As Californians search for solutions to the worst drought in the state’s history, people are increasingly looking to the example of Australia. That’s a good choice: Australia has dramatically improved its management of water for agriculture over the past two decades.
Like California, for most of its history Australian governments sought to address increases in demand for water through taxpayer-funded infrastructure projects. Lobbying from Aussie farmers ensured that water was available at a low price, and additional water entitlements were readily granted.
The result was an over-allocation of water. Although government mandated diversions of water for environmental uses, these were inadequate to prevent the collapse of wetland and floodplain ecosystems. Conflicts, especially between farmers and environmental groups, were the norm.
Then, during a severe drought in the 1990s, Australia reformed its system for allocating water, creating better-defined water rights and a water market, which allows farmers, environmental groups and the government to buy, sell and trade water.
Today, the price of water better reflects its scarcity and the cost of delivering water. When water prices rise, Australian farmers with high-value, water-dependent tree crops continue to buy the more expensive water, while other farmers choose not to plant low-value annual crops if the cost of water and other inputs exceeds the value of their crops.
To address these problems, California should focus on six primary reforms to improve water rights and to create a robust market.
First, California needs to create a simple, inexpensive means of determining the amount of water allocated to each rights holder. In Australia, specific water rights were assigned to users and the exact amount of water is strictly monitored. Australia closely measures rainfall and river levels, posting the totals online so all water users can see how much is available and prepare for price fluctuations.
Second, California’s restrictions on trading water must be eliminated so a market allowing cities, farmers and environmental groups to buy and sell water emerges. Australia found that market trading gave farmers more seasonal flexibility and made them better able to cope with droughts.
Once the rights and market are in place, the state can end mandatory diversions of water for environmental uses. About half of California’s fresh water is currently allocated for environmental uses. The state and nonprofit groups could purchase water rights for conservation purposes. This would transform conservation from a conflict-ridden process – farmers and landowners vs. environmentalists – to a cooperative one.
Fourth, it should change the rules so that water rights owners are allowed to save and store their water. Currently, they must use it or lose it.
Once those changes are in place, two longer-term structural changes can be made. Rather than attempting to control municipal water consumption through mandatory cuts, California should convert municipal water agencies into private, mutual companies. The shareholders, i.e., water users, would then set water prices.
Finally, water storage facilities and water-moving infrastructure owned by the government should be sold or leased to nonprofits. The state’s water infrastructure is woefully out of date. A nonprofit would have stronger incentives to ensure the infrastructure is maintained, upgraded and used to store or move water where it is most highly valued.
The clear lesson from Australia is that markets can achieve more equitable, efficient and environmentally sustainable uses of water. Establishing strong water rights that allow the rights holders to buy, sell, trade and conserve water greatly improved water allocation in Australia. For that to happen in California, the state needs to remove many obstacles it has created for itself.
Julian Morris is vice president of research at the Reason Foundation and project director of the new report “How to Solve California's Water Crisis: Lessons From Australia's Water Reforms.” Contact him at firstname.lastname@example.org.