One of the most controversial consequences brought by a shift to a water market is speculation. That’s what some have called the purchase of enormous amounts of land providing water rights along the Colorado River in Colorado and Arizona by a New York-based hedge fund.
Part of this shift to a water market is the System Conservation Pilot Program (SCPP) for which a Request for Proposals for re-initiation was formally released at the end of December 2022 by the Upper Colorado River Commission. The program, along with the Lower Basin’s equivalent, will be funded by the Inflation Reduction Act through the Bureau of Reclamation.
The way these market-based programs work is to incentivize farmers and others by compensating them to voluntarily use less water. Whether or not these programs accomplish their task, they motivate hedge funds and others to buy up farmland and water rights in order to make money.
Central to this issue is that Walton Family Foundation‘s (WFF) goals include showing that water markets work. WFF and related non-governmental organizations (NGOs), in the interest of proving the effectiveness of market-based pilot programs like SCPP, seem to be enabling or perhaps even encouraging something that either is speculation or is uncomfortably close to speculation, which deserves scrutiny.
Before moving on, it’s important to note that a focus on speculation in the context of discussion on water markets risks minimizing the other ways that capitalist conservation, including the SCPP, benefits certain parties. The less obvious consequences (to be discussed in other pieces) may be overlooked. However, speculation-type activities may be the most egregious manifestation of a water market.
Colorado
The activities of a pilot program funded by WFF, the Nature Conservancy (TNC), the Environmental Defense Fund (EDF), as well as PepsiCo, overlap in time and place with spending by the hedge fund called Water Asset Management’s (WAM), making them the biggest single landowner in Colorado’s Grand Valley Water Users Association (the canal company that delivers water to many Grand Valley irrigators). It is unlikely that this is a coincidence and instead shows how market-based conservation programs can incentivize something like speculation.
Investing in the future value of water, WAM has spent hundreds of millions in Colorado, Arizona, California, and Nevada. WAM president and co-founder called the U.S. water business “‘the biggest emerging market on earth’ and ‘a trillion-dollar market opportunity.'” Elsewhere another co-founder said, “We believe water is the commodity, the resource that will define this century in a way far greater than oil ever defined the last century.” This is impossible unless a more extensive water market exists, and of course, they are pushing for that.
WAM is just seeking to make money as the value of water increases, but it’s been a struggle for Colorado locals to prove this is speculation since WAM is keeping the land in production by leasing it to farmers. Of course, most agricultural landowners are interested in making money. A hedge fund profits from what they don’t produce; they profit (or will profit) from the increasing value of water as an asset, and likely also from complex financial instruments related to their investments.
Although many farmers in this area express concern over “buy and dry” — where productive farmland diminishes due to the sale of water to the wealthy and powerful, more likely are temporary fallowing scenarios that involve entities such as WAM making money through some market-based conservation project, as they have in Arizona, discussed further below.
WAM said they put in place “cutting-edge technology and practices” to free up some water with which they can potentially participate in something called demand management, which would largely be taxpayer-funded. They’re also interested in getting compensation for fallowing some of their land.
Aspen Journalism pointed out in May 2020 that
“The key to WAM’s overall vision may lie in demand management, a state program still in the investigation and feasibility stage.
At the heart of such a program envisioned by state officials — and designed to be ‘temporary, voluntary and compensated’ — is the concept of paying irrigators to use less water by fallowing fields. By doing so, there will be more water in the Colorado River flowing downstream to be stored in Lake Powell in an effort to bolster reservoir levels and help Colorado meet its Colorado River Compact obligations.”
“Demand management” is a more general term, but also can refer to a specific Upper Colorado River basin program. “A Demand Management Program is contemplated under the framework of the Demand Management Storage Agreement (DMSA), which is part of the Upper Basin Drought Contingency Plans (DCP).”
The Upper Colorado River Commission is looking into restarting SCPP, which is similar in that it is also temporary, voluntary, and compensated for the same purposes. The commission clarifies, “SCPP is NOT Demand Management. SCPP for 2023 is a re-authorization and re-initiation of the SCPP of 2015-2018.”
