A Liquid Market

How Can a Water Market Help the Environment and Farmers?

One option for sustainably managing groundwater is to cap pumping, which could significantly reduce the water available for human and agricultural use. This is the approach taken in Ventura County, where farmers will need to reduce pumping by up to 40%. These cuts are vital to recovering overpumped aquifers in the region. But the cuts will also make it harder for small farmers to stay afloat.

It’s important to nature—and to our economy—that farmers are able to remain in business. A water market can provide farmers with this flexibility: It creates a new revenue stream for farmers who temporarily fallow their lands and sell their water, and it lets farmers who need more water than allocated buy it without paying fines.

TNC has been looking for ways to ensure that farmers, communities and other water users have a way to adapt to groundwater reductions in Ventura County and more broadly, so California doesn’t face a wave of development if farmers can’t turn a profit and have to sell their lands.

In Ventura County, TNC has partnered with the Fox Canyon Groundwater Management Agency, California Lutheran University, the Natural Resources Conservation Service and local farmers to design a conservation-oriented water market where water allocations can be bought and sold in a cap-and-trade system.

For a water market to be a useful tool for nature and water conservation, it needs to be built on a good groundwater sustainability plan. A groundwater sustainability plan outlines the path to achieving healthy groundwater levels for a specific water basin. TNC has created many science-based tools to help water agencies account for nature’s water needs when designing groundwater sustainability plans, so that ecosystems benefit along with local communities. With a well-designed plan in place, a market can help achieve sustainability goals while providing farmers some flexibility as they reduce their groundwater use overtime.

What is a Groundwater Market?

Farmers in Ventura County’s water market can buy or sell their groundwater allocations using an online trading platform. If farmers don’t need all their water, they can trade their water savings for cash, creating an incentive to conserve and use only the water they need. Farmers who need more than their allocated share can buy extra water from their neighbors. And the cap on the market is set by the local groundwater sustainability plan, which—if done well—results in overall water savings that stay in the ground, replenishing aquifers and supporting ecosystems that depend on groundwater flows.

The Fox Canyon Groundwater Market is the first to open under California’s new groundwater regulation. TNC helped design this market to provide an example of a science-driven, nature-friendly model for other agencies looking to achieve groundwater sustainability. Our work on the project revealed three essentials for a water market’s success: accurate water usage data, group consensus, and an ability for farmers to make easy and transparent transactions.

An Investment in California’s Future

In the face of climate change, groundwater markets may prove to be an important tool in the fight against water scarcity, food insecurity, and habitat loss. Farms help keep human development from encroaching on habitat and help recharge aquifers. By helping small farmers stay afloat, we’re protecting open space and lands that serve as a critical buffer between developed land and the natural landscapes that California's native species rely on. At the same time, markets help preserve groundwater for the thousands of plants and animals that depend on it, including us.