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<p>Climate change will reshape global demand and supply for water. Surface water supplies will become more variable, and warming temperatures may increase demand for water. These changes could impose substantial economic costs. Well-functioning water markets can mitigate some of these costs by allocating water to those who value it most. However, storage constraints limit the ability of markets to transfer water over time. Here we use transactions data from 2010 to 2022 to evaluate how water prices in California’s surface and groundwater markets respond to precipitation shocks, and how this response varies with inventory levels and water storage capacity. In groundwater markets, with high inventories, prices are unresponsive to precipitation shocks. In surface water markets, with limited inventories, prices increase strongly when precipitation declines. A 50-inch decrease in annual precipitation, typical when comparing deluge with drought in California, increases the price by US$487 per acre-foot, more than tripling compared with the average wet year. This effect is less pronounced when inventory levels are higher. Increasing storage through the joint management of groundwater and surface water supplies could provide a pathway to reduce the adverse consequences of climate-induced precipitation volatility.</p>

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Price sensitivity to precipitation and water storage in California

  • 期刊论文

  • 发表日期：

    2025年10月21日

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  • Madeline Turland,
  • Colin A. Carter,
  • Bulat Gafarov,
  • Jens Hilscher,
  • Katrina Jessoe

摘要

Climate change will reshape global demand and supply for water. Surface water supplies will become more variable, and warming temperatures may increase demand for water. These changes could impose substantial economic costs. Well-functioning water markets can mitigate some of these costs by allocating water to those who value it most. However, storage constraints limit the ability of markets to transfer water over time. Here we use transactions data from 2010 to 2022 to evaluate how water prices in California’s surface and groundwater markets respond to precipitation shocks, and how this response varies with inventory levels and water storage capacity. In groundwater markets, with high inventories, prices are unresponsive to precipitation shocks. In surface water markets, with limited inventories, prices increase strongly when precipitation declines. A 50-inch decrease in annual precipitation, typical when comparing deluge with drought in California, increases the price by US$487 per acre-foot, more than tripling compared with the average wet year. This effect is less pronounced when inventory levels are higher. Increasing storage through the joint management of groundwater and surface water supplies could provide a pathway to reduce the adverse consequences of climate-induced precipitation volatility.