The similar market-based mechanisms used for storage in Lake Mead (the Lower Basin’s Colorado River reservoir) include Intentionally Created Surplus (ICS) and the Lower Basin’s version of SCPP, often referred to as the Pilot System Conservation Program (PSCP) or simply System Conservation (See A Critical Look at Lake Mead Storage).
An especially contentious aspect of the demand management discussion was that creating an account within Lake Powell for storage of this water could potentially mean the creation of private accounts, perhaps like ICS, but potentially held by private investor. The Drought Contingency Plan (DCP) agreement that allows for this type of account was in part arranged by the former director of the Colorado Water Conservation Board, James Eklund.
Eklund now provides counsel to WAM and continues to promote participation in a market-based program. As director, Eklund was involved with making the case for a demand management program throughout the Upper Basin in the DCP. Eklund also helped set up SCPP in Colorado.
While Eklund has denied that there’s any attempt to create a private account in Lake Powell for WAM’s Colorado water, it doesn’t have to be private for a hedge fund to benefit. WAM was able to participate in a very similar arrangement in Arizona.
NGOs funded by WFF (including TNC and EDF) and the foundation itself played roles in shaping and bankrolling SCPP (and PSCP). In a report to congress and elsewhere, credit was given to NGOs (TNC and Trout Unlimited) for swaying participants to participate in SCPP. Eklund praised NGO involvement for improving the optics of the program.
Squire Patton Boggs, a law firm for which Eklund worked (2017-2020) between his career on the conservation board and having WAM as a client, has collaborated (specifically Peter Culp) with WFF/NGOs on water-market projects (and worked with an investment firm called Encourage Capital, on such things as the 2015 WFF-funded report, “Liquid Assets: Investing for Impact in the Colorado River Basin“).
The scheme for which PepsiCo got to claim some water savings benefit based on their financial contribution was a SCPP project called the “Conserved Consumptive Use Pilot Project” (CCUPP). This venture, in the same Grand Valley region as the WAM purchases, was run by TNC and implemented in 2017, the same year as WAM’s purchases. The Water Bank Work Group (WBWG), of which TNC was a member, also put in money along with WFF, while other backing was sourced through the SCPP program (CAWCD, SNWA, MWD, and Denver Water). The project’s purpose was to test a large-scale approach to a water banking concept in the region. Farmers were compensated around $200-300/acre-feet of water that they didn’t use when they fallowed their fields.
The WBWG has “envisioned a Colorado River basin water bank that would enable agricultural water users to receive compensation for leasing their water rights for municipal, agricultural, and environmental uses, without having to permanently sell water and separate it from the land.” TNC and WBWG had been working on the concept of a Western Slope water market leading up to CCUPP.
The NGOs’ activities to promote SCPP as a market-based solution to water conservation clearly is related to WAM’s purchases of land for their water rights in order to take advantage of the same or a similar program.
Arizona
WAM started purchasing lands in Mohave County along the Colorado River in 2012. As of 2017 they had mainstream water rights “comprised of approximately 11,429 acre-feet of fourth priority rights under subcontracts with Mohave Valley Irrigation and Drainage District (MVIDD) and 2,500 acre-feet of present perfected rights,” the latter being the most senior water rights.
Around 2017 and 2018, CAGRD (Central Arizona Water Conservation District or CAWCD’s operating subdivision and the replenishment authorities are known collectively as the Central Arizona Groundwater Replenishment District or CAGRD) were arranging to purchase land in Mohave Valley (from WAM) to have the water available for central Arizona, offering $34 million. What ultimately happened would still benefit CAWCD indirectly.
Arizona Public Media reported in June 2018 that CAWCD/CAGRD gave up on the purchase. “The plan was to let some of the land go fallow and send the water tied to those fields into central Arizona. That water would be applied to the agency’s obligation to recharge underground aquifers. Mohave County communities along the river protested over many months and many meetings.” Opponents of the sale had cited and defended a resolution (90-01) that prohibited any transfer of water outside the district’s boundaries, which would have to change to allow for CAGRD’s plan.
