On a recent episode of the Stanford Law School (SLS) podcast, Stanford Legal, Professor Barton “Buzz” Thompson, JD/MBA ’76 (BA ’72), delved into the subject of his most recent book, Liquid Asset: How Business and Government Can Partner to Solve the Freshwater Crisis. Thompson is a global expert on water and natural resources and has long focused his research and teaching on how to improve resource management through legal, institutional, and technological innovation. In Liquid Asset, he proposes various strategies for solving the United States’ freshwater crisis, arguing that government and water authorities can’t do it alone.

Thompson is the Robert E. Paradise Professor of Natural Resources Law, a Senior Fellow at the Woods Institute for the Environment, and a Professor in Stanford University’s Doerr School of Sustainability. He was interviewed by Stanford Legal co-hosts Richard Thompson Ford, the George E. Osborne Professor of Law, and Pamela Karlan, the Kenneth and Harle Montgomery professor of public interest law. The following is an edited excerpt of the full interview, which can be found here. 

Ford: Pollution, engineering, population growth, and climate change are all posing challenges to freshwater in America. The safety and amount of available water is in question and particularly challenging is infrastructure, with much of it aging and starting to fail. Please tell us a bit about the landscape. It’s a huge topic, of course, but what are the most important challenges we’re facing with respect to water today?

Water is our most precious resource and we are facing a whole series of crises. We have more than enough water on the planet, but 97 percent is salt water, which, of course, we cannot drink without it being desalinated. The first problem is simply an uneven distribution of water. There are areas like California or South Africa or the western coast of Australia that do not have enough water to go around and climate change is going to make that worse. We will have more water evaporate, and will also need more water at the same time. We are also depleting our groundwater resources. There is no continent on the face of the planet, except Antarctica, where we are not depleting our groundwater resources.

Our traditional ways of solving our problems of not having enough water, including creating dams and storing water when it’s available, or finding a place where there is water and then transporting it hundreds of miles away to where the water is needed, have created a huge environmental crisis.

Even where we have enough water, we need to make sure that everyone has access to that water and that water is safe. Even in the United States, we have over 2 million people who do not have running water in their homes. Of the people who do have running water, over 10 percent of them are getting their water from supplies that don’t meet the standards of the Safe Drinking Water Act. And water is becoming more unaffordable for the poorest members of our population. And then to add on one other crisis, we have a problem with our water infrastructure. It is aging and it is beginning to fall apart.  

Karlan: Can you explain what you mean by water infrastructure?

I’m talking about everything from the pipes that are used to transport our water to our homes, to the dams which hold the water for periods when we need it, to stormwater infrastructure, which makes sure that our cities are not flooded when we have a huge rainstorm. The American Society of Civil Engineers rates all types of infrastructure and its most recent rating on water infrastructure was a C minus for drinking water infrastructure and a D for dams and stormwater.

Ford: How expensive would it be to update and fix our water infrastructure? I know that’s a big question because it has so many different components, but how is the government responding to the challenge?

In 2019, the last year for which we have good statistics on this, we spent about $48 billion dollars upgrading and repairing our infrastructure. The best guess is we probably needed to spend about $129 billion, so about three times as much as we actually spent. And the best estimate is that by 2039 we’re going to have a cumulative deficit—the total amount of money we need to spend at that point in order to bring our infrastructure back up to par if we don’t change what we’re doing—of about $2 trillion. The second thing is that frequently when we rebuild our infrastructure, we’re rebuilding it the way it was built in the 20th century. And one of the things that we need to do is take the opportunity to actually replace that 20th-century infrastructure with 21st-century infrastructure and technology. 

Karlan: Can you give us an example of 21st-century technology as opposed to 20th- century technology?

Take wastewater. 20th-century technology took that wastewater, treated it to some degree so it wasn’t quite as dangerous, and then discharged it into the river. That’s really wasteful because that water could be reutilized if we simply purified it to a degree at which we could reuse it. Increasingly, cities are taking their wastewater facilities and changing them into recycled water facilities. But let’s go a step further. In addition to turning wastewater into water you can use again, you can also get energy out of that wastewater because there are a lot of chemicals in that wastewater that produce things like methane, which you can actually burn for energy. So, you could imagine taking that wastewater, turning it into freshwater, turning it into energy, and also getting out things like calcium and phosphates, which are valuable chemicals. There are a few places that are doing this, but not very many, and we could be doing it even better than we’re doing today.

