Groundwater Trading as a Tool for Implementing California’s Sustainable Groundwater Management Act

Until recently, the State of California lacked comprehensive groundwater management policy. While many basins havebeen adjudicated in court or have adopted voluntary groundwater management programs following Assembly Bill 3030 and Senate Bill 1938, the vast majority of groundwater use remained unregulated. In 2014, the State Legislature passed the landmark Sustainable Groundwater Management Act (SGMA) in response to wide-ranging consequences of prolonged and unchecked groundwater pumping. While groundwater serves as an important primary and supplemental water supply for many water users, over-pumping can result in negative consequences, six of which are listed as “undesirable results” under SGMA: chronic aquifer overdraft, reduction of groundwater storage, seawater intrusion, degradation of water quality, land subsidence, and depletion of hydrologically connected surface water. SGMA requires local Groundwater Sustainability Agencies (GSAs) to develop and implement Groundwater Sustainability Plans (GSPs) to manage groundwater to avoid such consequences.

To meet the requirements of SGMA, GSAs will need to employ a wide range of management tools. This paper focuses on one set of these tools: groundwater trading programs. Trading goes by many different names, including markets, cap and trade, transfers, credit programs, banking, pooling, and exchanges. For the purposes of this paper, we have elected to use the terms “trading” and “trading programs” as the broader categorization of incentive-based management tools. Trading can be executed through a wide range of exchange vehicles, including short- and long-term leases, permanent transfers, and other more advanced or unique arrangements, such as inter-annual water exchanges or dry-year options contracts.