It has become popular to lament how slowly California is embracing water markets. Proponents’ rhetoric can paint markets as an unambiguously better, or even as the only, solution to California’s water challenges. But faith in market efficiency needs to be tempered with a firm grasp of the greater physical and institutional context for water. Markets may be part of the solution, but only where implemented carefully.
Take groundwater. In many areas, decades of unfettered pumping have depleted aquifers, resulting in dry wells, deteriorating water quality, depleted streams, and infrastructure damage. The situation was so dire during the recent drought that the Legislature passed the Sustainable Groundwater Management Act (SGMA), the first statewide mandate for managing groundwater resources.
SGMA opens the door for groundwater markets. It gives local groundwater agencies responsibility for managing priority groundwater basins and an array of tools to work with, including the ability to authorize transfers of groundwater pumping allocations within their jurisdictions. Groundwater markets based on these transfers could help water users adapt to pumping restrictions needed to achieve sustainability.
But markets are not a panacea. They can be remarkable engines for efficiently enabling the reallocation of limited resources, sometimes in ways that benefit society and the environment. However, they can also generate harmful unintended consequences. For groundwater, missteps could reverberate far into the future.