water drop

The work of a Montana State University researcher was featured in the journal Land Economics in November, examining some of the most contentious water distribution regulations in the West: export restrictions in California’s Sacramento Valley.

Assistant professor Daniel Bigelow joined MSU’s Department of Agricultural Economics and Economics in the colleges of Agriculture and Letters and Sciences last summer. Bigelow partnered with a team from California State University – Chico, Cornell University and the U.S. Department of Agriculture on the recent project, delving into groundwater management, which he said is a particularly thorny challenge.

“You have this issue that you keep hearing about, with groundwater and aquifer levels being depleted, but it’s a really difficult challenge to tackle from a policy perspective,” said Bigelow. “In most places groundwater has historically been treated as an open access resource, where there’s kind of a race to the bottom.”

The restrictions Bigelow focused on came into effect in the late 1990s after a series of successive drought years in California. Implemented rules limited a practice known as groundwater substitution, by which farmers with senior entitlements to surface water would sell that allocation during droughts and pump groundwater to satisfy their own irrigation needs. While groundwater substitution was a win-win for senior entitlement holders, there were external consequences which ultimately spurred the adoption of export restrictions in some counties.

“The policies were enacted to alleviate third-party effects, where someone who isn’t involved in a water transaction, like a farmer or rural household relying solely on groundwater for their needs, is seeing their groundwater levels decline because other farmers are reaping this dual income,” said Bigelow. “Depleted groundwater levels result in higher water expenses for groundwater users because they increase the energy requirements of pumping it.”

To examine the effects of export restrictions, Bigelow and his team explored variations in land values along three dimensions: counties with and without the restrictions; farmers with and without access to surface water; and wet and dry periods during the subsequent years. Land values, he said, were an appropriate metric because they captured the expectations of landowners in regard to their future income. It was unsurprising, then, that land values saw a sharp decline after the export restrictions went into effect.

“There was some pushback when these policies went into effect, because landowners thought they would cut off this secondary income stream,” said Bigelow. “If that were true, you’d expect the value of land located within irrigation districts, which determines access to surface water, to go down in drought years. In the immediate aftermath of the policies going into effect, that’s what happened.”

The interesting part, Bigelow said, was that several years later in a more severe drought period from 2007 to 2009, with the restrictions still in effect, land values had rebounded to pre-restriction levels. Data limitations prevented the authors from establishing a clear causal relationship, but the results are consistent with the intended goals of the policies.

“It shows the capacity of landowners and markets to adapt to this new policy,” said Bigelow. “It’s not inconsistent with the goals of the policy, namely, to promote better groundwater stewardship, which may have allowed farmers to recoup some of those losses they may have initially seen. In addition, farmers were generally still able to sell their water, but only to buyers located in the same county.”

Export restrictions are still a in place in some California counties, but Bigelow said it remains to be seen how they will interact with newer regulations. California surface water rights are governed by both state and federal bodies, and in 2014 the state passed the Sustainable Groundwater Management Act, adding another regulatory element. But that challenging landscape was the reason for the project in the first place, said Bigelow.

“The Sustainable Groundwater Management Act is the most comprehensive effort in the U.S. to tackle groundwater overdraft,” he said. “Although export restrictions were intended to alleviate some of the negative side effects of treating aquifers as open-access resources, they are imperfect from an economic standpoint since they don’t allow water to flow to its highest valued use. SGMA is intended to more flexibly tailor groundwater institutions to local priorities and concerns.”