Southern California Water Markets: Potential and Limitations

Abstract

This paper explores the potential and limitations for southern California water markets using an economic-engineering network flow optimization model, CALVIN. CALVIN is used to estimate how a market would affect overall southern California water use, to preliminarily assess the economic benefit of more flexible water allocation policies, and to explore the characteristics of an ideal market. Results from CALVIN suggest substantial economic and reliability benefits exist for implementing water market or other transfer mechanisms, and these benefits could be achieved with relatively little reallocation of agricultural water. An ideal water market in southern California would reduce more costly urban water shortages, reducing the demand for increased imports from outside of southern California. Additionally, substantial economic benefits could accrue from expanding some conveyance and storage facilities, particularly the Colorado River Aqueduct and conjunctive use storage capacity.