Water Banking: A Potential Solution or Misguided Idea
March 13, 2022 by Abigail M. Johnson
By Reuben Siegman, Staff Contributor
Water is one of the most precious resources on the planet. It is the foundation for life, something we all need to survive. As climate change brings about an increase in global temperature and greater frequency of droughts, usable water will become scarcer. While questions of water allocation have always been present in society, these questions will become increasingly important as communities will have to respond with innovative methods and solutions to manage increasing populations with less water. These questions are especially important in the western states in the U.S., as they are already dealing with the problems created by these increased droughts.
One controversial policy idea that has become increasingly popular is water banking. Before diving into this idea, it is important to understand the legal history of water rights in the U.S., particularly in the western states.
A core concept in understanding water law is that water rights are a unique form of property and do not come with the traditional property rights bundle of sticks. Rather, they are usufructuary, meaning that there is a right to use and benefit from, but not own. These rights to use can be sold, bought, and transferred. Traditional English common law regarding water was used by the eastern states under a regime called the riparian doctrine that tied the right to use the water to the land attached to the water. This meant that owning property adjacent to a watercourse was essential to water use and use was restricted only to that property directly attached to water. Moreover, owners of those so-called riparian tracts of land could simply choose not to use that water. This system failed to meet the needs of early U.S. expansion and the conquest of indigenous lands in the west (at the inhuman cost of the lives of hundreds of thousands of Native Americans). Particularly the gold rush of the late 19th century sent thousands to the west and created many problems with this doctrine. Water was needed to mine, and all of the land was legally owned by the U.S. federal government which limited use only to the federal government. Instead, what developed was diverting the water on a “first come, first served” basis, creating the fundamental tenet in what was to be called the prior appropriations doctrine, “first in time, first in right.” Eventually western states adopted prior appropriations with its principles of: intent to appropriate, making a diversion of the water, and making beneficial use without waste of the water. This focused on use rather than property and priority over ownership as ways to gain rights to use water. Over time, through shifts from agrarian uses to domestic, municipal, industrial, and recreational uses, what is considered reasonable and “beneficial use” has evolved to meet the growing and changing needs of society.. Moreover, some states have even included public interest requirements in their statutes to protect ecosystems and maintain minimum streamflow.
While the prior appropriations doctrine has adapted from its original formin the 19th century, there is still a deep tension between the doctrine and modern water needs. Prior appropriations incentivizes grabbing as much water as possible to maintain the ability to use that water and prioritizes older uses, while as time goes on there is an increasing need to use water as efficiently as possible as it becomes scarcer. To combat this, some advocates propose a practice known as water banking. Water banking is a market-based tool that facilitates transactions between interested sellers and buyers of water rights. This allows water rights holders to sell or lease their rights to those who may need their water because of a shortage. Water banking can be from surface or groundwater (some wells can pump the excess or surplus water back into aquifers that have been emptied).  Additionally, it has been promoted as a tool to deal with supply issues without building new extensive water infrastructure projects like dams and reservoirs. For the many western states that have adopted water banking programs, they stand in stark contrast to one of the key principles of the prior appropriations doctrine: use it or lose it. This principle has historically been used to prevent speculation on water rights, as water has been seen as a resource too necessary to allow speculation on. When such a proposal for water banking was brought up in Nevada recently, many legislators and advocates brought up concerns about speculation on water. Specifically, they feared that a large company could buy up all the water rights of traditional users, then increase the price of water and only sell water to those that can afford to pay a premium for it. To many, this seems like a dystopian anathema, that our most precious resource needed for survival could now be auctioned off by distant corporations to only the rich, leaving the rest of society to face the consequences of drought.
While advocates of water banking believe its market-based approach will efficiently allow a reduction of use of water, especially during droughts, opponents may cite some examples of how letting the market take over may be detrimental to local communities. In Washington State, where there is a water banking program, a Wall Street-backed private investment company with no ties to the state recently attempted (for a second time) to buy water rights in the Columbia River Basin in areas where water is already a scarce resource. This proposal was met with intense opposition from local leaders who worried their access to water was going to be determined by a distant corporation.The opposition was so fierce that the Department of Ecology ultimately suspended processing of the application.
This is only one example of a trend of entities attempting to buy up land and water rights in the west. This trend includes as diverse a range of organizations as a Canadian teachers’ pension buying up orchards and its attendant water in Washington state, to a Bill Gates-owned fund outbidding The Church of Jesus Christ of Latter-day Saints to buy ranchland and its water rights—again in Washington State. This is part of a growing movement of land consolidation that is already leading to fewer owners, especially of land that comes with water rights. Particularly, the country has seen a shift in the last quarter-century of the farming industry (farms often have water rights) towards large farms and big agricultural companies. However, a recent study by the Washington State Department of Ecology determined that only 1.5% of transfers involved a change of place of use, meaning that the vast majority of transfers were within-basin. While this report is not final, and is based on a relatively new program, it may help assuage some concerns.
Overall, it seems that while in some cases water banking may help ease transactions and allow more efficient transfers, the risks associated with it are not worth the potential downfalls. Unless the program is extremely strictly regulated by the state, the risk of speculation is too great. Fundamentally, because these programs allow users to bank their rights with the state while not giving up ownership, they essentially allow speculation and disregard for the traditional rule of requiring beneficial use. As it is clear that droughts will only become increasingly prevalent, making water even scarcer, any good investor would invest in water given the chance, as they would have the opportunity to profit off of it later. Simply put, water is too important of a resource to risk it being controlled by private entities only seeking profit.
 Somini Sengupta and Weiyi Cai, A Quarter of Humanity Faces Looming Water Crises, N.Y. Times (Aug. 6, 2019), https://www.nytimes.com/interactive/2019/08/06/climate/world-water-stress.html.
 Henry Fountain, The Western Drought Is Bad. Here’s What You Should Know About It, N.Y. Times (Oct. 21, 2021), https://www.nytimes.com/article/drought-california-western-united-states.html.
 Eli Francovich, Corporations Are Consolidating Water and Land Rights in the West, Governing (Jan. 9, 2022) https://www.governing.com/now/corporations-are-consolidating-water-and-land-rights-in-the-west.
 Roderick E. Walston, California Water Law: Historical Origins to the Present, 29 Whittier L. Rev. Whittier L. Rev. 765, 767-68 (2008).
 Id. at 68-69.
 Water Law: An Overview, The Nat’l. Agric. Law Ctr., https://nationalaglawcenter.org/overview/water-law/.
 Jon Stavney, Flexible Water Sharing Reduces Risk in Dry Times, CO River Dist., https://www.coloradoriverdistrict.org/water-banking/.
 Groundwater Banking, Water Education Found., https://www.watereducation.org/aquapedia/groundwater-banking.
 Francovich, supra note 3.
 Jeniffer Solis, ‘Water Banking’ Will Lead to Privatization and Speculation, Critics Warn, NV Current (April 7, 2021), https://www.nevadacurrent.com/2021/04/07/water-banking-will-lead-to-privatization-and-speculation-critics-warn/.
 Ann McCreary, Ecology Suspends Work on Water Banking Proposal, Methow Valley News (March 31, 2021), https://methowvalleynews.com/2021/03/31/ecology-suspends-work-on-water-banking-proposal/.
 Francovich, supra note 3.