Tapping Water Markets in California: Six Policy Reforms

Water is a scarce and contentious resource in California. The prolonged drought still gripping the state has revealed just how important water is to the state’s economy and its environment. The drought has also revealed how California’s water laws and regulatory procedures can discourage conservation and limit flexibility.

Media coverage of the drought has portrayed water scarcity as a new and temporary phenomenon in California. It is not. For decades, water supplies have been insufficient to satisfy all of California’s growing demands. With the state’s population projected to increase from 38 million today to 44 million by 2030, water scarcity will remain a fact of life in California regardless of short term precipitation. The question is: How can California allocate water in the most economically productive and environmentally sensitive way?

This report offers an answer: water markets. Markets allow competing water users to cooperate rather than fight over scarce water resources. By encouraging water conservation and facilitating trades, California can alleviate the economic and environmental effects of water scarcity, in both the short term and the long term.

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