21. The Development of an Efficient Water Market in Northern Colorado, USA

An efficient water market has been established in a large water district in northern Colorado, USA. This is the most active water market in the USA in terms of number of transactions per year. The typical trade is from agriculture where marginal net values lie in the range of US$20– US$50 per acre-foot to towns where willingness-to-pay is closer to US$500 per acre-foot. The water being traded is imported from another basin, a feature that, under western US water law, allows the importer to consume the water completely without concern for downstream impacts. The ownership instruments are homogeneous shares that allow the owner to share proportionally in water available to the District. Transfers of the shares must be within the District and require approval only by the District Board (as opposed to typical State level administration of transfers). These two features result in low transaction costs that stimulate frequent small trades. Since irrigated agriculture consumes 85 % of Colorado’s total supply, typical transactions involve permanent share transfers from agricultural uses to industrial and urban uses but temporary leases for 1 year are frequent, especially among agricultural users. Environmental groups and some towns have increasingly contributed or loaned their shares to instream flow and riparian ecosystem maintenance. Prices of these shares have risen rapidly with high population and commercial growth of the region.