Negotiators for the seven states along the Colorado River Basin have had two years to reach an agreement on how to manage the river, which is at dangerously low water levels. They came up with zilch.

That left solving the crisis in the hands of the U.S. Bureau of Reclamation, which has been without an executive director since President Donald Trump took office in 2025. So that left negotiations to U.S. Interior Secretary Doug Burgum, who has met with the governors of all seven states but has also come up empty-handed, according to our lead reporter on water issues, Marianne Goodland.

Last month, the Interior Department announced its own plan, which drew criticism from just about everyone involved in the negotiations, Goodland reported.

If state governments and the federal government can’t figure this out, maybe it’s time to let the open market give it a try.

The Bureau of Reclamation seems to be thinking just that. They recently signed an agreement with major water agencies in the three Lower Basin states of Arizona, Nevada and California that opens the door to building a water marketplace across the West.

The memo of understanding says the agencies will explore an interstate exchange network that would allow localities that get some of their water by other means, such as desalinated seawater or recycled water, to trade their unused Colorado River water entitlement with other states for a price. Water recycling is the process of cleaning used wastewater, stormwater or graywater so it can be put back to use.

Such a market would incentivize cities to invest in creating new ways of supplying water to their residents while reducing demands on the river. And it would leave the historic 1922 Colorado River Compact allocations and individual state water rights untouched.

If implemented, this would be the first mechanism to facilitate movement of desalinated or purified water within the seven-state Basin, the bureau said.

Let’s say San Diego uses an efficient desalination plant to reduce its reliance on the Colorado River, leaving some of its river share in the system. Other Basin agencies could then pay to access that water. San Diego water officials cited the Carlsbad Desalination Plant as the perfect model. The biggest desalination plant in the country, it already produces up to 54 million gallons of water a day.

Such a marketplace is doing two things: rewarding those who invest in new sources of water like San Diego, while leaving the allotments in the river pact unchanged. If farmers conserve water through more efficient irrigation equipment or line irrigation ditches to reduce seepage, they could make money by selling their allotment back to other farmers in other states. Such a marketplace could allow cities to invest billions in water recycling, conservation efforts and desalination facilities and integrate those into Colorado River Basin operations. It would reward innovation that “makes” more water available, rather than trying to re-slice a shrinking pie.

“Markets accelerate progress faster than centralized systems because they reward ingenuity and create incentives to scale successful ideas,” Jim Madaffer, vice chair of the Colorado River Board of California, wrote recently in The Washington Post. “Water policy should embrace these principles. By competing to create abundance instead of asking who deserves more water, the Lower Basin will solve its supply problem the way the U.S. has overcome so many great challenges — through innovation and competition.”

Another benefit of this concept is that it would essentially allow agencies to “move” water on paper using existing infrastructure, enabling transfers or exchanges without constructing costly new pipelines or conveyance systems, according to a press release from the Bureau of Reclamation.

The system as it stands simply doesn’t work anymore because two decades of drought have dramatically reduced the amount of water reaching the river, but demand by 40 million people who depend on that water has not fallen a bit. Goodland reported that Lake Mead and Lake Powell are at their lowest levels ever, and the whole river system is at 34%-35% of its total capacity right now.

So what we really need is more sources of water. And you know what, innovation is something that America is particularly good at. Let’s invent our way out of this mess, as we have done so many times before.

“The Colorado River’s future depends on collaborative planning and effective implementation, said Acting Commissioner Scott Cameron said in the release. “No single state, agency or sector can solve these challenges alone. This agreement on desalination and water recycling lays groundwork for what could become a major leap forward in the shared responsibility we all carry to protect this river.”