DR. CHRISTINA BABBITT: Advancing Well-Designed Water Trading Programs in California

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.  You can read his presentation here:  CA WATER COMMISSION: Water Trading & the Sustainable Groundwater Management Act

The third presenter was Dr. Christina Babbitt, the senior manager of the Environmental Defense Fund’s California Groundwater Program.  Her presentation focused on advancing well-designed water trading programs in California and included an example of EDF’s work with partners to develop a groundwater trading platform.

Dr. Babbitt began by noting that one of the Environmental Defense Fund’s (EDF) program focus areas is to help ensure the successful implementation of the Sustainable Groundwater Management Act (SGMA), both for California and as a much-needed example for the world.

EDF works on some of the biggest water challenges, such as finding ways to reduce demand on groundwater; this includes allocations and trading topics, land repurposing, surface water depletion, community engagement, and filling data gaps through different data sets or technologies or tools.

Voluntary groundwater trading programs are one of several important strategies that many GSAs are considering to help make the transition to more sustainable supplies under SGMA.

Dr. Babbitt noted that the Public Policy Institute of California has done studies on the economics of trading in California under SGMA and estimates that without water trading, the transition under SGMA could require farmers to take 500,000 acres to 750,000 acres of agricultural land out of production.  With trading, however, the PPIC estimates the impact on the state’s $50 billion agricultural industry can be reduced by as much as 60% going forward, which could go a long way to help reduce impacts to rural economies.

As we think about these statistics, it’s important also to understand that water trading needs to take place through a holistic lens, looking at the economic trade-offs, as well as potential benefits or implications to other beneficial users of water,” said Dr. Babbitt. “The ability to ensure clean drinking water supplies is imperative, and also thinking about small farmers and medium-sized farmers who also rely on water resources.”

Components of a well-designed groundwater trading program

The structure of the groundwater trading program is fundamental in achieving success moving forward, she said.  Groundwater trading programs now really need to operate within the context of SGMA.  She noted this is slightly different than trading programs in the past because the GSAs have to avoid undesirable results and implement trading programs to help achieve sustainability.

I think it’s very fair to say that we do not yet have a perfect vision of what these trading programs look like, and we still have a lot to learn,” she said. “It is fair, however, to say that these programs will happen and will likely happen at increasing rates in the future as droughts intensify, and supplies become more variable.  Therefore, it’s important to be thoughtful about the foundation we put in place and be proactive. The details really matter. And we can’t be reactive when we implement these trading programs.”

Water accounting and allocations are fundamental components of water trading programs. However, before trading can even happen, you have to know how much water you have, so the water budget is critical so that water managers, landowners, and other stakeholder groups know what water is available and what needs within the basin exist.

Of course, you can’t manage what you can’t measure,” Dr. Babbitt reminded. “Water accounting is fundamental for water trading, but it is really the foundation of sustainable groundwater management, irrespective if you’re going to move forward with a trading program.”

Dr. Babbitt noted that as SGMA implementation moves forward, many subbasins, groundwater districts, and GSAs dealing with overdrafted conditions will be required to find ways to rely less on groundwater to achieve sustainability goals.  This will require establishing a limit or a cap on the amount of groundwater pumped or removed from the system; that amount is then divided among groundwater pumpers to determine an allocation for each pumper.

It’s an understatement that this is going to be a difficult task and for many GSAs, and we’re already seeing this play out,” said Dr. Babbitt.  “There are many legal, political, social and equity considerations that come into play when deciding how to divide this groundwater pie, especially if this pie is much smaller than it may have been in the past.”

I would just emphasize that this is an area where support for guidance or resources that can be geared towards locals as they work through these allocation processes will be needed,” she added.

Also, when you think about allocations, it’s vital to determine the essential needs that must be taken care of upfront before trading can even occur.  “Community drinking water needs are a prime example,” she said.  “We hear a lot from folks that they’re afraid that if a water trading program comes on board, they’re going to have to rely on these trading programs to secure their water needs. And this can’t be the case; those needs need to be taking care of insured, guaranteed upfront, as well as ecosystem considerations, and then thinking about what other needs exist within the basin in terms of agricultural and industrial needs.

If appropriately constructed, groundwater trading is an important tool to address water scarcity issues, especially in more flexible ways that produce more resilient outcomes. But water trading programs are not a panacea, Dr. Babbitt warned; they really need to function in parallel with and often hinge upon other groundwater management best practices.