Significantly, the WAM Managing Director for Arizona (and New Mexico) Assets, Vincent Vasquez got himself on the MVIDD board prior to discussion on this sale and remained for subsequent discussion on compensation for conservation projects. Among WAM’s investment vehicles is Water Property Investor, LP (WPI) and as of 2017, seven affiliated companies owned land in the area. Vasquez works for WPI as well and seems to have been in charge of those companies.
No doubt in part due to Vasquez’s influence, in July 2018 the MVIDD board overturned Resolution 90-01 by enacting a new resolution 2018-04 resolving that, “that the District may undertake to develop a Rotational Land Fallowing Program designed to make water available Outside District boundaries for a defined program period, but not in perpetuity.” There was a lot of local opposition to this as well.
With the CAGRD sale out of the picture, it is possible that by this point, Vasquez and some of the other landowners were interested in participating in some of the Drought Contingency Plan programs meant to forestall a Tier 1 shortage in Lake Mead. Intentionally Created Surplus (ICS) would have been on WAM’s radar due to them being a shareholder since 2009 in Cadiz, a company that attempted a failed scheme in 2013 to receive ICS credits in the Mojave Desert (they’re still embroiled in controversy by the way).
In October 2018, the Chairman of the MVIDD held a phone conference with ADWR Director Buschatzke and CAP general manager Ted Cooke and then presented on this subject at an MVIDD meeting shortly after. MVIDD put together a document for a land fallowing program to produce extraordinary conservation ICS (EC-ICS). They were requesting compensation, which doesn’t tend to be part of ICS programs, of $250 per acre foot of water.
By January 2019, several documents objecting to MVIDD participating in ICS including from Mohave County government and the Mohave County Water Authority (MCWA) were submitted to ADWR. The document from the MCWA alleged, “The proposed ICS exhibit simply represents an effort to monetize the ‘District’s Water’ and transfer the water indirectly for the personal financial gain of the individual board members. The amended EC-ICS plan for MVIDD listed farms associated with the following MVIDD board members who would seemingly benefit from the program: Vince Vasquez (WPI), Charles B. Sherrill, Clay Vanderslice, and Perry Muscelli (all of whom overturned resolution 90-01).
The MCWA letter also pointed out that they are concerned about indirect transfers to Central Arizona. “Any ICS delivered to Central Arizona or to be converted to system conservation water to meet DCP contributions results in an indirect transfer of water to central Arizona to the detriment of on-river communities.” Mohave County cited guidelines for ICS and expressed similar concerns about transfers of ICS credits to Central Arizona.
In the months that this was all getting worked out, a webinar in May 2020 hosted by Ceres (a WFF-funded NGO whose investor network includes WAM), included Marc Robert of WAM explaining that they assembled a consortium of farmers in the MVIDD and worked with “our farm partners to put together a fallowing program…”
“We’re big believers in creating fallowing programs,” Marc Robert of WAM stated as he explained the rotational fallowing that allows agriculture to continue while portions of the land stop farming, and therefore less water is used. It is clear from their Value Creation slide that they seek long-term leases with any number of parties, after having worked to set up fallowing programs in the areas in which they bought land.
Accumulation of water assets is portrayed as a solution to water risk. WAM construes its activities as being environmentally responsible in benefiting the Colorado River system as a whole. The same month of the presentation, Brian Richter (of Sustainable Waters, formerly of TNC, and former associate of WAM) promoted WAM’s contribution in a similar manner.
It took until September 2020 for MVIDD to ratify their EC-ICS Plan of Creation. By December, it had switched to System Conservation, although it’s unclear why. MVIDD approved the System Conservation Implementation Agreement (SCIA) at their December meeting.
