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waterDrought-stricken California is taking unprecedented measures to address its water challenges.

In April, the governor issued the first mandatory statewide water use restrictions in California history, after snowpack in the Sierra Nevada Mountains—which provide 60 percent of the state’s water—fell to the lowest levels ever recorded. San Diego County is building the largest seawater desalination plant in the Western hemisphere, while Orange County plans to turn more wastewater into drinking water. The solutions are significant because the drought has been exceptionally severe. It currently affects over 99 percent of the state and approximately 37 million people. In 2014, the state agriculture industry lost roughly $2.2 billion to drought, and some California communities even ran out of water.

One solution California may consider is whether more efficient, user-friendly water markets would help water users adapt more quickly to drought conditions, and better cope with long-term water scarcity stemming from climate change and increased water demand. California has active water markets, but buying and selling water (and water rights) there is not as simple as in Australia, where it is said to be “almost as easy to sell water from your water bank account as it is to transfer money from a normal bank account.” The Australian model could be useful for California because Australia recently emerged from a decade-long drought, during which it pioneered water policies that attracted interest from water-scarce countries around the world. Why is water trading easier in Australia? One reason is that Australia’s water rights system has been made relatively simple and predictable. It is designed so that rights holders can generally expect to receive a certain percentage of their water every year, based on the type of water right they hold. This makes water rights’ value easier to determine; the water rights transfer process is also less onerous.

California’s system is notoriously complex. Many rights holders face yearly uncertainty about whether they will receive any water. Multiple types of water rights exist in California. Two of the most common—appropriative and riparian rights—have a long history of conflict, as they are based on incompatible legal standards. Appropriative water rights are ranked by seniority—users with the oldest water rights receive their entire water allocation first, while users with more recently granted rights may receive a fraction of their water, or none at all. Californians who own property adjacent to waterways, on the other hand, benefit from the riparian rights system, which was originally developed for rainy England, not dry California. They can withdraw as much water as they like, provided that they meet standards of “reasonable” use—while appropriative rights holders are only entitled to specified volumes of water. Australia mostly ended riparian rights.

Riparian rights are not tradable, since they are inherently linked to property. Even if they were, trading would be difficult, since the amount of water to which riparians are entitled isn’t quantified. California courts have generally ruled that riparian rights are superior to appropriative rights. This creates even more uncertainty about the economic value of junior appropriative rights—because when water is scarce, both riparian and senior appropriative rights holders receive water before junior rights holders, and riparians are not limited to using quantified amounts of water. Additionally, Californians wishing to buy or sell water rights must apply to the state to make the transfer. This helps ensure that buyers put the water to “beneficial use,” as required by state law, and meet environmental standards. This is important because overdrawn water resources can become saline or otherwise degraded, ruining farmland and causing other problems. However, the process can also be slow, preventing users from quickly adapting to changing conditions.

What Water Markets Cannot Do

Water markets are not a stand-alone solution to California’s crisis—there are some problems water markets cannot solve, and so state leaders will need to develop other policies for these challenges.

Supply is one such issue—trading doesn’t create new water supplies. If total water supplies are insufficient to meet users’ needs, then Californians will need to conserve water, install more water-efficient technology, and increase available water supplies (via desalination, wastewater recycling, or reservoir construction) to address the shortfall. However, markets could encourage water rights holders to use water more efficiently, so they can sell the excess. Also, water markets may not work for communities that cannot afford to pay their way out of a crisis—such as East Porterville, a rural community that ran out of water. Other policies are needed to ensure all Californians have enough water to meet their basic needs.

Prospects for Reform

For now, California water rights reform seems like a political long shot; the state’s natural resources secretary has called the prospect of reform “thermonuclear.” Those who benefit from the water rights system reap tremendous profits during droughts—in some counties, water sold for as much as $2,200 per acre-foot last year. Still, California is increasingly adopting policies that were not on the table previously—from so-called “toilet-to-tap” water to mandatory statewide water restrictions. It’s unlikely that California would restructure its water rights system to mirror Australia’s system—but it’s possible the state would convert riparian rights into appropriative rights, as occurred in Texas in 1967. Political opposition to reforming California’s water rights system will be intense, but if the state’s water problems worsen, Californians may consider reform.

A European Connection

Although Europe is generally considered a water-secure region, water scarcity and droughts are becoming a bigger problem for EU countries. Spain, in particular, is at risk for water shortages—during a 2008 drought, when Barcelona’s water supplies ran low, emergency water had to be delivered to the city via ship. Even water-rich countries, like Germany, may be economically impacted in negative ways by global water scarcity, as imports from water-scarce countries often decline during droughts. Water markets in Europe are considered underdeveloped. Spain’s water markets have been compared to those in California, as water trading is allowed but highly restricted. Water trading spiked during Spain’s 2008 drought, but essentially collapsed afterwards. Researchers have said that Spain, like California, will need to reform its water rights system if water trades are to increase. The Australian model may be worth considering in both places, if lawmakers decide to make water markets a more prominent mechanism for responding to drought.




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