Dollars for Drops: Abatement Cost of Water for Irrigation in the Colorado River Basin

The Colorado River is a lifeline for more than 40 million people in the western United States. However, with climate change diminishing snowpacks in the Rocky Mountains and increasing demands from agriculture and urban areas, the river's flow has become insufficient to meet all the competing needs. A wide range of policies and programs are being proposed and considered to reduce the use of river water. Most of these policies compensate water users who engage in water‐saving practices. Agriculture, which consumes over 85% of the river's water, is a primary target of these conservation policies. In this paper, we use operation‐level data to estimate producers' revealed preferences regarding crop choices and irrigated acreage. We then use these estimated preferences to investigate the cost of reducing water use in irrigated agriculture across the basin states. We find a total abatement cost of $275 million for reducing the first million acre‐feet of water. Our results also indicate significant regional differences in the cost of abating irrigation water use between the Upper and Lower Basins, with the Lower Basin states exhibiting lower marginal abatement costs compared to the Upper Basin. These findings could guide the design of future policies and programs aimed at reducing water use in the Colorado River Basin, particularly as current guidelines for the river's water management are due to expire in 2026.