Incentive-Based Approaches and Water Transactions for Flow Protection

There are many incentive-based approaches available to restore water to rivers, lakes and groundwater. These approaches use incentives, often financial incentives, to get water users to agree to change their water use in order to make water available for other uses, including instream uses. Sometimes called “water transactions,” incentive-base approaches are basically agreements between a water user and another party to make water available for some other purpose.

First, it’s important to know that the types of incentive-based approaches that are available largely depend on the type of water law that governs the state you live in. While incentive-based approaches and water transactions are more common in the western U.S. under the prior appropriation doctrine, examples in the east under Riparian and Regulated Riparian doctrine also exist. Learn what kind of water rights you have in your state HERE.

Riparian and Regulated Riparian Water Law Options

In “Riparian” and “Regulated Riparian” settings, water efficiency and stormwater capture can be incentivized through sales tax exemptions for high-efficiency products, or reduction in stormwater utility fees for using green infrastructure, which can facilitate flow restoration.

Transactions or agreements can also take the form of fallowing agreements with farmers during periods of the year when water is needed instream or downstream or in the form of funding or cost-share for equipment that will improve irrigation efficiency. Willing parties must exist on both ends of the transaction for it to work – for example, a farmer willing to reduce their water use and a conservation organization or even downstream community willing to pay for the farmer’s irrigation upgrades. In some places, when enough transaction opportunities and investors exist, a market can arise to encourage more efficient transfers or exchanges – however, markets are not necessary for water transactions.

An example of this type of transaction is when a company has a corporate sustainability goal of reducing their water footprint and offsets their impact by investing in local restoration projects. The Bonneville Environment Foundation worked with The Nature Conservancy and Georgia’s Flint River Soil and Water Conservation District to retrofit irrigation equipment to make it more water efficient and reduce groundwater withdrawals. This type of transaction is being replicated at a larger scale through the Change the Course initiative which certifies the flow benefits of water replenishment projects funded by corporate investments.

Prior Appropriation Water Law Options

In “Prior Appropriation” settings,  flows can be protected or restored through voluntary transactions with someone who has a right to water and is willing to change, reduce or stop their water use – either temporarily or permanently and with or without compensation – to protect or restore water in rivers and/or for downstream uses. These transactions can be structured in a variety of ways to facilitate water sharing among farms, cities, industry, and the environment. Water markets, water-rights leases and purchases, and water banks are all methods used to conduct these transactions.

Purchasing water rights qualify as a voluntary transaction, but to ensure that purchased water rights will help restore river flows it’s important to ensure that the purchased rights have high priority. Where rights are quantified, meters and other mechanisms can help users stay within their rights. Importantly, not all water “saved” through efficiency measures will be available for instream flow protection, unless it is expressly dedicated for this purpose and allowed by state law.

Here is a simple example of a voluntary transaction with benefits to multiple stakeholders: Say a farmer has senior water rights to a certain quantity of water from a river. Her utilization of her water rights to nourish crops during the fall results in the river being severely stressed and largely devoid of water immediately downstream of the farm. A mile further from the farm, the river doesn’t even reach an nearby city during the fall. The city partners with a local environmental organization to approach the farmer and determine what can be done to improve this situation. After much deliberation, the farmer agrees to change the crops she is growing and alter her watering schedule to reduce her water use during the fall. As a result of these changes, the river is becoming healthier day by day and once again provides a source for drinking water to the city’s residents during the fall.

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