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Valuing Ground Water: Economic Concepts and Approaches
transfers to consumptive use preserves return flows from the original use to other appropriators on the stream.
Water marketing has been hailed as the modern, environmentally friendly way to deal with water shortages in the arid West, as opposed to dam construction. Most water right transfers involve surface water rights. However, ground water transfers are common in Arizona. Water markets provide flexibility in water use and management while also providing "real world" prices for water, which can be useful in attempting to value ground water. More states should consider the authorization and promotion of water marketing, including transfer of ground water rights when appropriate.
An emerging policy issue is how to deal with adverse community impacts from transferring water from irrigation to nonagricultural uses (NRC, 1992). A principal concern is that as water is transferred away from irrigated agriculture to other uses, the community's agribusiness economic base may be threatened.
A variation on the water right transfer theme is for an entity, typically referred to as a water bank, to purchase water rights from users willing to sell them, and then resell the water to whoever needs it. Water right sales to a water bank may be temporary, whereas most water right transfers are permanent.
Water marketing and banking are important to valuation in that such water right transfers provide actual market values for water, which in turn provide crucial information for valuing ground water.
Valuation and Ground Water Management
Arizona's Ground Water Management Act of 1980 reflects a series of conscious water allocation choices to a much greater degree than most state water allocation legislation does. Arizona's Act mandates the goal of eliminating ground water overdraft by the year 2025. Overdraft is to be reduced by a series of 5- and 10-year plans that apply to Arizona's most populated areas and agricultural center. Thus Arizona's Ground Water Management Act is a rare example of state legislation that implicitly values ground water. Such legislation can help pave the way for other states to use valuation studies in determining ground water's future economic worth. Florida also regulates ground water uses to protect public water values, including environmental services from ground water.
The principal consequence of the law of capture ground water allocation policy relied on by many states is that potential future uses of ground water are not taken into account. Valuation plays no significant role in ground water allocation policy under the law of capture. Indeed, the extent to which state water law fails to deal effectively with ground water depletion indicates the degree to which its policies ignore valuation.
Valuation as an analytical tool has typically been more important to water suppliers in helping them evaluate water supply alternatives. A recent study involving ground water valuation was prepared for the city of Albuquerque to