User:Largelinda

A water bank is an institution in which water is sold and purchased in water scarce areas. Quantities of water can be sold and bought either on a short term, one year basis, or longer. The banks acts as an institution through which the transactions are made, and facilitates the transport of the water to its end use. More water can be deposited into the bank than withdrawn and extra water that is not purchased in a given year is carried over into the next year.

A water bank is similar to, but not the same as water trading. Both are voluntary, and operate to put water to its more economic use. However, water rights are not traded in a water bank. Instead, sellers deposit quantities of water into the bank and get paid by the bank. The bank then sells this water to buyers who purchase the water at a higher cost to cover for the cost of transportation.

How it works
A water bank is a voluntary bank where water users decide for themselves whether to sell or buy water. The bank finds potential sellers and buyer for the water, and also helps sets the prices for the water. The price is generally based on the volume of water in the transaction, the severity of the water situation, and also on the cost of transportation of the water to get to the buyer. Typically, the buyers only sell water for the upcoming year, and the process is repeated again the following year based on the new water availability of the region.

Users with excess water, users with low returns on their water, or users who have another potential source of water decide to sell a set volume of water to the bank. Often, this means that they do not withdraw or use some volume of water that they had been allocated or have the rights to. The sellers are generally in agriculture and use the water for irrigation. Some farmers choose to sell water to the water bank and not irrigate part of their fields, as the profit from the water is higher than the profit from their agricultural activities. Some farmers sell their rights to the surface water, and switch to using more groundwater to supply their irrigation needs.

Buyers then pay the bank for the use of the sold volumes of water. The charge for the water includes some administrative fees for the water bank, as well as transportation costs of the water.

Why it works
Water tends to be highly subsidized for agriculture. Especially in times of drought or water shortage, farmers can often make more money by selling the water to other users than by using the water for irrigation. During water scarce times, the value of water increases for industrial and municipal uses, therefore, they would prefer to purchase water from the banks as the water is worth more to them than the price it of the water.

However, water is worth more than its price for some users, such as industries and municipalities. These entities are willing to pay more for the water, as they can put the water to higher-value uses.

Drought Water Bank
Drought water banks are generally enacted during drought conditions as an emergency measure. To facilitate the last minute nature of this bank, options are purchased by the bank at the beginning of the year from the farmers, and only utilized if the need arises. If there is no serious water shortage that year, the farmers keep their water and the money the bank paid for the option and continue to irrigate. However, if water shortages become severe, municipal and industrial users have the option of purchasing the water and the farmers would get paid this amount to not irrigate for the season.

Issues
Water banks makes a lot of sense as the sellers get more than they would have profited otherwise from the water and buyers get more from what they do with the water than with the cash they used to purchase the water. The water is placed into a more economic and efficient user. However, there are still some third parties that may be disadvantaged from the transactions. Generally, they are the ones that work for the farmers or are affected by the farmer’s livelihoods. As farmers opt to not farm, the subsequent related industries may feel a hit on their economy. Also, laborers on the fields may be affected as they may be unemployed for the season.

Some water banks encourage farmers to continue farming with groundwater. This in and of itself can be detrimental to the environment, depending on the groundwater recharge of the region. Aquifers exploited in this way see their water tables dropping at unsustainable rates. However, this is also an issue as neighbors are adversely affected by the overdrawing of the groundwater, which may be their source of water as well. They are not compensated under most water banks, yet directly feel the effects of the sold water.

1991 California Drought Water Bank
The California Water Bank was enacted in 1991 as an emergency drought bank as they were experiencing a 5-year drought. Water levels had dropped to a point where farmers received 70-100% less water, and municipal and domestic users had cutbacks of 15-45%. The drought bank was created to help facilitate water being transferred to places of higher value use. The bank found farmers in agriculture who were willing to sell their water for $100 per 1000 cubic meters. In total, the bank purchased 484 million cubic meters of water by February of 1991. The bank then sold the water for $140 per 1000 cubic meters ($185 including transportation costs) to buyers from the municipalities and some industries. Not all the water was sold, as some rains came in the beginning of 1991, so the bank purchased the remaining quantity, 375 million cubic meters in case of continued drought in 1992.