STEVEN SPRINGHORN: Water Trading & the Sustainable Groundwater Management Act

In March of this year, the Secretaries of the Natural Resources Agency, Environmental Protection Agency, and Department of Food and Ag tasked the California Water Commission with initiating a thorough and inclusive public dialogue to frame state considerations around shaping well-managed groundwater trading programs.

At the June meeting of the California Water Commission,  the commissioners heard from a panel of speakers who discussed why groundwater sustainability agencies (or GSAs) might consider markets, what groundwater trading entails, its opportunities and limitations, and how it is connected to water accounting, allocations, and sustainable groundwater management. 

The first panelist was Dr. Newsha Ajami, the Director of Urban Water Policy with Stanford University’s Water in the West and an appointed member of the San Francisco Public Utilities Commission who gave a presentation on using a cap and trade scheme to diversify water supplies.  You can read her presentation here:  Dr. Newsha Ajami: Enhancing Regional Water Sustainability through Virtual Water Trading

Next, Steven Springhorn, the Acting Deputy Director of Statewide Groundwater Management at the Department of Water Resources, highlighted how the Sustainable Groundwater Management Act and related activities provide a framework and foundation to build off of to develop efficient and equitable markets and how those markets can help to collectively and successfully implement SGMA.  He also discussed the assistance available from the Department for SGMA implementation that can facilitate local agencies working towards developing allocations and markets.

There are many different demands on the state’s groundwater resources, and in a drought year like this, it only makes the importance of groundwater even greater.  In the last drought in 2015, 58% of the entire water use in the state was from groundwater.

This just stresses the importance of making sure we have commitment, buy-in, and successful implementation of SGMA to tackle these tough resource management challenges that we face,” said Mr. Springhorn.  “We’re looking at having successful agriculture moving forward in the state, making sure there are adequate protections for drinking water, especially in drought times, and then the rich biodiversity that our state has and continuing to make sure that those environmental assets that are groundwater-dependent are considered, as well as the businesses and industries.  All of this shows the complexities and the opportunities of SGMA itself but also the need to safeguard these interests as water markets are materializing or evolving into the future.”

All these activities fall within the Water Resilience Portfolio.  When we talk of water trading, what does this mean?  The focus of this panel is action 3.6, trading within groundwater basins and transferring and allocations; that is not to be confused with surface water transfers which utilize the state’s surface water infrastructure. 

He noted that the Water Resilience Portfolio does have a set of connecting actions to ensure compatibility between the groundwater markets that are materializing and the state’s infrastructure to make sure that those are maximized, and efficient markets are carried out.

How Does SGMA Provide a Framework for Water Trading?

The cornerstone of SGMA is local control.  The Department of Water Resources has an assistance role and a newer role for regulating and reviewing Groundwater Sustainability Plans.  The State Water Resources Control Board has an enforcement role and a role with water rights related to water trading.  However, it is the 250+ Groundwater Sustainability Agencies that are locally managing their basins, understanding the beneficial uses and users within their basins, and the basin itself that are sitting in the driver’s seat.

There’s a huge new level of governance in these high and medium priority basins that have the express purpose of managing groundwater sustainably, and also to be engaging with and working towards that goal with the people in their basins,” said Mr. Springhorn.  “That is a huge asset for us, too, and for all folks interested in water trading to build off of that architecture that’s been put in place.  That wasn’t there in the last drought, and that is here now, for us moving forward.”

The GSAs have broad new powers and authorities and also the responsibility to manage their basin to a sustainable yield.  A cap is essential for markets, and SGMA establishes that cap through the sustainable yield and avoiding the six undesirable results shown on the graphic.

Each Groundwater Sustainability Agency through their Groundwater Sustainability Plan is going to be looking at a suite or portfolio of projects and actions to help them manage to a sustainable yield within 20 years, and then also avoiding the undesirable results,” said Mr. Springhorn.  “Water trading can be an effective tool for them; it’s not the only tool, but it can be an effective tool for that to happen.”

How Does the GSP Provide a Foundation for Water Trading?

There are several components of a Groundwater Sustainability Plan that support groundwater trading. 

One of the requirements of a Groundwater Sustainability Plan is to understand the beneficial uses and users of groundwater.  That includes drinking water, agricultural interests, and a whole host of other interests and sets a foundation for who would be part of these markets and who needs to be considered in the effects of these markets, he said.  A lot of information has been generated to date and continues to be generated through GSP development.

Another requirement for GSPs is to describe the physical characteristics of the basin itself.  “This is very important for water trading because what underpins that trading is allocations. And then what underpins those allocations are water budgets,” said Mr. Springhorn.  “So understanding where’s the water, where the aquifers are within the basin, how much water flows in and out of the basin – those are fundamental elements that are needed to have a credible, trusted, and transparent water trading platform or initiative.”