2.8 WHEREAS, initially, MVIDD proposed to create Extraordinary Conservation Intentionally Created Surplus (EC ICS) for calendar year 2020 and submitted to Reclamation a Plan for the Creation of Extraordinary Conservation Intentionally Created Surplus During Calendar Year 2020 (EC ICS Plan); however, MVIDD has modified its EC ICS Plan by letter dated December 2, 2020, in which it decided to Create System Conservation Water in lieu of creating EC ICS and enter into a SCIA with Reclamation to forego irrigation water deliveries and fallow 1,196 irrigated acres located in the state of Arizona beginning January 1, 2020 and ending December 31, 2020, that have a history of use and make the System Conservation Water available to the Colorado River System;
The Amended SCIA between Reclamation and MVIDD listed the payments from Reclamation for 2020 and 2021 totaling over $2 million. MVIDD was paid $195/acre-feet of consumptive use volumes. Documents show the compensation has since risen significantly to $261/acre-feet along with the quantity of land being fallowed, estimated to get them approximately $2.5 million for 2022. The Draft Operations show the same amount being planned for 2023.
Initially they were paid by Reclamation. As you can see in the table, the MVIDD System Conservation program shifts for 2022 (and probably 2023 as well), becoming part of the DCP 500+ plan (in red) jointly funded by ADWR, CAWCD, the United States, MWD, and SNWA.
Although the funders of System Conservation, such as CAWCD, are not gaining direct access to the water being left in Lake Mead, they are benefiting indirectly, in that they have a stake in the water level. For Mohave County, in which so many people opposed a land and water sale to CAWCD/CAGRD, the circumstances of the drought led to this scenario so similar to the previous one. There is also concern in the Upper Basin about whether CAWCD and other Lower Basin water entities fund the Upper Basin’s SCPP.
Although the role of WFF/NGOs isn’t obvious in the Mohave Valley story, as of 2018, EDF and WFF were third-party funders for PSCP/System Conservation in the Lower Basin, and as mentioned, shaped the programs. As I have written elsewhere, pilot programs are important for showing water markets work — which is what WFF has been trying to accomplish for a long time.
Aspen Journalism commented, “Eklund sees a bigger role for WAM and other similar players in a potential future water market.” The question is, For whom do water markets work? Water law has many issues, and flexibility isn’t a problem in itself. In a water market, however, water will more easily “flow uphill toward money.”
Impact Investing and Green Capitalism
Eli Feldman is a ranch owner who has also been accused of speculation in Colorado. Furthermore, he’s a member (since around 2016) of the board of directors of a WFF-funded NGO called Western Resource Advocates (WRA). Feldman is president and founder of Conscience Bay Company, a real estate investment and management firm, which bought land with priority water rights in 2017 (relatively close geographically and the same year as WAM’s Grand Valley purchases began).
Feldman stated in 2018 that he would like to be involved in something like SCPP in the future. The relationship between a party interested in benefiting financially from conservation programs and WFF/NGOs who promote them is especially notable. WRA has received hundreds of thousands of dollars per year from WFF for over a decade. Mike Higuera, Director of Resource Investments at Conscience Bay previously worked for TNC. The company is working with WFF-funded Trout Unlimited as well. Undoubtedly the knowledge base of NGOs is valuable to private interests looking to benefit from a water market. The company is also a B Corp that can shroud itself in an image of sustainability while looking to benefit from a water market.
This is where impact investing comes in. Individuals, businesses, and foundations can participate in impact investing that can appear more environmentally (or socially) responsible. According to Bankrolling Biodiversity, “Impact investing is the primary way philanthrocapitalists engage in and facilitate the financialization of conservation, using ‘mission-related’ or ‘program-related’ investments that align donors’ ‘social (charitable) and financial (portfolio maximizing) missions’.” Financialization, according to Greta R. Krippner, is “a pattern of accumulation in which profits accrue primarily through financial channels rather than through trade and commodity production.”
