The researchers at the UC Davis Center for Watershed Sciences wrote an insightful blog on “Considerations for Developing An Environmental Water Right in California.” However one passage jumped out at me that has troubling economic implications:
The potential for abuse is particularly troubling when the State is using public funds to buy water, which technically belongs to the people of the state and which the State can already regulate to achieve the same aims.
It’s not helpful to refer to the fiction that the somehow the state can award water rights, on which entities make economic investments based on private uses, and then turn around and try to claim that the state can just take those rights back without any compensation. That’s a foolish perspective that will lead mispricing and misallocation of water use. It is reasonable to assert that the state can claim a right of first refusal on transactions or even that a rights holder can’t withhold sale of a water right to the state, but in either case, the rights holder does receive compensation. The state’s right can easily be interpreted as that of a landlord who has a long term lease agreement with a tenant, and the tenancy agreement can be terminated with compensation to that tenant.