Appropriation of water for the benefit of the few is occurring under the guise of conservation. As innovative as the water agreements I discuss are, they are consistent with the historical appropriation of resources. Market-based mechanisms are said to offer flexibility. This flexibility shakes loose the ways in which water is tied to land, and perhaps more consequentially it allows those with money to more easily access it. Money also decides whose voices are amplified. If nothing wholly different is happening with Colorado River water, I don’t see the evidence.
So what is happening? My professional and academic background have nothing to do with water, which I have in common with most people. I have, however, spent a significant amount of time trying to understand so I can explain the drought contingency mechanisms involving massive quantities of water, as there is not a good description of these available. I fear that I can give you only so much explanation, which I’m fairly confident speaks more to the lack of information (intentional or not) on these matters than my ability to understand them. This is a major problem considering what is at stake.
What I can explain is that the biggest “conservation” projects are market-based, and there are two major issues with them. One is that the arrangements are really meant to reallocate the water — to make it available for another use. The Colorado River is already over-allocated, and at the same time, cities like Phoenix are encouraging and supporting major industrial use (mines, data centers), economic growth, and residential expansion. The other issue is water that is considered “lost” actually often has downstream benefits. Sure, conserved water is not water that is never meant to be used, but I argue that the “conservation” measures are more about making water available through market mechanisms rather than about actual conservation. As an example, the US/Mexico relationship regarding Colorado River water (with some similarities between Mexico and indigenous communities in Arizona) illustrates who wins and who loses in such situations.
To briefly summarize, the two main market-based mechanisms for drought contingency in the Colorado River Lower Basin (Arizona, California, Nevada, and Mexico) are System Conservation (SC) and Intentionally Created Surplus (ICS). Additionally, Mexico has a version of ICS called Intentionally Created Mexican Allocation. Both ICS and SC are meant to keep more water in Lake Mead, the Colorado River Lower Basin’s reservoir. ICS was developed in 2007 as part of the Interim Guidelines (with some adjustments as part of the 2018 Drought Contingency Plan and one of the primary means to create ICS is through extraordinary conservation (there are a few types, but here I’ll primarily be discussing this main type that involves farm fallowing, canal lining, and other efficiency projects). SC was the mechanism involved with the Colorado River Indian Tribes (CRIT) deal discussed in Part 3. (They also have created ICS as well. Read more on the PSCP, System Conservation, and Intentionally Created Surplus and how much tribes are contributing to each on the DCP/ICS page.)
With ICS or SC, a contractor that may otherwise receive a delivery of water from the Colorado River (either directly or through the Central Arizona Project canal system) can instead subtract a certain amount of that water and leave it in the reservoir (temporarily or not). This is considered a forbearance, and since they’re not giving up their rights to their annual share of water, this is a way of getting around water law. This will be explained more in depth later, but essentially, ICS provides credits that the contractor can use to have the water delivered later or go towards their Drought Contingency contribution, whereas SC would stay in the reservoir and the contractor would be compensated for it. Why both? This seems to have to do with the fact that some contractors may not need the water any time soon so they could benefit from the monetary compensation, whereas another contractor may want to have access to their water later (or sooner, before they lose access to it). It’s more complicated than that, of course. One limitation of ICS is that the water that a lot of the ICS credits represent is not necessarily meant to stay in Lake Mead. It appears, therefore, that SC is largely meant to offset deliveries of ICS.
Marketing Conserved Water
In discussing conservation, it does not appear everyone is using a shared definition. One that I think describes a lot of the drought solutions is from the 2016 article called Marketing Conserved Water (discussed in Arizona Water Market Part 2) defining “conserved water” as water “that was previously but is no longer consumed by the water user.” This is significant because “conservation” often only refers to water saved by one contractor at one point in time, while someone else’s use of the water does not negate the definition.
While not addressing ICS or SC in particular, the author remarks how the focus on “conserved water” (rather than wholesale water law reform) allows states to “find it easier to adopt reforms that can provide farmers with incentives to make some portion of their water available for other uses.”
There is no doubt that ICS was intended as a market-based mechanism, and that it functions as one. Among those that consider it as such include the Walton Family Foundation (WFF), Encourage Capital (author of the Liquid Assets report funded by WFF), the Bureau of Reclamation, and more.