Sustainability is defined within the groundwater sustainability plan through the sustainable management criteria; this includes the sustainable yield and the definition of specific thresholds for the undesirable results that define sustainable management of the basin.

Dr. Ajami highlighted well that a cap is needed for efficient markets,” he said.  “This is where that cap is established in these plans and how that sustainability is going to be tracked through time through monitoring.”

How sustainability will be achieved is defined in the projects and actions.  Mr. Springhorn noted that almost 50 plans have been submitted to the Department for review, and literally hundreds and hundreds of different projects and actions are proposed and being implemented now.  Water trading is one of the projects and actions included in many of those plans.

It should be noted that some basins might not partake in trading, and they can still reach sustainability, while others are very invested and need trading to get to their sustainable yield and to work through the challenges and the impacts that it takes from working with less groundwater pumping in a basin over time,” he said.  “That in general just shows where within groundwater sustainability plans and water trading connects and the information that can be used from these GSPs.

The figure on the right, taken from DWR’s Water Budget Handbook, shows the complexity of water budgets.  The handbook is a guidance document for developing water budgets for any purpose, and all the different areas that need to be compiled or estimated.

It’s not that each plan has to have a perfect water budget, but what has to be known is how that water budget is defined, trying to use the best available information in science to define that, and that’s done in a transparent, but an open way, with assumptions documented,” said Mr. Springhorn.  “Then the more complex allocations and trading can be built off of that, and it could be a credible process.”

Good data and good information underpin the elements of successful trading.  That includes understanding domestic wells and public supply wells to ensure there aren’t impacts to those through trading activities.  Water use accounting is essential for understanding water use; that leads to water allocations, trading, verification, and monitoring moving forward.

Importance of water budgets

The water budget is a requirement for GSPs, and there is also the requirement to use the best available data.  SGMA acknowledges the data gaps exist and provides a continual process for refinement and adaptive management over time, so as new information comes in, it can be used to inform and update the understanding of the water budget moving forward.

It’s also important to be clear on the uncertainty and assumptions that go into it because, with everything in groundwater, there’s a lot of unknown,” said Mr. Springhorn.  “So it’s important to be upfront and honest with where the uncertainty remains and how to work towards filling those data gaps over time.  That process is laid out in the water budgeting elements of SGMA and the Groundwater Sustainability Plans.”

RELATED CONTENT: Developing a water budget

One of the features of SGMA was that in allowing local control, the legislation allowed for multiple GSPs to be developed for a single basin, with the requirement that there be a coordination agreement that integrates all the plans to have comprehensive management across the basin.

Within that coordination agreement, there are elements of making sure the water budgeting is consistent within the basin,” said Mr. Springhorn.  “That apples-to-apples comparison is important for trading to make sure there’s consistency across basins and then ultimately from basin to basin. … All of that data and understanding are really important for confidence and accuracy. There’s never a perfect right number on a water budget. But it’s within the realm of what is using the best available information and best available science to get to that, and knowing what is the process to continue to update and improve that understanding moving forward.”

The cycle of GSP implementation

There are two cycles within groundwater sustainability plan implementation.   The first is that the GSAs compile and submit annual reports every April 1 that provide a new stream of information to help inform markets. The second is the five-year cycle for improving or updating groundwater sustainability plans based on new information with the goal to reach sustainability in 20 years while making measurable progress along the way.

All of this really helps get better information over time but also provides that foundation to act now with the information that is in hand,” Mr. Springhorn said.  “Then, with trading, it expands the opportunity to work through these challenging resource limitations within basins on how to share resources. It gets into the timeframes that are needed.”

There is also the basin by basin dynamics of who’s in the basin and the uses of groundwater use in the basin, which allows for more flexibility and helps weather some of that resource constraint,” he continued.  “It also helps soften some of the impacts to regional economies with working towards a lower amount of groundwater pumped over time.  So it also prepares us for the transition to the changing climatic conditions that we’re seeing, and we’ll continue to see moving forward.”

SGMA Activities to support water trading

One of the important SGMA activities that supports water trading is outreach. The relationships and communication over the last six years of SGMA implementation can be leveraged to continue conversations about trading, so those relationships that have been built over time can be used, he said.  Outreach is not a one-time process; it’s a long-term activity under SGMA.  Outreach has happened in different ways in different forms in each basin.  So there’s an importance for continued outreach in SGMA and GSP implementation, but also as it relates to trading. 

The Department has been investing in department staff as points of contact in each basin and trying to facilitate and help the GSAs connecting and coordinating with their local communities and users.  The Department has also been working on expanding access to information by translating SGMA information into different languages so GSAs and others can communicate this critical information to all communities in their basin.

There are also opportunities to continue to develop guidance as it relates to water trading,” said Mr. Springhorn.  “We’d be interested in continuing these conversations and understanding what need is there.”

