A Strategic Environmental Water Rights Market for Colorado River Reallocation

• In Event: Water Policy Under Pressure: Interdisciplinary Insights for Resilient Governance

Abstract

The Colorado River system is among the world’s most overallocated basins, struggling to supply water to the southwestern United States and Mexico. Consequently, 90% of the basin’s native fish species are endangered, threatened, or extinct. Driven by an unprecedented regional 24-year megadrought, the U.S. allocated over $4 billion for water market transactions that pay farms, cities, and industries to extract less water. By proactively reducing water consumption, this market-based strategy aims to avoid mandatory water cutbacks under the governing 1922 Colorado River Compact. However, the water transactions generally do not preserve river flows for ecosystems.

We developed a novel systems model that identifies how strategic water markets can restore imperiled fish habitat, integrating hydrology, ecology, economics, and water rights for the river within the state of Colorado under future climate change. The model, which accounts for 37% of the mean annual flow of the Colorado River, couples a river flow and reservoir network model with statistical analyses of flow alteration-ecological response relationships; water market prices, participation, and transaction costs to secure legal approval; and streamflow and climate forecasts. The model is informed or calibrated with empirical data on streamflow, water usage, reservoir storage, climate, fish biomass, habitat, and water rights, plus survey data on market participation and transaction costs. The model evaluates thousands of water transactions, water rights, and water users. Our analysis considers multiple plausible future water markets with varying reductions in water consumption, market participation from water sellers, and policy reforms that expand formal water transactions that legally protect restored river flows from withdrawal by other users.  

In our analysis, a baseline model first identifies portfolios of temporary monthly water transactions that reduce water consumption at the lowest cost. An environmental water market model then illustrates how strategically spending additional funds substantially improves fish habitat, piggybacking on spending independently required for the least-cost water-use reduction plans. To demonstrate pathways to build towards strategic water markets, we prioritized cost-effective individual transactions within the strategic portfolios. We also compared ecological and economic outcomes from water markets to outcomes with mandatory water cutbacks prescribed by water rights priority and outcomes with no cutbacks or markets. An important policy analysis compares markets with formal water transactions to markets with informal transactions. Informal transactions constitute nearly all present-day transactions, sidestep legal barriers, and incur minimal transaction costs, but they do not legally protect river flows.

Our results show that strategically spending modest additional funds can generate substantial ecological improvements, and that within strategic portfolios, targeted prioritization of key transactions is especially cost-effective. Results also illustrate major shortcomings of informal water markets, highlighting benefits of the policy reforms that expand formal trading. To share our results, we developed a decision support tool that conveys model results to water market participants. Overall, because key interstate and international agreements for managing Colorado River scarcity expire in 2026, our results can inform ongoing policy initiatives to conserve water in the Colorado River basin.

Author

• Philip Womble, University of Washington
  Presenting Author