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Press Release · July 2, 2003

Wave of the Future? Overcoming Obstacles to California’s Water Market

Buying and selling water rights may not be a familiar concept to many state residents, but this market could help alleviate chronic water shortages in California’s future, according to a study released today by the Public Policy Institute of California (PPIC). Before this can happen, however, the state’s water market – where water owners transfer their water rights to buyers willing to pay for them – must overcome strong resistance from local communities.

The report, Who Should Be Allowed to Sell Water in California? Third-Party Issues and the Water Market, draws on a new database derived from federal, state, and local sources, as well as interviews with state, county, and water-district officials. Author and PPIC research fellow Ellen Hanak finds that in 2001, sales of water rights accounted for 3 percent of all water use in the state – up from about 0.25 percent in 1985. “Water marketing is a small element of water use today,” says Hanak. “But it could be the wave of the future.” Indeed, the report finds that combined with conservation efforts, a flexible water market could make better use of existing supplies by allowing water to be transferred temporarily or permanently to those who need it – agricultural, environmental, and urban users – addressing short- and long-term needs.

Despite the potential benefits, the path to market is lined with obstacles – many originating from rural areas that control the majority of water rights. Residents and businesses in these communities fear a decline in the quantity and quality of water available for local purposes and damage to the local economy and job market, especially if selling water results in the idling of cropland. These concerns have had consequences: By 2002, 22 of the state’s 58 counties had passed ordinances restricting water sales, with rural counties being the most likely to impose such laws. The analysis concludes that market restrictions have lowered total sales in the state by 14 percent.

“Rural farming areas have understandable reservations, so the key policy issue on the table right now is addressing the effects water sales might have on these communities,” says Hanak. The study recommends against immediate legislative action and suggests, instead, better local management of groundwater basins and careful evaluation of current crop-idling programs, where the involved parties have independently adopted measures to limit negative effects and have set up funds to benefit affected communities. If successful, these programs could become models for future efforts, according to Hanak.

For more information, please call Victoria Pike Bond at 415/291-4412 or Abby Cook at 415/291-4436.

The Public Policy Institute of California is a private, nonprofit organization dedicated to improving public policy in California through independent, objective, nonpartisan research on major economic, social, and political issues. The institute was established in 1994 with an endowment from William R. Hewlett.