A strategic environmental water rights market for Colorado River reallocation

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 a 24-year megadrought, the United States allocated over US$4 billion for drought mitigation, including water market transactions that pay farms, cities and industries to divert less water across the US Southwest. We developed a model of how strategic water markets can restore imperilled fish habitat, integrating hydrology, ecology, economics and water rights within the river’s headwater state of Colorado. While least-cost water-use reductions improve over one-third of restorable river habitat, strategically spending 8% more nearly triples habitat improvement. Ten transactions attain 26% of that improvement for 1% of the cost. Water markets that do not legally protect conserved water are 29% less cost-effective than markets that do. Overall, strategic investing and legal reforms yield outsized ecological benefits.