Transferring Mainstem Colorado River Water Rights: The Arizona Experience

Abstract

As one of the fastest growing states in the country, Arizona faces a problem: where is it going to find water to support this growth? The problem arises because most surface water supplies are completely allocated and groundwater is being pumped at an unsustainable rate. This leaves, as the only viable source of new water, Colorado River water available through the sale, lease or exchange of existing water rights.

The United States is entering an era of water reallocation, when demand for new supplies will be satisfied by shifting water use from existing users to those with new demands. Voluntary transfers between willing sellers and willing buyers is, we believe, the best way to bring about this reallocation. Water marketing should be especially embraced by the environmental community because the alternatives are unsatisfactory: more diversions of water from the few remaining free-flowing rivers; an increase in groundwater pumping; or the construction of new dams.

This paper explores the opportunities for marketing Colorado River water by examining case studies of individual transfers that have occurred or been proposed. We consider a recent proposal by the seven Colorado River Basin States that would alter the Law of the River with a set of incentives that would encourage water conservation by allowing cities to pay farmers and irrigation districts to undertake extraordinary conservation measures. We conclude that there substantial impediments to water marketing: the legal constraints are formidable; the transaction costs substantial; and the emotions highly charged. Procedural pitfalls and bureaucratic oversight of transfers constitute substantial impediments to the transfer of even modest quantities of water. These regulatory obstacles drive up transaction costs and discourage the development of a market in water.

Keywords: Water, Water Law, Trade in Water