Opportunity in the Drought: Aqua Capital Management and the Market for Tribal Water Rights

 

As climate change has begun to dry out the American West, the search for new sources of fresh water has intensified. Water investment and advising companies such as Aqua Capital Management, which have years of experience navigating the complex and highly regulated water markets, will be increasingly well positioned to facilitate the sourcing of water resources, greatly expanding their water management business. More specifically, Aqua is well positioned to grow their business in the management of water from tribal lands.

 

Increasing Water Scarcity

According to the National Oceanic and Atmospheric Administration (NOAA) 2015 “State of the Climate” report, 2015 was the second worst drought on record in California.[1] The drought was not confined to California, either—it was “ centered in California to southern Oregon and extended across the Pacific Northwest and into northern Nevada”[2].

The dry conditions in the West and Southwest are likely to become the new normal. As early as 2007, according to an article published in Science by 13 leading researchers in the field, there was a “broad consensus among climate models that this region (the Southwest) will dry in the 21^st century…and that a more arid climate should already be under way”. The article states that the Dust Bowl of the 1930s, a drought famous for the damage it causes, is a good approximation of future conditions.[3]

 

The Rush for Water

As water has grown scarcer, the rush to find and exploit new sources has begun. As water in the West grows scarcer, the industry dedicated to alternative sources of water is booming.

Aqua Capital Management is a leading player in this growing market. Founded in 2006, they describe their mission in this way:

“We believe the role of the water market is to create market-based pricing to allocate this scarce and precious resource to its highest and best use… (we) believe the creation of new markets in areas of water scarcity is necessary to enable all water users to economically manage and receive benefits from the sustainable use of a limited resource.”[4]

As climate change has increased the severity and frequency of droughts, Aqua Capital Management has stepped in to address this new need. They do this through investing in water rights themselves and through managing water resources and water transactions on behalf of consumers of water, such as farms and municipalities, and holders of water rights, such as private individuals and American Indian Tribes. Aqua Capital Management has built much of their business the water scarcity caused by climate change.

Going forward, Aqua Capital Management has a number of opportunities to continue growing their business. Their greatest opportunity, though, lies in their “Tribes” business, which is based on “assisting tribes to evaluate and analyze their water rights and providing solutions to optimize their value”[5].

This market is large. According to the US Department of the Interior’s Indian Affairs Bureau, there are 56 million acres of Indian land,[6] or 87,000 square miles. Most of this land mass is in the American West.

The Federal Government, through the Bureau of Indian Affairs’ Branch of Water Resources, plays an active role in managing water on tribal lands, creating a regulatory hurdle that doesn’t exist in other markets.[7]  Moreover, according to the University of Montana thesis titled Tribal Water Rights Settlements and Instream Flow Protection by Dylan Desrosier, “less than ten percent of the 566 federally recognized tribes have had their (water) rights legally defined and secured under the law.”[8]
The legal and regulatory complexity of the commercialization of water rights on tribal lands is a challenge for Aqua, but also an opportunity. If they develop differentiated expertise, they will have access to a market that it is very difficult for others to enter. Aqua Capital Management can build on their prior success and be well positioned to take advantage of the increasing scarcity of water in the American West.

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Sourcing:

[1] National Oceanic and Atmospheric Administration: National Centers for Environmental Administration, “State of the Climate—Drought 2015,” https://www.ncdc.noaa.gov/sotc/drought/201513#west-sect , accessed November 2016

[2] ibid

[3] Seager, Richard et al, “Model Projections of an Imminent Transition to a More Arid Climate in Southwestern North America”, Science, pg 1, vol 316, 25 May, 2007.

http://ocp.ldeo.columbia.edu/res/div/ocp/pub/seager/Seager_etal_transition_2007.pdf. Accessed November 2016.

[4] Aqua Capital Management Website, “Environmental Stewardship”, http://www.acmwater.com/environmental-stewardship/, Accessed November 2016

[5] Aqua Capital Management Website, Solutions, http://www.acmwater.com/solutions/

[6] http://www.bia.gov/FAQs/, accessed November 2016

[7] US Department of the Interior Bureau of Indian Affairs, Branch of Water Resources website, http://www.bia.gov/WhoWeAre/BIA/OTS/NaturalResources/Water/index.htm, Accessed November 2016

[8]Desrosier, Dylan, “Tribal Water Rights Settlements and Instream Flow Protections”,  University of Montana: Scholarworks at University of Montana, 2015. http://scholarworks.umt.edu/cgi/viewcontent.cgi?article=5514&context=etd Accessed November 2016.