Water Allocation, Water Markets, and the Environment: Theory and Practice in California and Chile

Recent developments in water resource management include efforts to use the resource in a sustainable manner. Sustainable water use supports social objectives into the indefinite future without undermining environmental and hydrologic integrity. Key aspects are incorporation of mechanisms to insure ecological viability and recognition of the economic value of water. California is a wealthy state, with a complex mix of rules and infrastructure to move water to areas of demand deficit. Many mechanisms exist to allocate water and protect river ecology. There is continued degradation of river habitat due to an imbalance in water allocation. Markets mechanisms have been slowly introduced and are advocated to reallocate water to higher valued uses and the environment. There is widespread support for environmental concerns in the state, reflected in a willingness to pay for environmental water, water use behavior change, and legislative mandates. The CALFED Bay-Delta program and Central Valley Project Improvement Act include provisions to better reach a balance between the environment and other uses, including water transfers for instream flows using public and private money. Most water transactions are subject to environmental impact assessment, with most involving public agencies due to water passage through the Delta and/or wheeling through federal or state project infrastructure. Water allocation and distribution management in Chile is characterized by broad private-sector involvement based on historical participation in agricultural communities and reinforced in the Water Code of 1981, which encourages market transactions to redistribute water.