1. Water in the West: Current Use and Future Challenges Christopher Goemans, Ph.D. Agricultural and Resource Economics 13 th Annual Farmers Cooperatives Conference Cooperatives, Agriculture & Water Resource Policies Broomfield, CO

2. Overview How is water currently used? How is water currently allocated? Future challenges Options for dealing with future challenges A story of change… 2

3. Total Withdrawals Figure 2, Estimated Use of Water in the United States in 2005, Circular 1344, USGS 3

4. Total Irrigation Withdrawals Figure 2, Estimated Use of Water in the United States in 2005, Circular 1344, USGS 4

5. Colorado: Percent of Total Diversions by Activity Calculated based on 2005 USGS Water Use Estimates, water.usgs.gov/watuse/data/2005/ 5

6. Water Allocation Law in the U.S. Three layers of laws… – Laws governing the allocation/use of water within states – Laws governing the allocation/use of water across states – Federal laws 6

7. Within State Water Allocation Two primary systems: 1.Riparian Law 2.Doctrine of Prior Appropriation – Primarily in the Western U.S. – Priority system of water rights based on: first in time, first in right – Water Rights transferable as long as other water rights holders not injured Designed to protect existing uses/users 7

8. 8 Projected M&I and Self-supplied Industrial Gross Demand, 2000 - 2030 Approximate Projected Increase in Demand: West Slope: >100,000 AF/Yr East Slope: >650,000 AF/Yr

9. 9

10. South Platte River Basin: Projected Population Growth by Region 10

11. The Basic Problem… 11 In simple terms: Water managers goal is to make sure that there is enough supply to meet demand Questions: How much supply and where? How much demand will there be? Can we increase supply? Can we decrease demand?...

12. Options for achieving this goal… Development of additional storage? Reuse? Conservation? Reallocating water??? 12

13. A Slice of the Hydrologic Cycle Consumptive Use: that part of water withdrawn that is evaporated, transpired by plants, incorporated into products or crops, consumed by humans or livestock, or otherwise removed from the immediate environment. (USGS) 13

14. The Importance of Return Flows The South Platte River Basin Annual total native flows: 1,400,000 acre feet Annual trans-basin inflows: 400,000 acre feet Annual surface water diversions: 4,000,000 acre feet 14

15. Alternatives for Reallocating Water Institutional Alternatives for Reallocating Water: Water Rights Markets Alternatives for freeing up the water: 15

16. Why Water Transfers? It is commonly argued that reallocating just 10 percent of agricultural water to municipal uses could boost municipal supplies by 50 percent West-wide. Water and Growth in Colorado- Nichols et al. (2001) 16

17. Why Water Transfers? It is thus of increasing importance that existing water supplies be allocated more efficiently than in the past. It is ludicrous that Southern California should incur a cost in excess of $450 per acre-foot for additional water while irrigators in the Central Valley continue to irrigate thousands of acres of crops which are in surplus nationally. (Howe et al. 1986) …the economic value of water is often several times that of agricultural use. For example, native irrigation water is worth $500 to $1,000 per acre-foot in the Northern District, while the asking price for municipal water from Windy Gap is 10 to 24 times more… (Nichols et al. 2001) 17

18. Alternatives for Reallocating Water Institutional Alternatives for Reallocating Water: Water Rights Markets – Buy and Dry Alternatives for freeing up the water: 18

19. 19 39,000 acres 2,600 acres or 2,400 acres 1,300 acres or 23,000 to 72,000 acres 7,900 to 16,000 acres 2,500 to 10,000 acres No change 60,000 to 100,000 acres 133,000 to 226,000 acres Potential Changes in Irrigated Acres

20. Alternatives for Reallocating Water Institutional Alternatives for Reallocating Water: Water Rights Markets – Buy and Dry Water Markets – Water Banks – Multi-year Leasing Agreements – Interruptible Water Supply Agreements Alternatives for freeing up the water: Rotational Fallowing Limited Irrigation 20

21. Questions? Comments? Christopher Goemans Department of Agricultural and Resource Economics cgoemans@colostate.edu

22. Using Experimental Markets to Evaluate and Design Institutions

23. Example: Experiment Overview