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

As climate change causes droughts to grow worse and worse in the American West, Aqua Capital Management is building a business on managing the region’s increasingly scarce water resources.


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 21st 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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[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.


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

  1. ACM has an interesting model which tries to capitalize on the environmental changes brought on by climate change.
    I wonder, since climate change does impact water supply, if there will be continuous supply of water rights for the company to capitalize on in the longer term.

  2. Very interesting post. It will be fascinating to see how water scarcity impacts a wide range of industries. For example, the water required to support livestock and grow their feed is a massive use of our freshwater supply today. With meat consumption expected to rise, how will we meet that need? Is introducing market forces to water the right answer? No doubt the current system does not make many companies that use abundant amounts of water accountable for their true costs.

  3. Very interesting company, with a unique value proposition tailored to the needs of the american west. I would definitely expand the list of impacted states in the article to include Utah. The Great Salt Lake has gone down by 11 feet due to water usage and drought over the last 10 years (See http://digitalcommons.usu.edu/cgi/viewcontent.cgi?article=1891&context=wats_facpub). Hopefully drought conditions in the west end sooner than later.

  4. Spencer, thank you for the illuminating post on a topic I haven’t heard much about before. ACM’s business model brought to mind the Eco Securities case in Finance a few weeks ago – as you’ll recall, Eco served as an intermediary to develop projects that would produce carbon credits that could be used to offset a company’s carbon footprint, or be sold in the open market. Is there a comparable policy or economic framework when it comes to water rights? I could see tremendous potential value in, for example, a tribe with water rights far in excess of what they need partially monetizing those rights in an efficient, open market to the highest bidder. This would both generate much needed cash flow for the tribes, and incentivize net water consumers to lower their usage, or to invest in projects that offset their water footprint. I think one issue would be that water rights are inherently localized, so it wouldn’t make sense to have a broad global mandate for water usage reduction similar to what the Kyoto protocol did for carbon emissions.

  5. Interesting post Spencer. I agree with Dan that this has many parallels with the Eco Securities case that we looked at in Finance – the issue I am struggling with is whether a human necessity and pre-requisite to good health should be commercialised? What role do you think the government should have in this market, should a capitalist model even be employed with regards to water rights?

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