Managing Water Supply- and Financial-Risk in the Colorado River Basin
The Colorado River Basin (CRB) is a critical resource for the American Southwest and northern Mexico, with millions of people relying on the basin’s water for domestic use, agriculture, and industrial production. This basin’s water is overallocated to the point that natural flows rarely reach the ocean, and the issue is further complicated by growing populations and the corresponding increase in demand. Meeting these demands is challenged by increasingly variable supplies, potentially drier conditions in the future due to climate change, and institutions that do not facilitate reallocation of water during dry periods (e.g., leases, transfers, or conservation of water rights). These institutions and the legal framework that guides their actions (collectively known as The Law of the River) also fail to provide a defined process for curtailing water use during drought in the Upper Basin states of Colorado, Wyoming, Utah, and New Mexico to meet obligations to Mexico and the Lower Basin states of Nevada, Arizona, and California. Our project seeks to develop a modeling tool for characterizing both the supply and financial risk of users throughout the region, one that allows for the socioeconomic impacts of water shortages (both natural and regulatory) to be traced to individual water right holders and communities. This tool will also allow for the testing of risk management tools and strategies that can reduce losses associated with water scarcity and protect water right holders, regions, and stakeholders. This work is timely as policy makers in the CRB are considering a “compact call” curtailment of the Upper Basin to address an ongoing drought, but have not publicly committed to a pathway for how to enact such a curtailment and have only crude tools available for assessing the impacts of each potential choice. This tool will provide clarity to these policy makers considering a “compact call,” as well as regional governments, investors, and insurers who are looking to evaluate the joint financial and supply risk of water scarcity in a large and growing region, with applicability to other basins facing similar risks.