Potential Implications of Groundwater Trading and Reformed Water Rights in Diamond Valley, Nevada

Abstract

This paper presents an ex ante analysis of a novel groundwater management reform being considered by irrigators in the Diamond Valley, Nevada. Groundwater extraction for irrigation in the valley has considerably exceeded the natural recharge rate since the 1960s. The area was recently declared a critical management area (CMA) by the State Engineer of Nevada, which will trigger curtailment of water rights unless other action halts unsustainable abstraction. We examined the likely impacts of a number of potential institutional structures that could be implemented as part of groundwater reform in the Diamond Valley. The major reform is a conversion from a priority-based curtailment of existing water rights to a shares-based system of gradually decreasing basinwide pumping allocations, an approach that offers some economic benefits to the region. The beneficial reforms, namely creation of a common market in which to trade rights and an ability to gradually, rather than suddenly, curtail rights, can be built into the existing priority-based rights structure. However, the conversion of rights to shares offers limited additional basinwide benefits, and mainly affects farmer profits through the redistribution of some profit from senior rights holders to junior rights holders. The redistributional nature of the institutional reform, paired with limited broader gains, may make it difficult to reach legal agreement regarding changes to established priority-based water rights institutions.