Water is an Issue, But Not Because of Data Centers or AI

The near-hysteria about water consumption needs to be kept in proper perspective. In the water-short American West, including the Colorado River watershed, water is always an issue. 

In terms of water access, the United States is effectively divided by the historic 100th meridian, which runs roughly through Texas, Oklahoma, Kansas, Nebraska, and the Dakotas. East of that line, rainfall is generally sufficient to support agriculture without irrigation. West of it, irrigation is necessary.

Region	Typical Annual Precipitation
Pacific Northwest mountains	60–150+ inches
Eastern U.S. (most areas)	30–60 inches
Midwest	25–45 inches
Great Plains	15–35 inches
Intermountain West (Nevada, Utah, Wyoming interior, western Colorado)	5–20 inches
Desert Southwest	3–15 inches

But precipitation alone does not illustrate the issue as well as water runoff, which is the amount of liquid that remains available for use after evaporation and plant transpiration. In much of the Intermountain West and Great Plains, most precipitation evaporates or is consumed by vegetation before reaching streams.

Region	Typical Annual Runoff
Appalachian region	15–40+ inches
Upper Midwest	5–15 inches
Great Plains	0.5–5 inches
Intermountain West basins	Less than 1–3 inches
Desert Southwest	Often less than 0.5 inch

Relative to demand, west of the 100th meridian, water is always going to be an issue. 

Region	Water Supply Relative to Demand
Northeast	Large surplus
Southeast	Large surplus
Great Lakes	Very large surplus
High Plains	Small surplus
Southwest	Deficit
Colorado River Basin	Deficit

So it might be inevitable that water footprint becomes an issue for data centers, even if relative water consumption is quite low. Of course, a total water footprint would include the cost of generating electricity. 

Still, industry uses relatively little water, compared to other sectors of the economy. 

source: Axios 

But an argument can be made that the easiest gains might come from increasing agriculture efficiency where it comes to water consumption. 

And even if controversial, the easiest market encouragement might include shifting our subsidies for agricultural water pricing, as difficult as that will be for many farmers always on the brink of survival. 

As always, rights and values are in tension. Most people might say they believe in supporting family farms, just as much as they might say they value water conservation. But the numbers are clear. Small gains in agriculture will produce more efficiency, faster, than small gains in consumption in other sectors. 

Sector	Share of Water Consumption (Typical Western Basin)
Agriculture	70–80%
Municipal	10–20%
Industry	5–10%

Indeed, water pricing discourages efficiency because the users of 70 percent to 80 percent of the water pay the lowest prices for consumption. Again, values are in conflict. We might value food production and small farms as much as we value drinking water and electricity. 

But there is an order of magnitude difference between agricultural water prices and all urban uses of water. And as with all commodities and goods, low prices encourage consumption; higher prices encourage efficiency. 

Tradable water rights might be a preferred solution, shifting supply towards demand without expropriating or destroying farming. Also, it might make sense to encourage water-intensive agriculture only in regions with lots of water, while discouraging it in regions that are water scarce. 

Again, this will be controversial. 

User Type	Typical Economic Value of Water
Alfalfa irrigation	$50–$300 per acre-foot
Corn irrigation	$100–$500 per acre-foot
Municipal supply	$1,000–$5,000+ per acre-foot
Industrial/high-value uses	Often much higher

In other words, does it make good sense to grow water-intensive rice, almonds or alfalfa in water-scarce regions?

Crop	Acre-Feet per Acre
Wheat	1–2
Corn	2–3
Alfalfa	3–6
Almonds	3–4
Rice	4–5

As if that were not complicated enough, we also must balance protection of wetlands, fisheries, recreation and food sourcing. 

Data center water consumption might be an issue, but a relatively small one, overall. How we use and price use of a scarce resource is really the bigger issue. 

Regulation and Deregulation Both Make Sense, at Different Times in an Industry's Lifecycle

In 1948, the Supreme Court ruled that five studios had monopolized the American film industry. Paramount, Warner Bros., MGM, RKO, and Fox owned the theaters that showed their own movies.

The court ordered them to sell.

For the next 72 years, the Paramount Consent Decrees kept the studios apart.

In August 2020, a federal judge terminated the decrees. The reasoning was that the market had changed beyond recognition.

Streaming had replaced theaters as the primary distribution channel. The studios were no longer dangerous monopolists. They were struggling incumbents.

Six years later, Paramount and Warner Bros. are merging. The deal is worth $111 billion including debt. The Justice Department approved it on June 12, 2026.

Two of the five studios that the Supreme Court forced apart are coming back together voluntarily. Not because they are too powerful, but because they are too weak to survive alone.

It’s a familiar story. Regulation is often designed to solve a specific market structure problem (monopoly power, natural monopoly characteristics, or high barriers to entry). 

Over time, technology, globalization, new business models, and substitute products can eliminate the original source of market power. Regulations that once made sense may then become unnecessary, counterproductive, or even protective of incumbents.

