California water is not 'liquid'

California growers are plumbing the depths beneath their farms to retrieve groundwater for thirsty crops, an example of the tragedy of the commons, reported Peter Coy in Bloomberg Businessweek. 

One reason: California water is not liquid, financially speaking, said a UC Agriculture and Natural Resources expert. California's mechanism for trading water is slow, clunky, and opaque.

“If you wanted to do a trade now, you'd have to meet a broker in a coffee shop somewhere. There's no Wall Street Journal, no Bloomberg, no Carfax,” said Richard Howitt, a professor in the Department of Agriculture and Resource Economics at UC Davis.

California has a system for regulating surface water. A law regulating groundwater passed last year, but it will be enacted in stages and doesn't fully phase in until 2040, the Bloomberg story said. A fully liquid water system would send more water to urban areas and continue the shift in agriculture to more high-value crops, such as grapes, tree nuts and fruit and tomatoes.

The article suggests that Californians can learn from Australia, where water rights are traded on an exchange like stocks, prices are posted for all to see, and transactions can be concluded in a day. Allocations are based mainly on a share of what's actually available, not unrealistic fixed amounts.

“America is the home of free enterprise,” said University of Adelaide professor Mike Young. “The fact that there's not a water market in America means the institutional arrangements are all wrong.”

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