Ford: Is one of the challenges trying to coordinate all of our many different independent water systems and get them working together?

Yes, that is one of the major challenges. We have a highly fragmented water system. If you look at the energy sector, it is relatively concentrated. In California, for example, we have PG&E, Southern California Edison, San Diego Gas and Electric, L. A. Department of Water and Power. There is a limited number of large energy providers. In the water field, on the other hand, we have more water systems in the United States than we have elementary schools, junior high schools, high schools, and secondary educational institutions combined. A lot of people in the United States receive their water from these really small water suppliers, some of which serve maybe just 500 people or 1,000 people. The problem is that they frequently don’t have the money to upgrade their infrastructure and they may only have one or two people on their staff, and those people might not have a lot of expertise, so trying to meet the Safe Drinking Water Act, that’s challenging for them.

Ford: Maybe you could tell us a little bit about the legal structure around who has rights to water and whether or not that structure makes sense, given the contemporary challenges we face.

One of the things that I’ve sometimes said about water problems in the United States, but it’s also true around the entire world, is that we are trying to meet a 21st-century set of challenges with 20th-century technology and 19th-century laws. In a lot of the western United States, we allocate water on a first-come, first-served basis, something called the Prior Appropriation System. So, if you and your ancestors were the first one there, then you have the first right to the water. That might not always be the most valuable right, or the most important use of the water.

So we have two challenges here. The first is that we need to make sure that the poorest members of our society actually get the water that they need. California is the only state in the country that recognizes a human right to water, as the United Nations has done. That means that we need to protect the rights of those poor communities against anyone else who wants to come along and use that water instead. Once we have done that, though, my view is we need to make sure that the water goes to the most valuable use. As water becomes scarcer, we want to make sure that if we have different agricultural crops, for example, that those crops which are most valuable are the ones that get the water. And for that, we need water markets. We need the ability of those individuals who need the water for their crops to be able to pay people who have less valuable crops or people who can conserve more of their water.

Karlan: That’s interesting because it’s a combination of markets that involve willingness and ability to pay, and a group of people who don’t have the ability to pay. It’s a really interesting way of thinking about a mixture of a market system and then a system that’s really not a market system at all.

You’re absolutely right, Pam. It’s one of the things I find most interesting about water. When you go to water meetings, you frequently have people debating whether water is a commodity or a public resource. My view is it’s both. It’s a public commodity. There are important public interests in water resources.

Ford: Maybe you could tell us a little more about how the private sector is currently dealing with water and how private involvement might work to meet the challenges that we’re facing?

We actually do have water markets in various parts of the world. We have water markets in the Western United States, Australia, Chile, and to some degree in about half a dozen other countries. But more countries could have active water markets and in the western United States, those water markets don’t work very well. So one of the things that my book, Liquid Asset, talks about is how we could have more effective markets.

The private sector can play a really important role in a wide variety of areas. It can help in creating and stimulating water markets. The private sector is also where we are going to see these new technologies emerge that we need. And there are a number of companies out there that are right now working on exciting new technologies to help us in conserving water or desalinating salt water. The private sector can add additional private financing that can help us meet our financing gap. So there are a variety of ways in which the private sector can play an important role. That’s the whole thesis behind Liquid Asset: we need the public sector and the private sector. We need all hands on deck.

Ford: Issues we hear about on the news often involve water rights that were established at a time when water was relatively plentiful but are still in effect now that the water is scarce. California, for instance, claims it has first dibs on the water coming from the Colorado River and tough luck if Arizona doesn’t have any.  So the water isn’t going to its most productive uses because some people have an abundance and can afford to waste it, and other people don’t have much. How do we get from here to where we need to go?