Before inundating you with quotes from some dry reports, this is one of the few descriptions I’ve found from Circle of Blue that explains ICS (the extraordinary conservation type) in lay terms, giving the Metropolitan Water District of Southern California (Met) as an example:
The [ICS] program allows big water users in the lower basin to open a savings account in the lake. To bank water in their account, they must take an action that reduces water consumption. That banked water is credited to the user that created it… ICS is instead more comparable to a personal savings account. Water banked now becomes an asset that can be withdrawn later, subject to certain conditions.
With a bit of linguistic maneuvering, the rules were written so that agencies like Met could create “surplus” by investing in conservation. Say, for example, that Met paid to line a canal with concrete so water would not seep into the soil, or paid farmers to fallow their fields. The Bureau of Reclamation, playing the oversight role in the lower basin, checks that the lining kept water in the canal and the alfalfa fields were not irrigated. That amount of water — the difference between what would have been delivered without the intervention and what was actually delivered — would then be credited to Met in the form of ICS, minus a small percentage that is the lake’s share…
Right now about 30 percent of the water in the reservoir is ICS.
The water would remain in Lake Mead unless or until the Met decides to have it delivered, which they can do under specific conditions and not under others.
ICS is a gamble in many ways, similar to other investments. There’s a risk that the water will not be available any time soon, but there’s also the possibility that the water would be available in the future and at a much higher value. It could be delivered later when needed, or it could be essentially sold to another party under some circumstances (even if it’s just to stay in the reservoir and count as contributions).
The “Cornerstones Report: Market-Based Responses to Arizona’s Water Sustainability Challenges” (funded by WFF) from 2011 explained: “The Colorado River Basin states have developed a novel experiment in reservoir storage credits as a component of the shortage-sharing agreements passed in 2007 that is used to enable interstate marketing by establishing intentionally created surplus. As a result, transactional activity in the Lower Colorado region has increased during the past decade.”
“Liquid Assets: Investing for Impact in the Colorado River Basin” a 2015 report written by Encourage Capital and Squire Patton Boggs, and funded by WFF report contains nine blueprints for investing, including one related to ICS called water storage trading. The report lists ICS as an “excellent example of this type of storage program.”
Extraordinary Conservation ICS credits generated from one Contractor’s water may be used by another contractor located in the same state that either (a) funded or implemented the ICS project, or (b) has a written agreement for the transfer of the ICS credits with the entity that actually funded the project.
The Intentionally Created Surplus (“ICS”) mechanism… provides the most flexible mechanism for the (temporary) carryover and transfer of water among Lower Basin contractors in the same state… These activities can be undertaken to generate credits for the benefit of another party, which allows ICS to be used to “transfer” water between users.
“Shopping for Water: How the Market Can Mitigate Water Shortages in the American West” from 2014 (one author is Peter Culp):
The ICS rules also encourage water transactions by allowing one user (such as a municipality) to work with another user (such as a farmer) to generate conserved water for future diversion. For example, the municipality could pay a farmer to fallow fields, or could finance farm efficiency measures, generating credits for water left in storage that the municipality can use later. Though the ICS rules do not allow water to be moved from one state to another, they gingerly lean in that direction by allowing states to make joint investments in system conservation projects that reduce system losses or increase the amount of water available to the system as a whole.
Some things have changed over the years since these papers were written. Circle of Blue further describes another more recent purpose for ICS, which is to allow lower basin states to use ICS to fulfill part of their mandatory reductions under the Drought Contingency Plan (DCP).
In effect, states have “pre-paid” some of their shortage obligations… ICS that pays down a shortage obligation, through the basin’s accounting alchemy, becomes DCP ICS. This is a special category can be withdrawn through the year 2057, but only once Lake Mead rises above 1,110 feet.
Reductions will be enforced this year due to hitting Tier 1. Voluntary reductions which you may see rephrased as contributions (as in contributions to the reservoir) made to Lake Mead are in the form of DCP-ICS, which can either be created anew or converted from other forms of existing ICS.
