PPIC’s estimate of the level of groundwater trading that may occur within subbasins. (Graphic: PPIC (2023) The Future of Farming in the San Joaquin Valley, Technical Appendix)

Scott Hamilton, President, Hamilton Resource Economics

Most groundwater agencies in the southern San Joaquin Valley are racing against time to present a defensible, unified groundwater sustainability plan to the State Water Resources Control Board to avoid being placed on probation. Having the State Board manage their groundwater basin imposes a new set of fees on farmers for administration and groundwater pumping.

While that essential effort continues, groundwater agencies and water districts face the very real challenges of achieving groundwater sustainability.

The easy solution for disaffected administrators in Sacramento is to hasten the repurposing of farmland. In that theme, the Public Policy Institute of California (PPIC) held a daylong conference in Fresno in September on “managing water and farmland transitions.” PPIC presented “promising” options for repurposing farmland — solar development, water-limited (low water using) crops, upland habitat, recharged basins, and new housing. Those suggestions were caveated with thoughtful qualifications. Regardless, to some in the audience, it felt like the folks from Sacramento were out of touch with the realities of farming. Why should farmland repurposing be the first strategy to be presented publicly and not the last?

The presentation in Fresno highlighted a larger study by PPIC: “The future of agriculture in the San Joaquin Valley.” In that study, farmland transitioning is one element of a broader portfolio of actions to help achieve sustainability. The portfolio included strengthening coordination across basins and sectors, making strategic investments in water and energy, promoting effective and responsible water trading, aligning regulatory and fiscal incentives with SGMA, and providing local, state, and federal financial incentives.

Absent any action, PPIC indicated the revenue loss associated with the retirement of farmland could be as much as $8.7 billion per year, but that loss could be mitigated by the implementation of the proposed portfolio. PPIC placed significant emphasis on groundwater trading to minimize economic losses associated with SGMA compliance, and they analyzed potential benefits at two levels – with subbasins (intra-basin), and between subbasins (inter-basin).

The benefit of groundwater trading has met some skepticism among water district managers. What district would allow water to be moved outside of its boundaries during a deficit? The same question could be asked at the GSA and subbasin level.

The impact of SGMA, many thought, would be to greatly reduce the incentives for water transfers – the opposite of what PPIC was promoting. And without the mitigating benefits of water transfers, the economic and social consequences of SGMA could be severe.

Groundwater transfers was one of the topics on the agenda at a recent Technical Work Group meeting of the Water Blueprint. Districts and GSAs are beginning to explore moderated groundwater transfers. Within-district transfers provide flexibility to growers, particularly as cropping patterns change. Moving up a level, many groundwater models have documented and estimated the subsurface movements between GSAs. Is it not advantageous for the entity receiving groundwater inflow to cover the costs and get credit for it while the district with groundwater outflow earns revenue for improving its facilities? If so, it seems groundwater transfers may have a role to play.

Numerous cautions were suggested by participants both in Fresno and in the Technical Working Group. Groundwater transfers should not occur in a way that would exacerbate unsustainability. In particular, water transfers should be implemented to help reduce subsidence, and monitoring should occur to prevent water quality and water level impacts on community wells.

Tulare Irrigation District, in considering a policy for water transfers, proposed the adoption of a set of principles. These principles encompass several key aspects, including flexibility, adaptability, transparency, avoiding harm, equity and inclusion, and a unified basin-wide strategy. The flexibility principle would provide water users with the adaptability needed to comply with new regulations and respond to changing water availability. In parallel, adaptability focuses on promoting adjustments in practices, rules, and procedures as conditions change based on the experience of market participants and the emergence of new information. Transparency is another key element, emphasizing the need for visibility and comprehensibility in the development and conduction of market activities.

This principle also extends to the availability of accurate water usage data and the timely reporting of water market activities. The “do no harm” principle seeks to anticipate and avoid adverse impacts on water users and uses, potentially including the delineation of “no-buy” areas to prevent issues. Equity and inclusion call for the development of the water market through an open process that incorporates a diverse array of potential market participants and other interested parties, with a focus on simplicity in implementation. Finally, the proposal emphasizes the importance of one basin-wide strategy designed to create a common framework accessible to all GSAs operating within the subbasin.

At the scales PPIC envisioned, the mitigation provided by water trading was relatively small. PPIC projected the loss of up to 871,000 acres of irrigated farmland in a scenario that considered full implementation of SGMA, future climate change and the implementation of future environmental regulations. That loss of farmland was projected to be reduced by 5% and 8% under intra-basin and inter-basin scenarios respectively. Water trading had more success mitigating employment impacts.

That full impact scenario also had job losses of 48,000. These were reduced by 30% and 37% under intra-basin and inter-basin trading, respectively. The full impact scenario projected revenue losses of $8.7 billion per year. These would be reduced by 29% and 34% respectively.

Are those benefits attainable? PPIC reported that 1.5-million-acre feet (maf), mainly of surface water, is traded annually in California and that, in 2018, 16 maf of water was applied to crops in the San Joaquin Valley. The quantity of groundwater proposed to be traded under PPIC’s intra-basin scenario was not readily apparent in their 2023 report, but from their Figure A13 (reproduced in the graphic below), intra-basin trading amounting to 800,000-acre feet/year might be in the ballpark. To put that in perspective, based on the information reported in groundwater sustainability plans, the subsurface groundwater flows between subbasins in the San Joaquin is in the order of 2.4 maf/year, suggesting the PPIC estimate is not unreasonable.

Water trading, including groundwater trading, is likely to become an increasingly important tool to help achieve groundwater sustainability. Not all areas are conducive to groundwater recharge, but groundwater flows occur within and between subbasins throughout the Valley. California’s Department of Water Resources is focused on groundwater sustainability at the subbasin level. That should create an incentive for water users in each subbasin to work together.

Through mutually beneficial trading and investments, significant improvements in groundwater sustainability appear possible providing another piece to a complex puzzle.

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