Crossover Assets™
Investing in Environmental Assets and Biodiversity

Water Rights

Water has become severely undervalued throughout the United States as the current costs to provide water are materially lower than true costs associated with delivering water. This misallocation of water resources has become the focus of increasing controversy as water supply is failing to keep pace with growing demand. Additionally, the current distribution system throughout the majority of the U.S. allocates water to areas that do not value it most. For example, agriculture uses about 80% of the water in the western U.S., leaving just 20% for the region’s population centers.

In the U.S., water rights are defined and governed under two divergent legal paradigms: (i) riparian water rights are common in the east and are connected to land ownership and (ii) prior appropriation water rights are predominant in the west and are identified as “first in time, first in right” ownership. Each state has its own method of transferring and ultimately recording ownership, but generally a legal right is obtained through the authorization from the state in the form of a water right permit. Once a legal right has been established, the water right can then be exercised or traded according to the designated “beneficial use” of water allowed under the permit. Water trading is defined as the process of buying and selling these water rights permits. Transaction size, pricing, and frequency differ significantly due to varying supply and demand constraints across the country, which have the effect of valuing water on a very localized and regional basis. Timbervest believes the market opportunity for water trading will continue to develop and that the fundamental disconnect between water prices and the true cost and value of water will correct itself as supply constraints become more acute.

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