Understanding the Economic Drivers of Competition for Water

ECONorthwest analyzed the demand and value that drives competition for scarce water resources.

The Challenge

In most times and places, the supply of water in the United States cannot meet all the demands for water-related goods and services. Consequently, different types of users compete for water. Users that depend on water directly for the production of market goods and services often conflict with groups that advocate for water for healthy ecosystems and recreational opportunities. As the economy evolves and a wider range of users are willing to pay more for water, historical water resource allocations must shift to efficiently serve the needs of society.

Recent events in the Klamath River Basin of Oregon and California illustrate the forces shaping the competition for water. Until recently, commercial demands linked to irrigation, hydropower, and waste disposal asserted dominant claims to water, but these are now being challenged by consumers' demands for fish habitat, recreational fishing, resources supporting indigenous cultures, and a healthy ecosystem.

The Results

In response to the conflict in the Klamath Basin, ECONorthwest completed an economic analysis of the competing demands for water in the Upper Klamath Basin. The analysis took a comprehensive perspective, examining the economic relationships underlying the demands for water from all sectors: farm and ranch users, municipal and industrial users, ecosystem-service users, and indirect users.

Our analysis revealed that consumer demands for fish habitat, recreational fishing, resources supporting indigenous cultures, and a healthy ecosystem may have higher economic values and generate higher levels of jobs and incomes than traditional uses for water. Moreover, their economic strength is likely to grow more rapidly than traditional uses for the foreseeable future.

We demonstrated that by recognizing the economic value of traditional and non-traditional uses of water, communities in the Klamath Basin have an opportunity to enjoy the benefits of both healthy ecosystems and healthy economies. Promoting sustainable practices by agriculture and other water users, and promoting the use of market mechanisms to shift resources from low- to high-value uses may increase the viability of farms and at the same time enhance the quality of the environment in the Basin.

This analysis provides insights and lessons for other water-stressed regions and communities throughout the west and around the world. Climate change and increasing development pressures are expected to place additional stresses on water resources in years to come. This type of analysis, which identifies the demands from multiple types of users and takes into account long-term trends in demand and uncertainty has demonstrated value in complex decision-making processes.

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