Prior to the signing of the DCP and definitely before Tier 1 was met, Thomas Buschatzke and Nicole D. Klobas wrote,
The primary message from key stakeholders – those with lower priority contracts for water delivered through the CAP system – was a desire to avoid the first tier of shortage if the LBDCP is implemented. The initial reduction of 192,000 AF to Arizona would begin immediately, as Lake Mead’s elevation is currently well below 1,090’. However, this reduction has been achieved in recent years through a combination of funded and unfunded system conservation and potential creation of ICS. Adding to that volume the 320,000 AF reduction that Arizona will face under the first tier of shortage, however, will effectively eliminate any water for the Agricultural pool and potentially reduce NIA-priority supplies as well. Therefore, the Department’s proposal focuses primarily on voluntary efforts to avoid the first tier of shortage throughout the Interim Period. This would be achieved through a combination of system conservation projects and the creation of ICS by Arizona water users.
One party that has reduction obligations can essentially pay another entity to “create” ICS for them. This is where flexibility can mean that much more uneven distribution. One example is the US/Mexico relationship.
While some may not see a problem with water marketing in itself, there are examples that show that incentivizing “conservation” may not accomplish what it’s purportedly meant to. This has much to do with the problems with conservation mentioned in the introduction. Paired with promotion of expansion and development, it is clear that “conservation” is not more responsible, but is instead meant to allow for business as usual. Paying attention to whom or what is impacted allows us to see this situation a bit more clearly.
There are many issues surrounding Mexico’s version of ICS that are relevant to consideration of other similar projects in the US. Intentionally Created Mexican Allocation (ICMA) arguably benefits the US. (See also, Desert Water Market). According to Mexican geologist Iván Martínez Zazueta in “Terremoto y apropiación estadounidense del agua en el Valle de Mexicali“, the US realized how useful it was to have some of Mexico’s water in the Lake Mead from when Mexico needed to defer delivery due to a 2010 earthquake, and therefore made arrangements to fund conservation projects in exchange for more water (that would otherwise go to Mexico) to be left in the reservoir. As part of the more recent drought contingency shortage-sharing, Mexico will be leaving even more water in Lake Mead. This benefits the US Lower Basin States by keeping Lake Mead’s water level higher. Although it would take a much lower level to affect the hydropower system on the Hoover Dam at Lake Mead, this is also a major potential risk.
ICMA can be later claimed by Mexico but can be converted to something called Binational ICS (BICS) at which point it is no longer part of Mexico’s Water Reserve. BICS is
a conservation mechanism created through the binational agreements of Minutes 319 and 323. These agreements have provided for the development and implementation of water conservation programs located in Mexico with compensation funding provided by partnering organizations in the United States, such as the Central Arizona Water Conservation District. In return, the water conservation created through these programs helps Mexico to intentionally reduce its water use through conservation measures, and the conserved water is stored in Lake Mead as BICS.
While it appears that initially this BICS designation was specifically for the Delta pulse flow project, it has since been shifted to other purposes. The parties that helped fund Mexican conservation projects can count this as their DCP ICS contributions and therefore not have to make as much of their own cuts.
According to the 2017 BICS Agreement,
Parties include: CAWCD, the Metropolitan Water District of Southern California (MWD), Imperial Irrigation District (IID), Southern Nevada Water Authority (SNWA), and Reclamation… The four non-federal funders will each contribute 25% of the total contribution of $15 million and each will receive 25% of the total 109,090 acre-feet of BICS. CAWCD’s contribution will total $3.75 million, and CAWCD will receive 27,273 acre-feet of BICS… Reclamation and/or other federal agencies will provide $16.5 million which will create 50,000 acre-feet to benefit the Colorado River system and 70,000 acre-feet for environmental purposes.
This is at a rate of $137.50/acre-foot. There is an AZ Forbearance Agreement to not order or have the water delivered, to ensure it stays in the reservoir, and “Binational ICS is not available for delivery in a year for which a shortage condition has been determined.” The reduction in total Colorado River water entering Mexico will likely have major impacts, even as Mexico’s own reductions are delayed by slowing the drop in the reservoir’s water level.
