The Colorado River Basin is drying up, and with it, the water supply of seven states in the American West. Historically, the West relied on consumption-based laws to fuel development despite the arid landscape. The Colorado River Compact allocated water among the states, but those allocations suffered from two basic flaws: (1) The agreed-upon water flow of the river was based on a particularly wet season in the region, and (2) the Compact was not designed to adapt to changing environmental circumstances. As climate change decreases rainfall and increases temperatures, water availability will sharply decline. But outdated legal doctrines incentivize farmers to use all their water or otherwise see their water allocations dwindle, increasing water waste. Furthermore, water rights and agriculture are mostly within the jurisdiction of states, which are often paralyzed to act due to either economic competition or a lack of resources.

This Note argues that the federal government must step in to overcome the collective action problem and realign market incentives. It proposes a program focused on improving water efficiency, paying farmers not to plant harmful crops, and allowing farmers to exit the market entirely. Particularly, the Department of the Interior’s Bureau of Reclamation has rulemaking authority to implement necessary programs to counteract harmful incentives in the region. Other agencies, like the Department of Agriculture, can bolster this approach. Effectively, the end result would be a market that promotes conservation as an economically beneficial and rational decision for every farmer.

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In 1890, John Wesley Powell presented a map of the American West to the Senate Select Committee on Irrigation and Reclamation of Arid Lands. 1 John F. Ross, The Visionary John Wesley Powell Had a Plan for Developing the West, But Nobody Listened, Smithsonian Mag. (July 3, 2018), [] [hereinafter Ross, Plan for the West]. The map was visually enthralling. 2 See id. (discussing Powell’s 1890 map, which “offered a radical new vision of the American West centered on watersheds rather than on traditional political boundaries”). It was a culmination of all the knowledge he had gained from a three-month expedition to explore the Colorado River. 3 See John Wesley Powell, Exploration of the Colorado River of the West and Its Tributaries, at ix–xi (1875), [] (discussing the summer he spent developing “a survey embracing the geography, geology, ethnography, and natural history” of Colorado). The map divided the region based on watersheds, each of which represented a different state. 4 Ross, Plan for the West, supra note 1. Powell argued that the federal government needed to control the water supply, keep water within watersheds, 5 A watershed is defined as “an area of land that drains rainfall and snowmelt into streams and rivers.” Watershed, Nat’l Geographic, [] (last updated Oct. 19, 2023); see also What Is a Watershed?, Nat’l Ocean Serv., [] (last updated Jan. 20, 2023). legally tie water to the land within which it flowed, and create mechanisms for monitoring meteorological and ecological developments. Already wary of settlement in a harsh region, Powell felt these steps were necessary to avoid “environmental ruin and mass human suffering” from land development. 6 John F. Ross, How the West Was Lost, The Atlantic (Sept. 10, 2018), (on file with the Columbia Law Review); see also Abrahm Lustgarten & Naveena Sadasivam, Holy Crop: How Federal Dollars Are Financing the Water Crisis in the West, ProPublica (May 27, 2015), []. Powell’s view on the limited viability of settlement in the West was not new. As early as 1819, the West had been described as a “Great Desert” and “wholly unfit for cultivation.” 7 Stephen Long, who was dispatched to explore the West by President James Monroe, labeled his report on the region “Great Desert.” Richard H. Dillon, Stephen Long’s Great American Desert, 111 Proc. Am. Phil. Soc’y 93, 95, 102 (1967).

Fast forward 150 years since Powell’s expedition, and his fears have materialized. The Colorado River Basin has not only been in a drought for twenty-three years but, from 2002 through 2021, saw the driest period recorded in more than one hundred years. 8 Colorado River Drought Conditions and Response Measures: Hearing Before the Subcomm. on Water, Oceans, and Wildlife of the H. Comm. on Nat. Res., 117th Cong. 7–12 (2021) (statement of Tanya Trujillo, Assistant Sec’y for Water and Sci., Dep’t of the Interior) [hereinafter Colorado River Drought Conditions]. In 2021, the federal government announced water shortages, requiring unprecedented water cuts in both Arizona and Nevada. 9 Joshua Partlow & Karin Brulliard, U.S. Announces More Water Cuts as Colorado River Hits Dire Lows, Wash. Post (Aug. 16, 2022), (on file with the Columbia Law Review). The various reservoirs throughout the basin, responsible mainly for water storage and hydropower generation, have gone from being ninety-five percent full in 2000 to a record low of thirty-nine percent in 2021. 10 Id. Climate conditions are only expected to worsen, and states in the basin have “no plan” for how to cut water use in the region. 11 Rachel Estabrook & Michael Elizabeth Sakas, The Colorado River Is Drying Up—But Basin States Have ‘No Plan’ on How to Cut Water Use, CPR News (Sept. 17, 2022), [] (quoting J.B. Hamby, Vice President of the Board of Directors, Imperial Irrigation District). If drought conditions continue, parts of the region will likely run dry within forty to fifty years. 12 Id.; Abrahm Lustgarten, As Colorado River Dries, the U.S. Teeters on the Brink of Larger Water Crisis, ProPublica (Aug. 25, 2022), [] [hereinafter Lustgarten, As Colorado River Dries]. Currently, forty million people rely on the Colorado River Basin for water, a number that is expected to grow. 13 Estabrook & Sakas, supra note 11; Lustgarten, As Colorado River Dries, supra note 12. Residents in many cities are subjected to conservation measures, including restrictions on grass lawns, and some farmers have been forced to leave their fields fallow. 14 See Gabrielle Canon & Richard Luscombe, US Issues Western Water Cuts as Drought Leaves Colorado River Near ‘Tipping Point’, The Guardian (Aug. 16, 2022), [].

