Climate Change and Reliability Investment
California’s water market is defined by extremes. The State has the most variable and geographically concentrated precipitation patterns in the United States, but a limited ability to store or convey that water. These dynamics lead to spot-market prices that can spike dramatically during droughts and then collapse in a subsequent wet year. The State has proposed investing billions of dollars in projects to increase the capacity to store and convey water throughout the State. However, there is little research on how these investments would impact spot-market prices for water in California. Using transaction data from WestWater’s proprietary WaterlitixTM Database, the largest database of water rights transactions in the western United States, we estimate an econometric model of water market spot prices and show how these investments in conveyance and storage infrastructure would reduce peak spot-market prices for water in California.
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