There are some parallels between the circumstances in Mexico and what was discussed in “Colorado River Indian Tribes closer to water market legislation.” The fact that the Mexican federal government had failed to adequately fund water infrastructure essentially allowed the US to take advantage of the situation since the US could contribute funds to water projects in Mexico as part of this arrangement (economically impoverished communities such as reservations and agricultural communities are primed for other parties to swoop in with funds to invest in exchange for something they want). The US can in effect, buy some of Mexico’s water in order for the Colorado River Basin states in the US to keep growing. Zazueta wrote that there is both misinformation and a lack of adequate communication about water resources and policy in Mexico, and particularly Baja California, where he focuses his study. This contributes to a lack of ability to participate in decision-making on such vital matters.
Zazueta also raises an ongoing theme about the “loss” of water. The water that is “conserved” no longer contributes to the water table (as induced recharge) nor the environment that had relied on it, and both of these have consequences. NGOs like the Environmental Defense Fund (EDF), along with big foundations such as WFF (see Part 3 on EDF and WFF’s involvement in the CRIT water deal) were involved in the relatively recent water agreements with Mexico (Minute 319 and Minute 323) that involved lining canals within Mexico to reduce water seeping into the ground, to then redirect water to an environmental project in the Delta (more at Desert Water Market). These more recent agreements were made partly to remedy the impact some previous conservation projects had on Northern Mexico that were clearly detrimental (described below). Nonetheless, these agreements have allowed US access to Mexico’s allocation by preventing “loss” of water to the water table within Mexico and calling it conservation. Is there accountability for how effective those projects are and if there are externalities?
A US case that illustrates that there can be serious flaws with these types of “conservation” projects in the approach to water used by Mexico, is the Drop 2 Reservoir which initially was cited as a model of ICS, and now seems to be the most criticized project that has earned ICS credits. Arizona, California, and Nevada jointly financed the project, with Nevada paying $115 million for 400,000 AF in ICS credits. Arizona and California each contributed $28.6 million for 100,000 AF in ICS credits.
Michael Cohen (of the Pacific Institute) was interviewed in 2008 on this matter.
Although the environmental community is a strong advocate of water conservation, environmentalists and Mexican officials opposed the Drop 2 project because those over-deliveries currently help to sustain riparian habitat below Morelos Dam. In recent years, Cohen said, 80 percent of the time there has been no flow below Morelos Dam. With Drop 2, he said, there will be zero flow below Morelos Dam 97 percent of the time. In addition, Cohen says the Drop 2 project is contrary to the concept of the ICS program. “All the other ICS programs are designed so that the district has to demonstrate that the water was actually conserved before it can take it out [of Lake Mead],” he said. “This year , MWD will receive 34,000 acre-feet of Drop 2 ICS even though the reservoir hasn’t even been constructed yet.”
As for EDF, they were critical, although reluctantly so, of the Drop 2 Reservoir. Even still, they generally support water marketing schemes and they have decades of history with “conservation” projects that, as I discussed in Desert Water Market, have disastrous consequences. But as long as the cities get their water, history can repeat itself. The classic example is the lining of California’s All-American Canal, proposed by the EDF. The All-American Canal runs parallel to the US/Mexico border and the lining of which prevents seepage of water, and essentially this “conserved water” can be provided to Los Angeles and San Diego. This was a very serious problem, as about 90% of the flow percolated into the Mexicali Aquifer upon which farmers and the Andrade Mesa wetlands came to rely since the canal was built in 1942, even though the water was not considered part of Mexico’s official allocation. The water transfer is essentially a water-marketing scheme designed by EDF’s newly-hired economists who are also credited with the development of emissions trading and the carbon market. Incidentally, it also resulted in a lack of water for the Salton Sea.
A law review article discusses this:
On January 17, 1989, the MWD and the Imperial Irrigation District (IID) signed an agreement largely based on the EDF proposal. Under the terms of this agreement, MWD will pay for specific conservation projects, including lining the All-American Canal with concrete. In return, MWD will be guaranteed a minimum of 100,000 acre-feet of water annually from the water conserved by these projects. MWD has agreed to pay for the conservation projects because, under the terms of its contract for Colorado River water with the Secretary of the Interior, it has a lower priority for the water than IID… The water conserved by the lining will be used by the MWD to help meet the needs of San Diego and Los Angeles.
The water that is considered wasted or lost is water that has gone or will go to unintended uses – in this case to Mexican farmers who rely on it for their livelihoods, as well as to the environment. According to conservation logic, this is not okay.
