Environmental Water Transactions in the Colorado River Basin

December 19, 2018
Leon Szeptycki,  David Pilz,  Rachel O'Connor,  Bea Gordon

The voluntary transfer of water rights (or portions of water rights) to environmental uses, including streamflow and wetlands, is an effective way to restore aquatic species and ecosystems in some western states. Although state laws require a review of any changes to a water right and the legal frameworks in western states vary considerably, environmental water transactions are on the rise.  A new report, Environmental Water Transactions in the Colorado River Basin: A Closer Look, takes a detailed look at these transactions in five states in the Colorado River Basin: Arizona, Colorado, New Mexico, Utah and Wyoming. It shows that irrigators and conservation groups are increasingly using short term deals that require no water right change by the state. These flexible approaches allow irrigators to make temporary deals that promote their bottom line and water security without permanently giving up their water rights. This report builds on a previous report in this series, Colorado River Basin Environmental Water Transfer Scorecard, which showed that Basin states lag behind some other western states in laws that facilitate formal changes of water rights to environmental uses.

This report series was undertaken by Stanford’s Water in the West program in collaboration with AMP Insights and other experts and was funded by the Walton Family Foundation.

Read New Report: Environmental Water Transactions in the Colorado River Basin: A Closer Look (PDF)

The Colorado River and its tributaries support more than 35 million people and irrigate more than four million acres of farmland. At the same time, the river supports 30 fish species found nowhere else on earth and inspires millions of visitors and residents alike with its natural beauty. However, growing water scarcity caused by increased water use, hydrologic variability, and climate change loom over the basin.

Historically, dams, large-scale irrigation developments, and canals all combined to fuel agricultural production and urban growth. The current challenges facing the Colorado River Basin, however, cannot be overcome simply by more infrastructure. Indeed, no one solution will provide for a sustainable water future. Potential gains from increasing water use efficiency, while significant, will not provide the entire answer. Nor will expensive technological solutions like desalination and water reuse. Most scientists predict long-term declines in water availability, and potentially more severe droughts. Facing these challenges, the Colorado Basin states must find flexible, fair ways to reallocate water supplies between uses, particularly during times of shortage.

Environmental Water Transactions

As the Colorado Basin’s water resources were developed, instream uses – water for fish and wildlife, recreation, water quality, and scenic beauty – were not legally protected. In the basin, as in many parts of the West, environmental protection laws were developed after much of the infrastructure was in place and the water allocated. The imposition of these laws has helped protect aquatic ecosystems, but they have also produced conflict where they have run up against well-established water uses and water systems.

Environmental water transactions, especially as part of broader water markets, potentially provide a flexible, voluntary way of allocating water for the environment, and an avenue to reallocate water while benefiting water rights holders. Environmental water transactions can include any arrangement whereby an irrigator or other water user reduces their water use in order to leave water instream to benefit the environment and potentially other objectives (such as water security or downstream water supply).  They can be very informal, such as agreeing not to irrigate for a short period of time, or they can involve formal changes to water rights. These transactions, and better functioning water markets, can serve multiple objectives and make water supply more flexible and secure for cities and farms. Transferring water to streamflows upstream, for example, can provide more reliable inflows for reservoirs downstream. Funding from environmental water lessors and buyers can provide supplementary income for irrigators.

San Juan River, NM - Credit: Tye Redhouse

San Juan River, NM    Photo Credit: Tye Redhouse

Environmental Water Transactions in the Colorado River Basin: A Closer Look

Report Summary 


Over the last 30 years, the voluntary transfer of water and water rights for environmental uses has become a recognized strategy for restoring streamflow in the Western United States. Historically, taking water out of a stream was part of the essence of a legally protected appropriative water right. Water rights holders who left all or a portion of their right instream risked forfeiture or diminishment of their water right. Beginning in the 1980’s, state laws began to change to allow the transfer and amendment of existing appropriative rights for environmental uses like aquatic habitat and recreation. 

Since these changes have been put in place, streamflow restoration has evolved significantly with the development of additional tools and methods to achieve restoration goals, and irrigators, conservation groups and state agencies are using a wider variety of deal types across the West. In addition, these efforts have increasingly promoted transactions that serve a variety of water supply objectives, including streamflow.  An important issue is to continually assess which types of transactions are working well, and how to design policies to promote those transactions.

This report is intended to contribute to that ongoing assessment by taking a closer look at recent environmental transfer activity in each the five states making up the vast majority of the Colorado River watershed (Arizona, Colorado, New Mexico, Utah, and Wyoming) and details the total number of environmental water transactions in each of these states between 2014 and 2018.

Read News Release

Map of all water transactions in the Colorado River Basin (excluding Nevada and California) from 2014-2018.

