Unintended Consequences of Water Legislation

Abstract

The population of Texas is expected to double by 2060. The Texas Lower Rio Grande Valley is one area in which alternative water sources and potable treatment methods are being sought to support a rapid population growth. An emerging and promising approach to expanding potable water supplies is brackish groundwater desalination. Due to recent technology developments in desalination membranes and increasing prices of surface water rights, the economics of desalination have become competitive with conventional treatment methods. The seemingly comparable competitive economics relationship between conventional and desalination treatments was impacted by Floor Amendment 60 of Texas Senate Bill 3, which was an attempt to meet the increased demand for municipal water. This amendment established the price at which irrigation water in the Valley can convert to municipal water, as a result of urban/residential development of agricultural land, at 68 percent of the market price, effective January 1, 2008. Preliminary economic and financial investigations suggest this legislation could affect the adoption of water treatment technology. This paper identifies and analyzes the economic and financial implications, both intended and unintended, of Floor Amendment 60 on the Valley water market, and the associated adoption of alternative technologies for producing potable water.