Industry	Original Monopoly Concern	Regulatory Response	What Changed?	Why Regulation Became Less Necessary
Railroads (1880s)	Railroads often held local transportation monopolies	Interstate Commerce Act of 1887 and creation of the ICC	Trucks, highways, pipelines, barges, airlines emerged	Railroads lost their transportation monopoly and faced extensive intermodal competition. The ICC was ultimately abolished in 1996. (PBS)
Airlines (1938–1978)	Fear that airlines would become monopolies and require centralized route and fare control	Civil Aeronautics Board regulated routes, prices, and entry	Industry matured; economists found regulation often restricted competition rather than promoting it	Congress passed the Airline Deregulation Act of 1978, eliminating most economic regulation. (Congress.gov)
Long-distance telephone service	AT&T dominance in national telephony	Rate regulation, entry restrictions, antitrust oversight	Fiber optics, microwave transmission, wireless networks, internet communications	Long-distance became highly competitive and prices collapsed. (Investopedia)
Telephone equipment	AT&T controlled devices connected to the network	FCC restrictions and later interoperability rules	Standardized interfaces and competitive equipment markets	Consumers now freely purchase phones and network devices from many suppliers. (WIRED)
Telegraph	Western Union's dominance	State and federal oversight of messaging services	Telephone, fax, email, messaging apps	Telegraph market essentially disappeared; monopoly concerns vanished with the technology itself.
Trucking (mid-20th century)	Concern about destructive competition and market concentration	ICC regulation of routes and pricing	Improved logistics, highways, nationwide competition	Most economic regulation was removed in the late 1970s and early 1980s. (LegalClarity)
Natural gas transportation	Pipeline monopolies in some regions	Extensive price and transportation regulation	Competitive gas production, spot markets, interstate trading hubs	Many pricing controls were relaxed as markets became more competitive.
Stock trading commissions	Dominant exchanges could maintain fixed commissions	SEC oversight and fixed-rate structures	Electronic trading and competing exchanges	Fixed commissions were abolished in 1975 ("May Day"), leading to intense competition.
Broadcast television	Scarce spectrum created limited competition	FCC ownership and content regulations	Cable TV, satellite TV, streaming services, internet video	The original scarcity rationale weakened substantially.
Local newspapers	Dominant local print monopolies	Special antitrust accommodations and ownership rules	Internet advertising, social media, digital news	Many newspaper monopolies disappeared due to competition from digital substitutes.

In the case of the studios, massive changes in the video and movie business make older restrictions unnecessary. 

Television was an alternative to “going to the movies, and therefore a threat. But studios discovered:

• TV licensing created new revenue

• Old film libraries became valuable assets

• Syndication emerged as a lucrative business. 

The additional changes in distribution (cable TV, home video, streaming) likewise emphasized the role of content ownership and creation for studios, even as new distributors emerged to capture value. 

Era	Largest Value Capture
Theater	Studios + theaters
Broadcast TV	Networks
Cable TV	Cable operators
DVD	Studios
Streaming	Platforms

Among the new issues with streaming is the importance of distribution versus “discovery,” as “scarcity value” migrates. 

Era	Scarce Resource
Theaters	Screens
Broadcast TV	Spectrum
Cable TV	Channel capacity
DVD	Shelf space
Streaming	Consumer attention

Frequently, the substitute products and competitors come from “outside” an industry’s chosen domain. 

Perhaps the classic example is railroads believing they were in the trains business, when they were actually in the transportation business. The substitutes did not come from inside the “railroad” business but from outside. 

Product	Apparent Monopoly	Important Substitute
Railroads	Railroads	Trucks, barges, airlines
Long-distance calls	AT&T	Mobile, VoIP, messaging apps
Broadcast TV	Local stations	Cable, satellite, streaming
Newspapers	Local newspaper	Internet and social media
Taxi medallions	Local taxis	Ride-sharing platforms
Video rental stores	Blockbuster	Streaming services

Each major distribution innovation created new winners, weakened existing gatekeepers, and shifted where revenue accumulated:

• broadcast television

• cable television

• home video

• DVD

• streaming. 

Era	Dominant Distribution	Key Gatekeeper	Main Revenue Source
1920s–1950s	Movie theaters	Theater chains	Ticket sales
1950s–1980s	Broadcast TV	TV networks	Advertising
1980s–2000s	Cable TV	Cable operators	Subscription fees + advertising
1980s–2010s	VHS/DVD	Retailers & studios	Unit sales/rentals
2010s–present	Streaming	Streaming platforms	Subscriptions
Emerging	AI-assisted distribution	Platforms & recommendation engines	Subscription + advertising + commerce

The point is that “where” monopoly danger exists will shift with time. And so must the regulatory concern.  Emerging industries might need one pattern. Declining industries virtually always need another: preventing concentration early; encouraging it in the industry decline phase.