The following column appeared in the Baker City Herald newspaper on September 7, 1999.

Water markets work for the west

In a recent speech to western water officials, Interior Secretary Bruce Babbitt proclaimed the need for water markets and conservation to solve the West's growing water problem. All across the West, environmentalists and market proponents alike are hailing the Secretary's speech as visionary.

But in Oregon, markets are nothing new. In fact, the state is a national leader in establishing water markets and is doing so without the help (or interference) of the federal government. The Oregon Water Trust was founded in 1993 to use water markets for environmental benefits. This private, nonprofit organization pays farmers to use less water for irrigation and leave more water in the rivers to help protect endangered salmon. The Oregon Water Trust has inspired other water trusts in Washington, Texas, and Nevada.

Though Babbitt's recent water speech has received rave reviews, the bad news is he gave virtually the same speech three years ago. At that time, he said the key to solving western water problems "lies in utilizing opportunities for careful cultivation of voluntary, willing buyer-willing seller markets." Not much has happened since then.

The federal government claims that it wants to help. In 1988, the Bureau of Reclamation declared itself a "water market facilitator." The bureau even went so far as to come up with regulations for buying and selling federally supplied water. But these rules have been little help. "Market activity in federal water has not increased significantly," point out Terry Anderson and Pam Snyder, authors of Water Markets: Priming the Invisible Pump.

It's time for the federal government to step aside and let the discipline of markets to take over. The idea is simple: Allow federally supplied water to be traded among water users at whatever prices they may choose. That way people face the true cost of water, rather than some federally subsidized price. When faced with real prices, people have all the incentive they need to conserve water. For instance, the city of Tucson, Arizona, reduced peak daily demands in the late 1970s by 20 percent simply by increasing water prices.

In his most recent speech, Secretary Babbitt cited a deal in California between the Imperial Irrigation District, the city of San Diego, and the Metropolitan Water District of Southern California as a shining example of how his agency is striving to make markets work. If completed, the deal would be the largest water transfer in the history of the West.

The Secretary needs to choose his examples more carefully. This deal, at least nine years in the making and still not completed, is exactly the reason government shouldn't tinker with markets. The three groups are now looking for someone, namely the state of California or the federal government, to foot part of the bill for moving the water to San Diego. If they succeed in snaring a government partner, San Diego water users will not have to pay the real cost of their water. It's a subsidy masquerading as a market transaction.

Taxpayers have subsidized water in the West long enough. And subsidizing water markets is only a recipe for disaster, not to mention unnecessary. Most people are not going to turn off the tap until they feel the pinch in their wallets.

Consider the water market of the Northern Colorado Water Conservation District where each year thousands of acre-feet of water are traded through private, voluntary transactions. The water for the district is provided through Bureau of Reclamation projects. However, the federal agency has had little involvement with water transfers in the district. The result has been the creation of one of the most widely known and best developed water markets in the West, if not the world.

Markets are precisely the type of discipline that water management in the West needs. The water problems throughout the region will only be solved through rational economic decisions prompted by real market prices-something water users haven't faced in the past. "Subsidized prices create an insatiable demand for water and encourage inefficient uses," say Anderson and Snyder. Babbitt must realize that the West will never see real prices if the federal government continues to muck up true water markets with an endless flow of cash.