Figure 1. John Wesley Powell’s Proposal to the Senate 15 Ross, Plan for the West, supra note 1.

This is the new reality for the American West. Decades of mismanage­ment and misuse have seen water supplies dwindle. The failure to address water conservation threatens everyone from farmers to the federal government. The Colorado River Compact, which governs interstate water allocations, and state laws have incentivized the overuse of river water. The Compact was an agreement among the several states in the region that allocated more water than actually existed in the Colorado River. 16 See Naveena Sadasivam, Politicians Knew the Inconvenient Truth About the Colorado River 100 Years Ago—And Ignored It, Grist (Dec. 3, 2019), [] (“Eugene Clyde LaRue, a young hydrologist with the U.S. Geological Survey, concluded that the Colorado River’s supplies were ‘not sufficient to irrigate all the irrigable lands lying within the basin.’”). State laws incentivize farmers to use all their water; if they don’t, they will lose access to it to someone else downstream—commonly known as “use it or lose it” laws. 17 See Abrahm Lustgarten, Use It or Lose It Laws Worsen Western U.S. Water Woes, Sci. Am. (June 9, 2015), [] [hereinafter Lustgarten, Use It or Lose It] (“‘Use it or lose it’ clauses, as they are known, are common in state laws throughout the Colorado River basin and give the farmers, ranchers and governments holding water rights a powerful incentive to use more water than they need.”). Federal subsidies incentivize growing water-intensive crops, like cotton, by providing insurance that covers farmers’ costs during bad harvests. 18 Lustgarten & Sadasivam, supra note 6. For farmers as market players wanting to take every advantage available, conserving water is an irrational decision. 19 See Understanding the Economic Crisis Family Farms Are Facing, Farm Aid (Sept. 14, 2020), [] (describing the historical and contemporary context for the economic struggles that family farms are facing). Farmers have no incentive to conserve water in the Colorado River Basin, and their use is unsustainable.

Current literature posits that water markets are the solution to address the water crisis in the American West. 20 See Jonathan H. Adler, Water Rights, Markets, and Changing Ecological Conditions, 42 Env’t L. 93, 102 (2012) (“Insofar as water rights are currently allocated to comparatively inefficient uses, water markets can help reallocate water to where there is greater need.”). These markets, akin to cap-and-trade markets for pollution, would price water based on its availability, allowing individuals to trade based on their needs while other market players opt to invest in less water-wasting methods. 21 See id. In theory, this system would result in water’s price accurately reflecting its scarcity and removing the market to a more efficient water allocation. 22 Id. But such discussions fail to consider the general economics facing farmers. Farmers, often cash-strapped and subsidy-dependent, would likely be immediately priced out by municipalities and cash-rich industries—essentially hung out to dry, threatening a vital industry in one fell swoop.

To address this issue, this Note advocates for government intervention that focuses on facilitating private market transactions that offer financial benefits to act as a counterweight to pernicious incentives. To provide a financially beneficial alternative, this Note outlines the informational and resource gaps that prevent farms, the largest consumers of water, from being able to efficiently use water. Agriculture is responsible for up to eighty percent of water usage in the Colorado River Basin, and most water used in agriculture is wasted by low-tech irrigation techniques. 23 Alex Hager, As the Colorado River Shrinks, Can New Technology Save Water on Farms? The Answer Is Complicated, KUNC (Jan. 11, 2022), []; see also Lustgarten & Sadasivam, supra note 6. To combat these inefficiencies as water supplies dwindle, the federal government would need to reduce transaction costs, which would allow parties to contract for implementing water-conserving practices. This would allow for a marketplace in which farmers have a financial incentive through the possibility of receiving either (1) funding to implement highly efficient irrigation methods or (2) market rates for fallowing their fields. These incentives would result in environmentally beneficial outcomes including the decrease in agricultural water usage and preservation of water for growing urban areas.

This Note proceeds in three parts. Part I discusses the current legal regime governing the allocation of water as well as basic water operations in the Colorado River Basin. Additionally, it outlines important federal policies that shape decisionmaking for many farmers in the region. Part II highlights the effects of the legal regime, including the detrimental incentives on water use for farmers who rely mainly on the Colorado River. Part III provides a solution, suggesting that the Bureau of Reclamation, the primary federal agency in charge of water management, should introduce a market to facilitate market transactions by counteracting negative incentives created by the current legal regime.