Even while this was in effort to protect the environment elsewhere, EDF has facilitated schemes that benefit some (usually those with money) at the expense of others. Even though the water that went to Mexico was not part of their official allocation, the impact the sudden absence of water had on the farmers was something that was egregious enough to lead to litigation. There were also complications involving salinity. Minute 319 and 323 were a partial effort to remedy this, and yet it was much of the same (and there continue to be issues: with legal issues with local decision-making, and illegal modifications to the Minutes/Actas).
The flaws in conservation projects need to be more readily acknowledged and addressed. 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,
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.
The externality may affect others as well, and of course a sale may not always be involved. The All American Canal lining is obviously an early form of this sort of market-based conservation scheme. Even though there is regulation, measurements of consumptive use, etc., when there is financial interest, calls for transparency are likely not enough to hold the parties in question accountable.
Mitigation and Offsets
ICS is said to incentivize conservation. While one incentive of ICS, as mentioned, is that an ICS holder can apply their credits to offset a DCP-induced obligation to reduce their water in a given year, a major plus is to be able to access the water at a later time when it is more valuable. Water’s value will continue to increase in this megadrought. There is less incentive if the water is stuck in the lake. The fact is that there is demand for those water deliveries, so ICS is not as useful at keeping water in Lake Mead as was intended. There are specific conditions under which an entity may get deliveries of ICS, ranging from above 1025′ to above 1110′ (it hasn’t been at 1110′ since 2008) depending on the type of ICS, and a certain percentage of the quantity may be subtracted (to account for evaporation, for example). One of the goals of ICS is to “Generate a temporary water supply for later use when Lake Mead is healthier,” but how is this going to happen?
This has a lot to do with why System Conservation (which cannot be removed) on a much bigger scale would be a coveted tool in the toolbox. The situation is explained in the following testimony of Brad Udall at a U.S. House of Representatives Committee in February 2019. For context, this testimony was prior to the recent deal for CRIT water would add another 150,000 acre-feet for $38 million.
“Well-meaning existing efforts (“Intentionally Created Surplus” and variants) allowed by the 2007 agreement to prop up Lake Mead with unused conserved water may have an implicit flaw, which is that these waters are accounted for and are later allowed to be withdrawn from the system, potentially at times when the system is more exposed. This year Metropolitan Water District announced plans to withdraw its previously stored water rather than have it stranded by the existing rules which prevent withdrawals at low lake elevations. This is the water management equivalent of a bank run, and without a surefire mechanism of deposit insurance, such untimely withdrawals may happen in the future.
To be sure, these efforts were designed to encourage water conservation and this has occurred. But there remains a tension between encouraging conservation and at the same time allowing the recovery of this water later which actually means that no real conservation occurred – the storer merely shifted water use in time. These water storage efforts allow us to push the problem forward in time, hoping that Mother Nature will rescue us. But they can make low flow years worse, with storing entities desiring to recover these saved supplies during such low years exactly when the reservoirs are bottoming out. Unfortunately, there is no clear way to provide the equivalent of deposit insurance, which in this case would be a supply of emergency water to prop up either the reservoir or the depositor.
Indeed, the efforts did not prevent the 2022 first-time Tier 1 shortage declaration, announced in August 2021 despite the endeavors (including the CRIT deal for SC) that have been made since the DCP went into effect.
There are a lot of moving parts here. ICS and SC involve a complicated juggling act of mitigation and offsets. Mitigation is meant to reduce the severity of a situation, while offsets are meant to help balance or counteract the impacts of one or more actions. While there is some consistency in terminology, in many cases these seem to be used interchangeably. Both ICS and SC help keep water in Lake Mead, mitigating reductions in water availability (to a limited extent). Due to ICS deliveries being made, however, more of ICS, SC, or both are needed to offset those deliveries.
An example is the role of the Gila River Indian Community (aka, the Community) described in this agreement:
The Arizona LBDCP Implementation Plan estimates that the minimum volume of system conservation and ICS needed to offset the delivery of Central Arizona Water Conservation District (“CAWCD”) ICS as mitigation from January 1, 2020 to December 31, 2026, requires the creation of at least 400,000 acre-feet of system conservation and ICS (Conservation Offsets”) to meet the Offset Goal.