Recall WAM’s 2020 presentation about their water investments in Arizona. This was hosted by Ceres, a “non-profit organization that leads a national coalition of investors, environmental organizations and other public interest groups working with companies to address sustainability challenges such as global climate change and water scarcity.” In 2009 WAM joined the Investor Network on Climate Risk (INCR) which is coordinated by Ceres. Together, WAM and Ceres produced a report on water risk in 2010. WFF was funding Ceres back then as well. In 2022 Ceres launched their Valuing Water Finance Initiative to “… better protect water systems” to which WAM signed on. TNC, EDF, WRA, and WFF have worked with Ceres. It wouldn’t be a stretch to assume that WAM learned about SCPP through these networks.
It makes sense that the most corporate-friendly NGOs get the most funding and therefore have the most influence. Pro-market EDF was brought in by Walmart to try to improve their image, the lessons of which the Walmart fortune heirs undoubtedly have applied to WFF’s activities. Corporate-friendly can mean many things. The partnerships between WFF/NGOs and Ceres, and the ability to frame water investment as impact investing lends legitimacy to hedge funds like WAM which is seeking to make money. Partnerships with PepsiCo and Coca-Cola that facilitate questionable water offset projects allow beverage companies to get in front of regulations and to some degree, environmentalist opposition. By influencing policy, WFF/NGOs act as something like brokers for these profit-making opportunities.
Testing out pilot programs requires funding. Authors of a WFF-funded report put together by Squire Patton Boggs (a bit prior to Eklund’s time there) and Encourage Capital, Liquid Assets: Investing for Impact in the Colorado River Basin wrote in 2015 that they believed there was a strong potential for impact investing in the Colorado River Basin. They specifically suggested that “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 stated, “A basic objective of [WFF’s] exploration of potential water investment tools was to evaluate the means” to achieve that goal.
For years, WFF has given $20 million or more per year to NGOs concerned with the Colorado River (see the page on Walton Family Foundation on this website). In a 2021 article, Can philanthropy enable collective action to conserve rivers? Insights from a decade of collaboration in the Colorado River basin the authors wrote that foundations such as WFF, “are able to leverage their investments at the basin scale by shaping policy agendas and conservation priorities, developing new funding sources, strengthening water governance, and improving communication to build political will.”
The continuation of PSCP/System Conservation in the Lower Basin is SCPP in the Upper Basin shows how pilot projects enable longer-term policy shifts in favor of market-based mechanisms. This, in turn, encourages more speculation-type activity. A hedge fund can afford to participate in experimental land fallowing because they’re diversifying and making money off investors who are interested in impact investing, and they can afford to wait until the water becomes even more valuable in the coming years.
SCPP is a taxpayer-funded program that allows money to be made by transferring water from agriculture to other uses (security of the reservoirs allows for continued industrial growth). Whether or not you agree that changes to agricultural uses of water should be made, it is a shift to a water market that is grim. Enabling water transfers for the environment and for system security can facilitate broader applications of transferability: essentially reallocation of water to those who have more money. That would mean more water sales such as the controversial deal in which the town of Queen Creek can buy over 2000 acre-feet of water from GSC Farms LLC owned by a hedge fund named Greenstone Acquisitions, which now involves a lawsuit.
Mitch Jones, a senior policy advocate at Food and Water Watch told the Atlantic (for their article on WAM’s Disque Deane) regarding a water market that, “It’s a slippery slope… You are setting up a system where ability to pay—wealth—is the determining factor in your ability to access water.”
The consequences of the Australian water market were described by the New York Times. As it is portrayed in the US West, a water market would serve to enable redistribution of water. A professor at a Melbourne business school said that professional investors ended up dominating the market, and “water has turned into a financialized product like what happened to energy in the late 1990s.” Due to water price spikes as a result of wildfire and drought, an inquiry resulted and found market exploitation by professional traders. The article cited problems resulting from complex financial products like derivatives which in some cases can allow traders to benefit from water shortages.
Speculation can have the dangerous effect of impacting availability and price of water. Whether or not what some corporations are doing with water marketing opportunities can be proven to be speculation or not, their activities may still carry these risks. WFF and related NGOs do not seem to be making any effort to prevent or speak out about speculation and are therefore complicit. No doubt they’re complicit in constructing water market.
Desert Water Grab 