Are lease water markets still emerging in california?

Abstract

Over the past 15 years water markets in California have evolved, but not as fast as expected, and not between the agents who were initially expected to be active in the market. The chapter reviews the disappointing performance of the state-sponsored groundwater bank in the 2009 drought and advances some hypotheses as to why the trades were not larger. The growth in bilateral trades between urban and agricultural regions and the role of environmental constraints on restricting water trades is summarized and discussed. One source of problems for the emerging water market in California is the multiplicity of ways in which opponents can use valid environmental regulations to delay or block water trades until the window of opportunity for spot trades is no longer open. Two recent examples are analyzed. The chapter concludes that water markets are still emerging California, but they are not yet fully emerged or formed. A policy conclusion that results from this review is that excessive environmental caution can provide a mechanism to increase transaction costs of short-term spot trades needed for drought management, to a point at which they are no longer viable. Some suggestions for simpler and more robust institutions that would enable short-term spot trades are suggested, and the recent recognition of the role of markets by water industry stakeholders gives rise to cautious optimism for future water markets in California.