To facilitate the Offset Goal in the Arizona LBDCP Implementation Plan, the Community proposes to create, in accordance with the Arizona ICS Framework Agreement, at least 200,000 acre-feet of ICS from 2019 through 2021 to be left in Lake Mead until at least December 31, 2026.
An interesting aspect of the deal this comes from, which would require a whole other article, is that Gila River Indian Community (GRIC) seems to be getting compensation ($247.20 per acre-foot) for creating ICS that will in turn cover Arizona Water Banking Authority’s obligations for firming GRIC’s own water. “Firming” means satisfying all or a portion of a Long-Term Contract entitlement that has been reduced due to a Water Shortage.” (If someone could get a water lawyer to make sense of this situation, that would be helpful).
The Arizona LBDCP Framework explains more of the relationship between offsets, mitigation, ICS, and SC:
The Arizona Implementation Plan includes both a mitigation component and an offset component. The mitigation component relies on firming obligations and additional deliveries of water, including ICS previously stored in Lake Mead by CAWCD (“CAP ICS”), as well as compensation and infrastructure funding, to mitigate for the additional reductions in CAP water deliveries required to fulfill the Arizona DCP Contributions. The offset component is designed to conserve additional water in Lake Mead through the creation of ICS and compensated system conservation to offset the CAP ICS deliveries in the mitigation component.
All of this is to point out that ICS and SC are meant to offset the ICS used for mitigation, so this seems to be the reason there are both mechanisms.
System Conservation’s Promoters
The main purpose of the deal that came about later that year for 150,000 acre feet of water from CRIT was more than likely to address the flaw that Udall pointed out, although the concept has been around awhile.
Before the System Conservation (SC) deal with CRIT, there was the Pilot System Conservation Project (PSCP) which started in 2014. This was meant to test this SC approach to keeping water in Lake Mead to prevent or slow the lowering water level. In Part 3 I discussed the influences that led to the development of the pilot program, including the role of Peter Culp (also referenced above as a contributor to more than one paper mentioning ICS as a market-based mechanism) and NGOs such as EDF and WFF. The piece elaborates on the funding the NGOs contributed to the developing a water market in the Colorado River Basin in general, the CRIT deal, the pilot program. (More is also at DCP/ICS.)
The role of NGOs in selling the similar Upper Basin-based pilot program to farmers is also quite notable, and seems relevant here. A 2017 article titled, “Money for water: A pilot project wins over skeptical farmers and ranchers” described the situation, including quoting a lawyer who was at the time with a law firm that had various connections with WFF and Encourage Capital (same as Peter Culp).
In a report by the Bureau of Reclamation, they reiterated this point. “The community outreach conducted by TU and TNC among agricultural communities resulted in the agricultural sector submitting more [PSCP] applications than any other sector. NGO outreach was critical to the success of the program, particularly in the Upper Basin.”
The Upper-basin System Conservation Pilot Program allowed water to be left in Lake Powell (the Colorado River Upper Basin reservoir) and Lake Mead (the Colorado River Lower Basin reservoir). This is about more than cultural sensitivities. When you try to be responsible with water, is it so the water can bolster your nearest city/cities?
ICS and SC have opened up avenues for one party to pay another party to “conserve” water under the pretense that “conservation” is always a responsible act. Some forms rest on a presumption that water “lost” to the aquifer or stream is wasted, and that saved water should benefit other users. None of this is to say that seeking efficiency in water consumption is inherently underhanded. Yet water marketing is being portrayed as the only option, in the context of scarcity coupled with defective water policy, despite the policies in the Colorado River Basin creating most of the problems.
The whole reason Phoenix, Tucson, and Las Vegas exist as they are has almost everything to do with the extreme measures that allowed for water to be moved through the CAP system. This is colonization and beyond. So many policy makers know that this is not sustainable, but it seems they’re holding out for the next extreme innovations like desalination to bail them out. Even desalination can allow a party to create ICS credits in the form of augmentation ICS (or ICMA for Mexico), and that comes with its own problems. ICS and SC bypass water law and make it easier for those with money to avoid curtailing their water use while others make sacrifices, and the long-term effects do not bode well.