futures exchanges were originally meant to blunt. After all, if the natural-gas industry can pay more for water than soya farmers, then the gas drillers will get the water and the soya will not.
While it may seem that Trump’s recent funding cuts will mean less conservation, the derivatives market and related privatization may actually incentivize “conservation” projects, especially considering the representation in the administration of Goldman Sachs, which has profited from futures market and as a “market maker” in carbon and ecosystem services (also, CEO of TNC is former lead of Goldman Sachs’ Environmental Markets Group).
Conservation and Commodities
It has been largely through so-called conservation that Western water law opened up to water marketing by making water storage no longer result in forfeiture of rights. “Anti-Speculation: Ghost-busting, Trust-busting,or Ensuring Beneficial Use?” describes a conserved water program as part of a 1987 Oregon law that “served as a catalyst for water marketing,” which “allows water rights holders to improve their efficiency and keep a portion of the water saved. Absent this provision, the appropriator who accomplishes an authorized beneficial use with less water due to increased efficiencies would lose the saved water to junior users or new appropriators.”
Water law in the West has many problems including the use-it-or-lose-it mandate, so allowing for water storage would seem to be a turn in the right direction, although, as discussed in Private Sale to AZ Water Bank Comes at High Price, it could encourage speculation. Although this doesn’t seem to be an issue with storing water in Lake Mead, the control and management of water takes precedence over true savings.
What is rarely acknowledged because surface water and groundwater tend to be treated as separate to avoid the complexity, is that many water-efficient methods such as irrigation technology and canal lining have consequences. Yet, less water seeping into the ground means less water in the aquifers which can have major consequences or third party injuries, like in the example of the All-American Canal lining and the Mexicali aquifer.
This is not to say that more efficient agriculture is a bad thing (nor that agribusiness doesn’t have many and varied problems of its own), but the impacts of these conservation projects need to be recognized. These types of projects are being incentivized through ICS credits and in some cases for compensation for system conservation and will likely occur on a larger scale, but may actually not be saving the water they claim.
Some studies have looked at this problem, such as “Water conservation in irrigation can increase water use” and “Water allocation, transfers and conservation: Links between policy and hydrology.” According to the latter,
Water conservation can be achieved only by reducing consumptive use, that is, by reducing water use that does not return to the hydrologic system… [I]f return flows are an important component of the system, reducing diversions reduces return flows, so water is not actually conserved… [A] conservation policy may allow growers to transfer all reductions in diversions due to increases in irrigation efficiency. As efficiency is increased and the diversion is reduced, return flow and aquifer recharge are also reduced and less water returns to the system. If the full amount of the reduction in diversions is then transferred, the water that would have returned to the system is sold to another user. This sale causes an externality to the third-party user who depended on the return flow or aquifer recharge for his/her water supply.
Conserving water in Lake Mead is clearly meant to avoid federal cuts through a major reduction in the CAP diversion, and it would be a mistake to portray this as providing hydrologic benefits when it may contribute to a lowering water table in the Lower Basin states (as well as a pressure to rely more on groundwater). Not to imply that the states shouldn’t limit their water deliveries, but we need to be real about the entire hydrologic cycle. We also need to question what is meant by conservation in cases where other major water users (mines, data centers, etc.) can continue their arguably wasteful water uses while others are in some sense bribed to curtail their own use.
Meanwhile, Arizona water law also incentivizes groundwater recharge to support its Groundwater Management Act. The “supreme irony” of this system was pointed out in a 2007 interview with Grady Gammage Jr. of the Morrison Institute and the Kyl Center for Water Policy at ASU, explaining that water deliveries require minimal seepage of CAP water by lining canals on the one hand, yet on the other hand, intentionally seeped water (groundwater recharge) cannot be fully accounted for regarding where it ends up.
Conservation efforts that prevent such loss to the system would seem to contradict the practice of percolating water underground for storage. Groundwater recharge and storage are only considered benefits to the system under certain circumstances, and in some of these cases, entities can earn long term storage credits (accounting in many cases for a small degree of loss) which allow them to pump water in the future, or can be transferred to others.
This is how Gammage Jr. rationalizes the inconsistency: “Water is fungible. Water is a fungible commodity. So it’s a bank. You don’t know when you do a withdrawal that it’s the money you put in the bank. In fact I guarantee you it’s not. It’s the same mechanism. It’s a fungible commodity and so you can transact it this way.”
While this doesn’t exactly address the canal lining/recharge contradiction, there are problems with this system. Long term storage credits are provided to entities that recharge water, then the water can be pumped later from the same Active Management Area (AMA) it was recharged in, but this may not mean it’s being pumped from the same aquifer, which can cause uneven distribution of groundwater. Water offsets could cause similar problems.
There are also issues with treating water as fungible like carbon. Some capitalists have argued that water is not a fungible commodity, or at least not in the way carbon can be. While water is not fungible regarding whether it can be substituted with any other input for food, energy, or other materials, others argue, agreeing with Gammage Jr., that water is fungible because, “Water from one source is often the same as water from another source…” and that according to the academic community, one of the key hallmarks of what makes a commodity is fungibility. Frederick Kaufman warns that water has the potential to become a fungible commodity, but with disastrous consequences due to rising water and food prices.
Read more on conservation and commodities in The Resolution Copper Land Grab: How Environmental NGOs Expand Green Capitalism
A water market could not work if water is not treated as a fungible commodity. As argued in Marketing Conserved Water, water can be more fungible if land and water titles are separated (severed) and entitlements are defined by volume. “With the exception of stored water systems, this condition does not apply in the western United States, which makes it harder to treat water as a fungible commodity.”
Increasingly, treated wastewater or effluent, and water conserved from farm fallowing or canal lining are exchangeable with water credits, which are exchangeable with groundwater, which is potentially exchangeable with desalinated water, etc. Arizona water policy is shifting to allow for more of this. All of this is to ensure the ongoing accessibility of water to those uses deemed most important, which often happen to be the most damaging such as the ever-expanding housing projects and mining sites.
Kevin Smith of Carbon Trade Watch pointed out,
The irony is that it is the perpetual expansion of market economies that has created such pressure on natural resources and threatened all manner of ecosystems with the soaring levels of industrial pollution. Now those same market forces are being put forward as the panacea to our multiple environmental ills.
Often market-based solutions are not just free market projects meant to exclude state involvement. Projects like voluntary water offsets (such as those sold by BEF) are a way to get in front of regulatory reforms. It is an attempt to either prevent or delay the point at which the government intervenes in a problem such as water scarcity or pollution, or a way to become a leader and be in a position to benefit most when regulations kick in.
The Walton Family Foundation and associated NGOs are not the only ones interested in a water market in Arizona (see Arizona Water Grab Part One), but the more recent deal with GRIC is certainly troubling.
*Existing policy means those with the highest priority are largely the tribes and “M&I” (aka municipal and industrial). The lowest priority is considered excess water which includes the agricultural pool. Between those is the category called “non-Indian agricultural” (NIA) water.
GRIC holds rights to more than half (over 100,000 acre feet) of Arizona’s NIA water that would be cut before any of the Indian and Municipal and Industrial (M&I) priority water would be up for reductions. Only 15% of GRIC’s NIA water must be “firmed” to M&I priority for 100 years by the Arizona Water Banking Authority. Sources of firming water could include effluent, or water leased from other tribes, which bring up their own issues.