1C: Understanding the potential costs of buy-and-dry

Growing urban populations and shifting climatic patterns drive the need for flexible use of markets to reallocate water in arid regions. In the American West, like many arid regions, irrigated agriculture accounts for up to 80% of water consumption. Water trading between agriculture, urban, and commercial uses offers large potential gains to both buyers and sellers.

However, local impacts on water-exporting areas are often neglected in economic analyses of water markets. Local opposition to water markets has historically been strong, focusing on potential job losses and limits on future economic development in the originating region. Water transfers have been derisively referred to as “buy-and-dry” due to their perceived fiscal and environmental depletion of the selling regions. These concerns have been expressed as Utah discusses water transfers from agriculture to urban areas or other needs.

Analysis of such water transfers in other areas in the U.S. provide insight to help Utah avoid pitfalls. In looking at the transfer of agricultural irrigation water from Imperial County to urban uses in San Diego County, California, we see immediate loss of harvested acres, declines in agricultural employment, a widening skilled/unskilled work wage gap, and a significant rise in air pollutants (PM₁₀ and PM_2.5) caused by reduced inflows into the Salton Sea—a large terminal saline lake once maintained by return flows from irrigated agriculture. A back-of-the-envelope calculation suggests health costs due to dust are of the same magnitude as the annual revenue of the water sale in some years.

Smoothly operating markets offer significant efficiency advantages over other means of allocation. Our work emphasizes the importance of assessing costs and impacts of environmental and financial externalities associated with market-based resource allocation. Water markets can be designed to maintain ecosystem services and generate gains from trade. Doing so in this case appears to be a more costeffective approach than a moratorium on transfers.