Who has the right to leaked water?

by David Zetland (re posted from Aguanomics)

Who has the right to leaked water?
SM sent this question a few months ago:

My thesis is about conjunctive water use and the hydrologic externalities that arise from a change in water use (e.g., increased irrigation efficiency or canal lining).
I am focusing in the canal seepage/lining scenario.
My question is, in the Prior Appropriation Doctrine,* where is the balance between the “diverted use” and the “consumptive use” statute?
I am aware of the right to recapture, but I am also aware of the “do no harm” ethic in changing a water right. I am also aware that there is not a requirement to submit a “change” in a water right when switching to efficient irrigation methods.
Every time I present my issue of who receives benefits and who receives costs in canal seepage/lining, the same controversy comes up in questions:
“Who cares if they line that canal if its their water?” or
“They can’t line their canal because the water has been historically allocated to the groundwater irrigators.”
It all comes down to consumptive v.s. diverted use rights.
Of course in the case of an externality, the basis of how to internalize it completely depends on who owns (has a right to) the good. This stumps me because of the darn laws.
So… is there a clear answer on who gets the water? Does it depend on the laws? Do some laws need to change?

In response,

I sent this post on accounting for water flows and this example of how canal lining can harm “leak beneficiaries.” In addition, I said that the specification of rights drives the discussion of harm, adding that “do no harm” tends to apply to riparian rights while prior appropriation ASSUMES no harm from the use of quantified rights. Accounting problems will arise if some rights are based on de facto return flows. (In my book, I write in favor of “assumed 100 percent consumption” as a way of (1) protecting environmental flows and (2) encouraging more in-situ “efficiency” without harming neighbors.) I also added that these accounting problems fall into an “emergent externality” category as water scarcity and stress increases.

Do you have any ideas, arguments or examples to add to this discussion?

* SM adds:

The Prior Appropriation Doctrine is a frustrating thing but still only the tip of the iceberg in water law. These emerging externalities come at the hands of both climate change and population growth and are certain to continue. The diverted use basis of Prior Appropriations might end up causing more harm than good when a few people raise their benefits to the detrimental costs to large numbers of people. Won’t it be nice when the costs and benefits of these can be quantified? It would certainly help in analyzing situations.
* From your references, the best thought I noticed was how complicated it would be to implement a consumptive use-based system. Coming up with even semi-feasible ideas would be a gargantuan project involving several disciplines, and teamwork effort to figure out the best way to do that. Certainly a lot of soil physicists would be involved. Maybe some day…