Water trading programs are only as good as their governance systems and the rules that are designed.  Designing these healthy and equitable water trading programs requires several key elements:

Community engagement and participation throughout the process is critical, so any water district or GSA developing these groundwater trading programs needs to educate and engage the public far and wide and create rules that ensure protections for people and ecosystems, she advised. This is a key criterion for building trust and getting stakeholder buy-in, which is essential to the success of these programs.

Water budgets and accounting are essential; and while the conversation today is focused on groundwater, it is essential to understand the surface water and groundwater in the basin and to account for the system as a whole because, in drought years, the system has to operate as an interconnected system to take advantage of groundwater when surface water isn’t as available.

Monitoring and reporting:  Dr. Babbitt pointed out that we rarely get things right on a very first try, so any water trading program needs to include ongoing monitoring.  She noted that SGMA offers an amazing opportunity through the increased data to better understand groundwater conditions and collect data to support more robust decision-making moving forward.

Transparent reporting programs ensure that unintended consequences from trading aren’t occurring and to allow for adjustments over time.

Allocations: Making allocation decisions requires understanding water users and their needs within the basin and being thoughtful about the local context in making allocation decisions.

Well-designed trading rules: There’s no universal set of trading rules; unfortunately, it’s just not that easy, and understanding local conditions is crucial.  “One of the concerns that we’ve heard is that small tenant farmers who rent land and are afraid that, if water trading comes into place, what that will do to their livelihood. So really understanding these issues is core to the success of these programs.”

Flexibility and adjustment: Incorporating mechanisms that allow for adjustments over time to changing conditions is going to be vital.

Advancing well-designed water trading programs in practice 

Dr. Babbitt then turned to some work that EDF has been doing in partnership with Rosedale Rio Bravo Water Storage District to develop an open-source water accounting and trading platform. 

The Rosedale Rio Bravo Water Storage District is located in Kern County and is part of the Kern County Groundwater Authority.  The District manages about 44,000 acres of land and heavily relies on irrigated ag to support the communities.  About half of the acreage is planted in permanent crops. They’re a critically overdrafted basin under SGMA.

In 2018, EDF began partnering with the Rosedale-Rio Bravo Water Storage District to develop a platform that helps establish more accurate water budgeting programs, facilitates water trading, and helps minimize undesirable results through a groundwater modeling decision support tool.

The graphic shows the platform’s components and highlights the importance of accounting as a foundation that supports good groundwater management moving forward.

This is especially needed for water trading,” said Dr. Babbitt.  “So in Rosedale, we incorporate water use data, water supply data which is the water available within the basin, and then the different buckets of water and who gets how much.  Often those different buckets have different rules associated with how they can be used, and that has real implications for trading.”

This information can be used to establish more detailed water budgets for the District as a whole, for the GSA, or even landowners who are so critical to carrying out these management actions moving forward. And with that foundation in place, folks can then decide if programs like trading are needed within a given region.

When implementing a groundwater trading program, it’s important to understand how changing pumping patterns across the landscape can impact the other users within the basin.  Key to this is the groundwater modeling decision support tool to inform decision-making moving forward.

The graphic shows a hypothetical water trade in Rosedale Rio Bravo Water Storage District for 600 acre-feet.  The parcel in blue is the person who has sold the right to pump water, so they are no longer pumping, and their groundwater levels are slowly rising within their surrounding area. The parcel in red is the person who has purchased the right to buy water, so the groundwater levels in that vicinity are slowly going down.  An adjacent, disadvantaged community is shown in yellow; the green dots are the domestic wells that supply local drinking water. 

This hypothetical trade can be better understood by modeling what the implications might be for other water users.  “This trade is showing how if you stop pumping in a region near a disadvantaged community, that could actually help increase groundwater levels, which could be good for supply,” she said.  “But this is also a very simplistic scenario.  You definitely want to look at things like water quality because sometimes dilution is good. And sometimes it’s not, depending on the water quality characteristics.”

So really understanding these types of scenarios is important to inform trading rules, as well as evaluate trades through time.  This is only one trade, but evaluating these collective trades can go a long way in earning buy-in to some of these programs because people know that you’re looking at the things that they care about and that are important.”

It’s also important to consider groundwater-dependent ecosystems.  As defined under SGMA, groundwater-dependent ecosystems are ecological communities or species that depend on groundwater emerging from aquifers or groundwater occurring near the ground surface.

In partnership with the Department of Water Resources, the Nature Conservancy has done a lot of work to map groundwater-dependent ecosystems, which is available on both The Nature Conservancy’s and DWR’s websites. 

The map on the left shows the natural communities’ data set layers, which show vegetation and wetlands.  These types of datasets can also inform decision-making moving forward.