The simple answer to that is legal reform. One of the questions that I’ve been pondering is how we could switch from a current system of water rights, in which you can sell rights, but not very well, to a system where you would have rights that would be easily transferable like real property. The problem, of course, is if you just go out there and tell everyone that we’re going to take their current water rights away, they are going to sue and claim it is an unconstitutional taking. I’ve been working with Paul Milgrom, a Nobel Prize-winning economist at Stanford who was instrumental in the auction that the United States government ran to convert rights in the electromagnetic spectrum, which were designed for a television and radio era, over into rights that could be used to promote broadband, which is why the telecommunications system works so well today. One of the keys of what Paul designed was that it’s a system where you basically sold your rights, and then those rights were converted to rights which were better suited for today.

Karlan: So, the idea would be that people would sell their old-style right and get a new-style right, like when people traded in their Lira or their Francs for Euros?

That’s exactly the way to think about it. And you can stick with your old right, but recognize that if you ever want to sell your old right, it’s going to be very, very difficult to do that in the future. 

Karlan: But you’re not actually selling the right at the time. You’re selling the right to sell the right later. That is, if you want to keep using the water you now have for whatever purpose you were using it, you can keep doing that, it’s just going to be easier for you to sell that water later on?

That’s absolutely right. You would still have the right to the same amount of water, but some of the contours of that particular right could change. Right now, if you look at prior appropriative rights, what you get is a right to divert a certain amount of water. A farmer diverts X amount of water because he isn’t going to use all that water. And some of it is going to run downstream and be used by somebody else. One of the reasons why water rights are so challenging right now to transfer is if you want to sell that right to divert X amount of water to somebody else, you’re not permitted to injure the person downstream who’s relying upon that return flow. And yet, frequently, we have no idea how much that return flow is. So if you want to sell your right, it results in a large administrative hearing. In California, a lot of our water rights actually aren’t recorded on paper anywhere, so people aren’t even sure whether they have that particular right.

The idea here would be, like, in a state like California, you could trade your existing right for effectively the same amount of water. But this time, maybe you have a consumptive right, not a right to divert a certain amount of water. That solves your return flow issue. Because now you’re only talking about the amount of water you’re actually consuming, so you aren’t going to injure anyone downstream by transferring that. And you would get a clear right that says this is exactly what your right is. That’s an example of how you would move from a system of rights which aren’t very transferable because they’re uncertain and they depend upon whether you’re injuring other people in the system, to a set of rights where injury is far less likely and where everyone’s rights are clear.

Ford: Are there any examples of places where a system of water rights like this are in place–countries that are doing it right, that we could use as a model?

The best model for changing a system of water rights to make markets work better is Australia, and in particular the Murray-Darling Basin, which is the largest water basin in Australia. Australia actually did reform all of their water rights in the Murray-Darling Basin so that they could be more readily traded. And Australia also did something else which is really interesting. Water markets only work if you’re also protecting the environment and the human right to water. Australia actually spent a lot of money buying water rights for the environment. So, now they have this really great water market, but they already have all of this water which is dedicated to the Murray-Darling streams so that the environment is protected.

Listen to the Stanford Legal Podcast with Buzz Thompson

A global expert on water and natural resources, Barton “Buzz” Thompson, JD/MBA ’76 (BA ’72) focuses on how to improve resource management through legal, institutional, and technological innovation. He was the founding Perry L. McCarty Director of the Stanford Woods Institute for the Environment, where he remains a Senior Fellow and directs the Water in the West program.  He also is a Professor of Environmental Behavioral Sciences in the Stanford Doerr School of Sustainability. He has been a Senior Fellow (by courtesy) at Stanford’s Freeman-Spogli Institute for International Studies, and a visiting fellow at the Hoover Institution.  He founded the law school’s Environmental and Natural Resources Program.

Professor Thompson served as Special Master for the United States Supreme Court in Montana v. Wyoming, an interstate water dispute involving the Yellowstone River system.  He also is a former member of the Science Advisory Board of the United States Environmental Protection Agency. He chairs the boards of the Resources Legacy Fund and the Stanford Habitat Conservation Board and is a California trustee of The Nature Conservancy.