Going global with water trading

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Water trading is going global.

While the U.S. market seems to garner most of the attention from investors, markets for water are emerging in various forms throughout the world. In fact, the U.S. was a late adopter of water trading. Some of the earliest forms of water markets date back to the 8th century in the southern region of Spain, where farmers would gather every Friday in the village square to auction off allocations of water. Since then, markets have formed in some of the most remote corners of the globe. For example, groundwater trading is common among farmers in many regions of Pakistan, India and Bangladesh.

The formation of some water markets has been more forced. The return home of the “Chicago Boys,” a group of young Chilean economists – most of whom trained with Milton Friedman – brought about a system of tradable water rights during the Pinochet regime. Other countries continue to toy with the idea of tradable water entitlements. Britain, for example, has looked at abstraction license trading since the mid- 1990s. However, concerns about the market being f looded by so-called “sleeper licenses,” held mostly by the brewing industry, have halted any meaningful policy discussion. Clearly, the Brits need to drink more beer if breweries hold rights to enough unused water to f lood the market.

Challenges and opportunities in emerging markets
A recent issue of “Impact,” a publication by the American Water Resources Association, highlights specific water rights markets around the world to look at how issues of equity, ownership and regulatory policies have inf luenced water trading in the region. The issue provided a nice comparison of markets that are developed and markets in regions that may be primed for future water trading. Some of the key findings included:

Many parts of the world are experimenting with water rights trading. Some areas, such as Australia, have succeeded in fostering a robust market. The water rights market in the western U.S., however, remains the front runner in terms of opportunity for private investment and private-sector market participation.

Clay Landry is managing director and a principal at WestWater Research LLC, a leading advisory firm in the water rights market based in Boise, Idaho. He and associate Matt Payne, who contributed to this column, can be reached at (208) 433-0255.