Next steps for the platform

Moving forward, they will be focusing on building out the accounting functionality of the platform, which includes integration of new data inputs, enhancing functions, working closely with the Water Data Consortium on the development of common groundwater data standards, and continue working with groundwater modeling decision support tool developed by Olson Consulting in Nebraska to make that open source so that it can be accessible more broadly.

Considerations and opportunities

Dr. Babbitt then closed with some considerations as well as some opportunities.

For considerations, the first is to think about building the foundation for strong water trading programs through advancing water accounting systems.  “We have all these new data sets that can be incorporated to paint a much more detailed picture of what our hydrologic situation is,” she said.

It’s important to think about what the role of the state is.  This includes their role in terms of data, resources, tools, and funding.   “I think it’s also important to think about the struggles that are going to be seen on the ground as these trading programs roll out in terms of ensuring protections and also in terms of the allocation process, and what resources can help locals as they navigate those processes.”

For any of these programs to be successful, stakeholders need to be engaged, so we need to be thinking about how to improve engagement as well as transparency, which is closely tied to enabling and ensuring protections for communities and wildlife and how we can make sure that those are guaranteed.

What does oversight look like at the local level? There is a role for state oversight in this program as well, she said.

As for opportunities, trading offers immense opportunity if it’s done right. Thinking about these programs now can allow us to get ahead of the curve and proactively build groundwater training programs that support sustainable groundwater management,” said Dr. Babbitt.  “I keep mentioning this wealth of data, but it’s just so exciting that SGMA will help us fill these gaps that just make it challenging to manage currently.” 

Lastly, we need to recognize that trading is going to happen. And so it’s an opportune time right now to build that strong, strong foundation.”


Commissioner Steiner said she sees this as limited in how and what can be done, and she doesn’t see opportunities.  “With trades, it’s an exchange, and you’re moving water as opposed to monetizing, which is selling water and getting it out of your basin and transferring it to somebody else. … We really have to watch where we’re going with this because the charge is very narrow. If the state wants to expand it, that’s one thing, but in looking at what the goal here is, it’s to make these basins better to serve our disadvantaged communities, and we have that list of undesirable results. And it would seem the fastest way to get to those list of undesirable results is to open it up to monetizing, but I don’t see monetizing being part of what we’re doing here.”

I think the economics come in in terms of livelihoods, but I don’t think in my perspective, the goal of these programs is to monetize,” said Dr. Babbitt.  “The economics are associated with people’s livelihoods and their ability to grow a crop or the lost value.  If you have a refuge and need water and the groundwater levels are dropping, you need to find an alternative supply.  The monetary aspects are so intricately interwoven, but it’s really about sustainability within the community, how you can accomplish your goals with less water, and what flexibility you have to move it around. But I think having outsiders come in and monetize it is something that needs to be avoided to the extent that we can.”

The sustainable basin is the goal, along with having the disadvantaged communities have the ability to have drinking water, and to get these basins, which have not been regulated ever to now be regulated, but also to be able to be sustainable amongst themselves, while still honoring water rights and all of those things,” said Commissioner Steiner.  “So I think we, as commissioners have to be careful about where we’re going with talking about some of these ideas, because it’s limited in goal, in purpose, and in what actually can be done, to finally have water basins that are returned to some state that they can serve all the purposes of the community that they’re in, rather than outsiders.”

Dr. Newsha Ajami said she appreciated the comment about monetizing.  “One thing I want to emphasize, at least in the case I was trying to present to you, is the idea is not to bring water from outside or sideways or up and down; it’s supposed to be all-inclusive within the same basin. So in this kind of effort, it is critical not to say, ‘I augment this water by bringing water from outside’; the idea is to make these basins self-sustainable. The idea is to develop solutions from within. That’s why I emphasized trying to do more with various stakeholders and opportunities within them. And it should start from source protection, source clean up, conservation efficiency, then probably stormwater capture, groundwater recharge, and recycling and reuse, but within the same basin. And the idea is then everybody is included in this process, regardless of their state of financial means. Because you want to make sure everybody is equally protected.”

One key point is that transparency and data are key,” Dr. Ajami continued.  “That means that everybody should be monitored, no matter what they’re using.  This cannot be, ‘you guys monitor, just tell me how much you use’; that cannot create transparency.  This really needs to be a very well monitored system; then, people know what comes in the bank and what leaves the bank.”

I think you have a lot of opportunities. If you think about within a basin, there are opportunities there. The thinking is to expand beyond, ‘we’ll go find water from somewhere else and move it across the bay or the mountain and bring it over.’”

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