No. 1: The Economics of Groundwater in Texas

I never thought, when I was a young guy dreaming of a career as a pitcher in Major League Baseball, that life would guide me through the study of economics and hydrogeology/geochemistry, instead of appearances at the great ballparks across the country. In retrospect, I'm glad that fate (in the form of an aching left elbow) made me realize that I was not destined to be the next Sandy Koufax or Warren Spahn.

So I embarked on a long course of study that took me through the fields of geology, mineral economics, and then hydrogeology/geochemistry. I eventually found myself delving into a form of hybrid consulting that most of my colleagues thought of as "unusual" for someone working in the field of water resources. It was not long after I accepted a position with a consulting firm in Austin, TX that I was asked whether I could use my background in mineral economics to address a problem involving the economic value of groundwater beneath an 1,800-acre parcel of land in west-central Texas. I had worked briefly with the Minerals Availability Field Office (U.S. Bureau of Mines) at the Denver Federal Center during my grad studies at Colorado School of Mines, but I dealt exclusively with economic models of operating costs at copper-lead-zinc mines in North America. After returning to UT-Austin for my Ph.D. program in hydrogeology, I didn't think much about economics for several years.

The challenge of developing models of the economic value of groundwater, especially in Texas (where there was no effective regulation) was something that caught my attention. Under the rule-of-capture (or absolute-ownership) system embedded in Texas water law, there was no firm basis for advising potential buyers or sellers of groundwater what to expect with regard to market values. My initial surveys supported the conclusion that the conditions for an efficiently functioning market (or system of markets) for groundwater did not exist in Texas, even though markets for surface water were well developed, owing to the State's long-standing system of issuing permits or granting rights based on a Prior Appropriation system similar to the appropriation systems of other western states.

As I dug into the matter, the more I realized that there was not a discernible sense of order underlying groundwater transactions, as Texas lacked two of the most fundamental of components required for an efficient groundwater market to function: (1) a system of assigned, quantified, and transferable water rights recognized and enforced by the State, and (2) a means of making information on transactions available to all potential buyers and sellers. Everyone, it seemed, functioned with blinders, and speculation was the rule, not the exception.

A common question in the early days of my entry into this area of groundwater consulting was: "What's my water worth?"

The flip side of the above was: "How much is it going to cost me to buy that water?"

In this blog, I will address the highly varied and evolving matter of groundwater economics in a State which has had no semblance of regulation or long-term management until recent years. Along the way, I expect that I will step on a few toes, but my objective is to disseminate what I have learned and to learn what I can from others. My next topic will be a summary of the history and the deleterious long-term effects of the Rule of Capture ... a doctrine which I regard as promoting inefficiency, waste, and devaluation of groundwater in Texas.

Best Regards

aquadoc
Southwest Groundwater Consulting, LLC