SGMA has exponentially increased the level of groundwater data about groundwater in the state, which will continue, he said.  It’s a benefit for all working in groundwater or water resources.  He noted there are requirements for continued data collection and reporting on the annual cycle, and the Department is continuing to provide data sets on behalf of the GSAs and the SGMA community, as well as modeling and climate change information too.

We are really encouraged by the recent partnership between the Department of Water Resources, the State Water Resources Control Board, the California Water Data Consortium, and the Environmental Defense Fund,” said Mr. Springhorn.  “We’re working together to try and understand how their pilot project of an accounting platform can be scaled to a statewide platform. Again, it’s voluntary, but this is where we want to invest state resources to try and enhance the toolset the local agencies and SGMA community have to manage groundwater effectively.”

Funding to support SGMA implementation

The state is providing funding to help advance SGMA implementation, which in turn advances trading.  $26 million in financial assistance was awarded in the spring of 2021, with another $70 million available soon to implement GSPs. Mr. Springhorn reminded that water trading is a project or management action for some GSAs to help them reach sustainability.

He also noted that a historic investment in SGMA implementation has been proposed in the current budget cycle.  “It’s pretty staggering and impressive,” he said.  “There’s over a billion dollars of different groundwater-related or SGMA related funding that’s proposed. So we’ll see what happens to the budget process. But this is an incredible investment in making sure SGMA and all of its challenges can work.  because SGMA is really an effort to help with this drought, no question, but get us in the best position possible for future droughts with sustainable use of groundwater.”

The proposed funding includes $300 million for additional grants and technical assistance for SGMA, $10 million for continued subsidence data collection reporting, and another $50 million for critical data sets to help water accounting and spur innovation.

The current landscape of SGMA implementation 

SGMA implementation efforts are ongoing.  Currently, the Department is still reviewing the first GSPs that came in in January of 2020.  The Department has the option to require corrective actions and give feedback to the GSAs to update and continue to implement their plans.

Each basin is going to be coming at this and has a different path through SGMA,” said Mr. Springhorn.  “There are different levels of detail or understanding of water budgets, and so that’s where the assistance is very important to be closing those gaps, filling those data gaps, and moving forward.”

GSAs are now implementing their plans and developing projects and actions, which, in some basins, encourages local action on trading and pilot programs. 

DWR supports the development of transparent accounting platforms,” he said.  “We think it is an important tool for locals to consider and use as needed to reach sustainability, and that overall trading platforms will lead to more standardization and what we think of as successful SGMA implementation.”

In conclusion …

Markets will be helpful, particularly for increasing flexibility,” said Mr. Springhorn.  “Again, they’re not required, but it is one tool in the toolbox—the details matter, especially on the water budget side. And so time is needed to work through and fill those data gaps.  All of this work helps SGMA and overall groundwater management because all this data is being generated and shared in a whole new way.”

Discussion highlights

During the discussion period, Commissioner Samantha Arthur said that it seems like SGMA is really about the undesirable results, and sustainability is avoiding these undesirable results.  Does this build in the system of triggers? We need to look at where in this scheme of SGMA we don’t have appropriate safeguards.  For example, if there is a lot of trading in a basin, you might create a hotspot of subsidence, or if there are declining groundwater levels, there may be subsidence impacts.  So there’s a trigger built into SGMA in that the GSAs have to avoid the undesirable result of subsidence. But what if you have a situation where the drinking water supply of folks is not protected from declining groundwater levels, and that impacts the folks who rely on shallow drinking water wells or groundwater-dependent ecosystems.  Where are the undesirable results? Are the public trust or the human right to water aspects being captured?

The overall structure of SGMA is very outcome-based because there’s no one size fits all that for all basins, so the outcome is sustainability,” said Mr. Springhorn.  “It’s the avoidance of those undesirable results. … how that materializes is through the establishment of the sustainable management criteria.  There are wells in the basins where there are actual numbers defined for groundwater levels, so if groundwater levels go below a particular elevation, that is a warning light in the basin. And if enough of those warning lights go off, it triggers an undesirable result within the basin. So there are multiple levels of triggers to identify if sustainability is being defined reasonably, so that’s what our teams are doing right now.  They are looking at all these 1000s of pages of technical information and how sustainability was defined, applying the law and the regulations to that, and then providing course correction as needed. So that’s playing out right now.”

So I’d say there are triggers in place overall in SGMA; however, how a particular basin gets to keeping that water level, at 50 feet, or 49 feet away from those overall triggers, is going to vary completely across basin to basin and so there’s likely going to be a need to have other triggers or other mechanisms to track the performance of projects and actions. But overall, through the annual reporting and those important five-year check-ins, the Department will see if the basin is doing what they said they were doing if the plan is approved. So I think more discussion needs to go on around how trading fits in as one of many potential projects or actions to achieve sustainability or maintain it. But there are overall triggers that will be monitored through time in the basins and in site-specific spots in the basin. So we do have that benefit that we’ve never had before.”

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