Fig. 2: Upper Colorado River basin environmental water market model diagram.

Our environmental water market model integrates simulation of water use, water rights, economics and environmental flows. Water use for farmers, cities and industrial water users under future drought conditions is allocated based on available supply and the priority of users’ water rights. Water leased and reallocated to environmental flows is linked to specific water rights. The model’s economic component estimates costs to temporarily lease water, including costs to buy water and costs to secure legal approval for water transactions. Fish habitat benefits of water transactions are evaluated by tracking restored flows through a river flow and reservoir network and then applying flow alteration–ecological response statistical relationships. We use the model to identify water market portfolios that minimize the total cost to either (1) reduce water consumption or (2) reduce water consumption and strategically restore fish habitat. We then perform these analyses with different degrees of water-user participation, targets for reducing water consumption and types of available water transactions. We simulate both ‘protected water transactions’ that protect environmental flows against diversion by other users with the legal priority of the leased water rights and ‘unprotected water transactions’ that lack these protections. Icons adapted from the Noun Project.