Weather, climate, and environmental water transactions

Obtaining water for environmental purposes, such as habitat restoration or water quality improvements, has become an important objective in many parts of the world. Such water acquisitions are likely to become more challenging as regional water demand and supply patterns are altered by climate change. In regions where water supplies are already fully claimed, voluntary negotiated transactions have become a key means to obtain water for the environment. The cost of acquiring water in such transactions is hypothesized to vary with regional weather and climate conditions due to both the actual effects of temperature and precipitation on water supply and demand and the perceptions water users may hold about these effects. This article develops econometric models to examine the effect of temperature and precipitation on water lease prices in four U.S. states located in the desert southwest. Water leases for environmental and nonenvironmental purposes are contrasted to understand the differing nature of these lease markets and the role of weather and climate variables. The authors' analysis finds that temperature, precipitation, regional income, and population changes are variables that have differing effects in the two lease markets. Overall, analysis of over 20 yr of data shows the need to consider climate and weather factors given the growing importance of water leases as a tool to secure water for the environment.