Research

Colorado River: Headwater of Southwestern economy

Imagine if the Colorado River were to dry up for a year. Unless the region had altered its water use, the effect would be would devastating environmentally and economically. A study by the L. William Seidman Research Institute at the W.P. Carey School of Business explores the scenario.

2015-03-03

Wise men have told me, wise women too, that I may find sweet El Dorado, down by the banks of one sweet Colorado

Jimmie Dale Gilmore

Imagine if the Colorado River were to dry up for a year. That would devastate the Southwest environmentally and economically, according to a new study by the L. William Seidman Research Institute at Arizona State University’s W.P. Carey School of Business.

The study, conducted by Timothy James, Anthony Evans, Eva Madly and Cary Kelly, looked at the economic consequences of the loss of the Colorado’s water if the region made no adaptation in its water use. In that scenario, the region would lose $1.4 trillion in economic activity if it had to go without the Colorado’s waters for a year. Put differently, about two-thirds of the Southwest’s gross state product would be lost.

The river’s contribution to the region’s economy is “equivalent to approximately three times the total US retail sales of Walmart in FY 2012,” the report said. “We couldn't inhabit the Southwest, with its large areas of desert, without a big river running through the middle of it,” James said in an interview. “The Colorado River provides more than 50 percent of the water in Arizona. Without the Colorado, we’d struggle to be here.”

The idea of the river disappearing may seem the stuff of science fiction; climate change forecasts don’t assume this will happen. But the far-out supposition has a serious purpose: showing just how critical the Colorado is to the health of the economies of the six states and seven Southern California counties that slurp water from it.

“Over 16 million public and private sector jobs in the Basin Region rely on the availability of Colorado River water each year,” the report said. (The report was sponsored by Protect the Flows, a business coalition that advocates Colorado River conservation.) The river is already nearly tapped out along its lower reaches. “Since 1960, intensive water consumption has dried the lower 100 miles of the river such that it no longer reaches the sea except in years of heavy run-off,” according to the report.

Thus, if the region is to continue to grow as it has over the last several decades, it will have to find ways to economize on water usage or secure other sources, James said. “Where’s the resource going to come from if the population of the region doubles?” he wondered. “People can’t come here if there’s not enough water. And in the southwest people drive growth.”

The ‘American Nile’

The Colorado stretches from the Rockies to the Gulf of California — at least in seasons when there’s enough flow. Over the course of its 1,450 miles, it goosenecks through the Grand Canyon and, on account of the Hoover Dam — one of 15 on the river’s main stem — it gurgles beneath Lake Mead, the largest reservoir in the continental United States. It provides drinking water and hydropower to tens of millions of people and irrigation to countless farms. It waters the fields of California’s Imperial Valley, which produces most of the country’s winter vegetables. National Geographic has called it the “American Nile.”

“The river is also described by the United States Bureau of Reclamation as the ‘lifeblood’ of 22 federally recognized tribes, seven National Wildlife Refuges, four National Recreation Areas and 11 National Parks,” the report said. The Colorado carved not only the Grand Canyon but also cliffs and narrows in Canyonlands National Park. The confluence of the Colorado and the Green Rivers, deep in the heart of Utah’s slickrock desert, is, perhaps, the park’s single most famous feature.

Discussions of the economics of the Colorado often turn to agriculture — and with good reason. Farming consumes about 7.15 million acre feet (MAF) a year of the river’s flow — or just over half of the annual average flow of 13.5 MAF a year. California agriculture alone sucks up nearly half of that — 3.2 MAF a year. But that huge thirst doesn’t produce a commensurate economic benefit, the report found.

If the region’s agricultural sector were to lose the Colorado for a year, the hit to gross state product would be $7.3 billion. Compare that with the losses that would accrue to the real estate industry — $174 billion — and health care and social services—$149 billion. Even mining would see more of its economic activity evaporate: it would lose $17.1 billion in gross state product. “Agriculture uses about 30 to 40 percent of the Colorado’s water, but it’s only worth half of 1 percent of the economic activity,” James said.

The reason isn’t any problem with agriculture per se; it remains a stalwart not only in the Imperial Valley but also in the ranchlands of Colorado, New Mexico and Wyoming. The economy in the seven states has just developed so that other industries just employ many more people and touch many more lives. The report estimated that about 100,000 job years — that is, the equivalent of one person having a full-time job for one year — in the agricultural sector would be lost due to a year without the Colorado.

In contrast, nearly 2 million job years would disappear in health care and social services. “What’s happened over the last 50 years or so is that the countries in the northern hemisphere have drifted more into the services sector,” James said. “In fact, we now have economies stacked in favor of services.”

Biggest users

Although the Colorado’s flows slake the entire region, some states’ economies “drink” more deeply than others. No state depends more heavily on it than Nevada, which sources 79 percent of its municipal and industrial water from the Colorado. Without the river, there might be no Las Vegas Strip or Caesars Palace. Nevada — the driest state in the country — would not be able to support a metro area the size of Las Vegas.

The farmers who rely most on the river are, not surprisingly, in California. The state’s seven southernmost counties, which encompass not only the Imperial Valley but also greater Los Angeles and San Diego, pull 92 percent of their water from the Colorado. Arizona, for its part, counts on the river for a substantial share of both its municipal/industrial and agricultural water — 41 percent and 49 percent, respectively, the report said. Yet those seemingly comparable levels of reliance would translate into much different economic outcomes if the state lost its access to the river’s flows for a year.

Overall, without the Colorado, the state would lose “$185 billion gross state product, over 2.1 million jobs and almost $108 billion labor income,” the report said. That equates to about 60 percent of the state’s annual gross state product. Agriculture would account for only a tiny share of the losses — less than a billion dollars of gross state product and about 11,000 jobs, the report said.

Cheap could turn out to be costly

James stressed that the economic snapshot provided by the report underscores how essential the Colorado is to the economies of the Southwest. But it doesn’t provide guidance for policymakers or consumers, as they face challenges like managing continued urban growth and coping with climate change.

Still, he added that, if policymakers were to ask his advice, he’d encourage them to consider charging consumers more for water, especially the heaviest users. “Residential and municipal water is too cheap,” he said. “I’m originally from Wales and have a house there,” he said. “Cardiff experienced 5 times as much rainfall last year as Phoenix. But water costs about the same in Cardiff as Arizona. That doesn’t make any sense.”

Higher prices would encourage conservation, which would enable the Colorado’s current flows to support more people and growth in the future. Even absent higher prices, consumers should consider being more careful in their usage, he said. “You might not have a job without the Colorado — even service sector companies need water. We can’t emphasize how important a resource the river is."

Economic Development & International Trade Economics