No one should be surprised that Colorado River Basin states have struggled to renegotiate the Colorado River Compact.
The compact’s framework was drafted in 1922, back when Henry Ford was still selling Model T Fords. Developed to protect gold miners, the West’s “first-in-time, first-in-right” water allocation system is even older.
Colorado Basin water users deserve a modern water-right and allocation system — one that can be confidently described as robust enough to withstand the test of time.
For now, the 1994 Water Treaty with Mexico could be left as it is.
A state-of-the-art compact would reserve enough water to maintain a base flow and then allocate the remaining water to states in the form of a defined share of inflows and then onto water-right holders as shares. In order to allocate shares to right holders, each section of the river would need to be divided into a high-security pool, a general-security pool and a low-security pool.
All existing water rights would then need to be validated and converted into shares at a rate of one share per acre-foot multiplied by a seniority factor. Shares would be recorded in a central, secure registry of guaranteed integrity.
Pre-1912 rights holders could be assigned high-security pool shares. Rights holders from 1912 to 1950 could receive medium-security pool shares. Post-1950 rights holders could be granted low-security pool shares.Each shareholder would be allocated a water account. As water becomes available, it would be assigned to a security pool and then immediately credited to individual shareholder accounts.
Usage would be debited as it occurs. Like any U.S. bank account, trading water rights would be simple: log in, make a few entries and press “confirm.”
Yes, exchange rates and trading limits between states would need to be set but this isn’t rocket science.
Once set up, only those with water in their accounts could withdraw water from the Colorado River Basin. Taking water without it in your account would be classified as theft.
Users could save water — especially when dam levels are low — and it makes sense to save it for future use. Beneficial use, as a concept, would become redundant.
Shares, by the way, would be allocated directly to water users, not water districts.
Water districts could impose exit fees but wouldn’t have the power to block trades out of their district. Each district, however, would receive enough shares to cover transmission and delivery losses.
About 25 years ago, when Australia replaced its dysfunctional River Murray Agreement and outdated water-licensing system with a state-of-the-art model, the value of water rights increased by an average of 20% per annum for a decade — a fourfold rise in value. Every Colorado water-right holder should expect a similar return.
As a thought experiment, President Donald Trump could decide to compulsorily acquire all old-system water rights and “Make the Colorado Great Again” by reissuing these rights as shares and threatening to send every water-right holder an invoice for the increase in the value of their shares.
Think of this water reform as a “giving,” not a “taking.”
It would be better, however, if the states collectively recognised the wisdom of establishing a state-of-the-art system and agreed to participate.
To speed-up progress — and as the Australian prime minister did in 1994 — Trump could offer substantial startup and completion payments to states, provided they finish the process promptly. Imagine a two- or three-year reform program, not decades of tangled court battles.
When it comes to water, decisions need to be made as quickly as inflows and storage levels change — just like a corporate board can make final decisions.
In detail, this would involve establishing a seven-member, expertise-based Colorado River Basin Authority.
Consultation with a range of Colorado, environmental and state-government advisory bodies would be necessary, but, ultimately, a well-structured authority rather than a court should be empowered to make timely, final decisions.
The authority would develop a detailed management plan for the Colorado River system — including dams, infrastructure, ecosystems and the allocation system.
To safeguard the system integrity, the authority would set volumetric limits on allocation trading between river sections and adjust exchange rates. While allocation trading between river sections and storing water in aquifers would be allowed, between section share trading would not.
To promote investment, share registers would facilitate low-cost mortgaging of shares, encouraging the adoption of water-saving technologies and productivity improvements.
Finally, as Australia did, one would expect the establishment of one or more environmental trusts, with water allocated to them, and trustees tasked with improving environmental water management.
Mike Young, from Adelaide, South Australia, is professor emeritus at Adelaide University and was one of the architects of Australia’s water reform initiative, which saw water licences unbundled into shares, water accounts established, use-approvals managed separately and then the creation of a Murray-Darling Basin Authority.
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