The Colorado River Agreement changes the price of water in the West forever

In summary

For the first time in this drought-stricken century, a new price for water was set under the new Colorado River Covenant. This deal is the beginning of the end of agriculture as we know it in the West.

Guest comment written by

Grayson Zulauf

Grayson Zulauf

Grayson Zulauf is the chief executive officer of Resonant Link. He holds a PhD in electrical engineering from Stanford University and is a Forbes 30 Under 30 energy honoree.

For the first time in this drought-stricken century, a new price has been set for water in the West, 25 times higher than what farmers have paid in the past 75 years.

Arizona, Nevada and California recently agreed to reduce Colorado River water use by 13 percent by 2026. The federal government will pay their irrigation districts, Native American tribes and cities $521 for every acre-foot of water they don’t use.

This deal is the beginning of the end of agriculture as we know it in the West, but not just agriculture. For every drop of water used, industries—from farms and ranches to data centers, from power plants to ski resorts and golf courses—must determine whether it’s better to use the water or not.

And the price for using it will only go up.

Some businesses will become more water efficient. Some will move. Some will close.

What was the price of water, anyway? It depends on both the source and the use. If the water comes from a river or lake, it is zero. If the water comes from an aquifer in the ground, that’s the cost of pumping the water. And despite the massive infrastructure required, water delivered from reservoirs behind large dams (as promised by the Federal Bureau of Reclamation) has historically cost farmers no more than $20 per acre-foot, which is enough to cover an entire acre. one foot deep.

This water costs significantly more to deliver, with the difference subsidized by federal taxpayers. For example, in the Imperial Water District, the destination of 80% of all Colorado River water supplied to California, irrigation water costs farmers $20 per acre-foot even if the water is stored (in Lake Mead, behind the Hoover Dam) and transported (via the All-American Canal) by federal taxpayer-funded mega-projects.

In the Westlands Water District in central California, taxpayers subsidize farms at $2,200 per acre. For California farmers receiving water from the Central Valley Project, taxpayers contribute $416 million annually.

With the water price signal now raised to $521 per acre-foot, the bills for water users will change, starting with agriculture. Food generates more than $50 billion annually in the lower Colorado River Basin states, and the industry builds on the $20 water foundation promised by the Bureau of Reclamation.

With this new agreement, any use of water must exceed the amount of non-use.

Take the most grown crop in the Colorado River Basin: alfalfa. This herb is exported around the world and fed to livestock, mainly cows. Alfalfa sells for $230 per ton in California. With 3 acres of water, one acre of alfalfa will produce about 6 tons of produce. So, at $20 per acre foot of water, a farmer would spend $60 on water for $1,380 on alfalfa, leaving a lot of money for labor, equipment, and profits. At $521 per acre foot of water, the farmer pays $3,126 in water alone for the same $1,380 in alfalfa, losing over $1,700 per acre.

Conversely, the farmer could earn $3,126 from the federal government to grow nothing and avoid water consumption altogether.

The math for most other crops isn’t much better.

While the deal only runs through 2026, water price signals are here to stay. And the price of water or the value of avoided water consumption will only increase. Due to global warming, the Colorado River’s flows will shrink in half by 2100, making current cuts seem nearly painless.

Carbon credits set the price for carbon dioxide emissions, with the avoided emission of one ton of carbon dioxide getting a fixed, reliable price. Over the past decade, as this price has begun to come into focus, carbon-intensive industries have reviewed their operations, analyzing whether their products or services would remain profitable if they paid the market price for emissions.

The price of a water credit is now fixed, with the avoided use of one foot per acre of water worth $521. Similarly, over the next decade, water-intensive industries will reassess the water liability of their businesses. For each water use, they will have to consider what will happen if the price of water doubles, triples or exceeds. For every drop of water used, they will have to evaluate whether it is worth using.

The reckoning is here and the West will never be the same.

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