Key Conclusions

The report points to several key conclusions. First and foremost, transaction activity in the period between 2014 and 2018 was driven in part by the availability of consistent funding.  Part of the growth in transactions was driven by funding from a program designed promote water demand management for water security (the System Pilot Conservation Program).  Most of these transactions had the added benefit of improving streamflow, and they are thus included in the count of environmental transactions.  Long-term demand management efforts, whether for streamflow, water security, or (most likely) multiple objectives, need more stable funding and institutional mechanisms. Secondly, the role of NGOs has been critical in promoting environmental water transactions. NGO staff have worked on the ground to forge relationships with farmers, ranchers and water managers, and to identify transactions that work best for irrigators. Continuing the growth in these deals will require funding for this important role. Finally, the basin states would continue to benefit from policy advancements and clarification, even to help dispel concerns about forfeiture and consumptive use reductions associated with short term fallowing and infrastructure upgrades. 


Colorado River Basin Environmental Water Transfer Scorecard

By Leon Szeptycki, David Pilz


Environmental water rights transfers are a subset of environmental water transactions.  These types of deals tend to be of longer duration than less formal deals, and also provide for legal protection for the water left instream. A water right transfer for the benefit of streamflow, in most states, results in legal protection for the water instream with the same priority date at the original water right.  State laws require a agency or court review of any changes to a water right, and the legal frameworks in western states for these more formal arrangements vary considerably. As a result, the legal scope of environmental water rights transfers substantially differs from state to state, as does the burden of getting those transfers legally approved. The Environmental Water Transfer Scorecard uses a framework based on existing research to assess the laws and policies of each Colorado River Basin state related to environmental water rights transfers, and in particular, the extent to which their laws and policies facilitate such transactions.

All transfers of water rights, whether between irrigators, from agricultural to urban use, or from human use to the environment, are governed by separate laws and regulations in each state, and most such transfers must be approved by a state agency or water court. The functioning of water markets is in part determined by these laws and regulations and the level of effort required in the approval process. The laws and policies of western states vary considerably with respect to the approval of environmental water transfers. States have also seen different levels in terms of the uptake of water markets and the use of voluntary dedications of water to the environment.

In general, states in the Colorado Basin have not implemented or approved as many environmental transfers as states in the Pacific Northwest, particularly Oregon and Washington. This is due to several factors, including the availability of funding for environmental transfers. State laws and policies, however, establish the basic enabling conditions for transfers, and laws in the Colorado Basin are, in many states, not as evolved as some other western states.

Read Scorecard Methodology (PDF)

Read News Release

Scoring the Colorado Basin States


The researchers developed a framework for analyzing and scoring each state’s laws and policies and assigned a score based on four issues that were roundly considered of high importance among scholars, lawyers and other policy experts:

  1. Clear Legal Authorization: Does the state have explicit legislation or other sources of law authorizing creation of environmental water rights?
  2. Protection of Environmental Water Rights: Are environmental water rights afforded protection from interference by other water uses in the same way as traditional, out of stream water rights such as irrigation rights?  
  3. Scope of Environmental Water Rights: In creating and protecting environmental water rights, does the state treat instream water rights the same as all other types of water rights?
  4. Process for Creating Environmental Water Rights: What is the process for approving environmental water rights, and are there streamlined procedures for short-term transfers?

A maximum score of 160 (40 points for each issue) was possible. The scoring framework was applied to the Colorado Basin states of: Arizona, California, Colorado, Nevada, New Mexico, Utah, and Wyoming. The methodology was also applied to Oregon, as it is useful to compare the current legal and policy landscape in the Colorado Basin to a state outside the region with an established history of environmental water transactions.

Scoring Explanations for Each State (PDF)

Scores and Key Points for Policymakers


An active environmental water market requires not only supporting laws and policies, but also funding, agency staff who have the resources to pursue and approve environmental water deals, and water rights holders who are willing to transfer water to the environment. Through our analysis, it is evident that the effective enabling conditions do not exist in the legal systems of most of the Colorado Basin states. Specifically, our analysis found:

  • Colorado (Ranking: 1) and California (Ranking: 2) are the only states with relatively robust and explicit frameworks for authorizing and approving a range of environmental water transfers. The remaining states all have major gaps in their water transfer schemes that make instream water rights transfers either difficult or uncertain;   
  • Nevada (Ranking: 4) is the only state in this group that has seen more than a handful of environmental transfers and most of those are a result of the framework created by the settlement of the Truckee/Carson water rights settlement;
  • Arizona (Ranking: 7) ranked lowest based in large part to a statutory framework that is not well developed and surface water rights that are not well-defined. 
  • In every basin state, conservation organizations and state agencies are working to restore stream flows and reaching voluntary deals with irrigators to do so.


It is clear through our analysis that best-practices for encouraging environmental water transfers includes strong and clearly defined statutory language which also provides flexibility for water rights holders. Other examples include, state funding backing the improvement of environmental flows such as in California and strong enforcement policies such as in Colorado. In many respects, the states in the Colorado Basin are poised to follow the lead of states in the Columbia Basin. States like Oregon, Washington, and Montana did not pass complete and robust legal frameworks for environmental water transactions in one statue. Rather, these states built up their laws and water transfer “toolkits” one step at a time. Each of the Colorado Basin states is making progress on this same path.

Flaming Gorge, WY - Credit: Chad Teer

Flaming Gorge, WY    Photo Credit: Chad Teer