SUSTAINING THE CALIFORNIA DREAM: MANAGING THE STATE’S WATER

Abstract

This thesis examines California’s complex water rights system. California has a longstanding regulatory scheme for surface water. Meanwhile, the state only began to regulate groundwater in 2014 upon adopting the Sustainable Groundwater Management Act, which established local Groundwater Sustainability Agencies (“GSAs”). Surface water and groundwater are interconnected by the hydrologic cycle, and their interplay is critical to the state’s water supply. California’s differential treatment of surface water and groundwater underlies inefficient use of the state’s water resources. While California’s water rights law has created many policy issues, the two main issues are inefficiency and inequity. This thesis evaluates how California should manage its limited water resources to facilitate a more efficient and equitable allocation. It considers two market-based policies that the state and GSAs could implement to mitigate the policy issues: a Pigouvian tax on water withdrawals and a water market. It addresses political and ethical concerns about these policies by evaluating their political feasibility and impacts on groups, such as farmers and disadvantaged communities. Ultimately, this thesis recommends the implementation of sustainable water markets. To support the establishment of these markets, the California State Government should take the following two actions. First, the California State Legislature should pass legislation to establish a water market managing entity for surface water. Second, the California Department of Water Resources should convene a working group to develop models for sustainable groundwater markets, which GSAs should consider adopting. If implemented, these policies would reduce the wasteful use of water and the hardships of droughts on disadvantaged communities in California.