Research | Fall 2016 Issue

A Solution: Water Markets

How water markets could help equalize pricing and distribution

By Lisa Fung

LAURA ALLEN WAS FRESH OUT OF COLLEGE, renting a house for the first time and excited about starting her own garden in the backyard. Then she got her water bill.

“It was the first time I had to acknowledge how much water we were using and actually pay for it,” she said. “The question for us was, ‘Why are we using so much water?’ and ‘Can’t we do something a little differently?’”

This realization led Allen and housemate Cleo Woelfle-Erskine to craft a simple greywater system that allowed them to reuse water from the washing machine by diverting it to their garden and landscaping — and at the same time save money on their water bill.

“It was really exciting and kind of logical, and we wondered why everyone wasn’t doing this,” said Allen, an elementary school teacher who, in 2007, went on to launch Greywater Action, an advocacy group dedicated to educating people on simple household systems that help reduce water use.

Drought heightens issue

At a time when California is dealing with its fifth consecutive year of drought, water conservation and reuse have come to the fore. Some homeowners facing higher water bills have started adopting technologies like greywater reuse, which became legal for landscaping in 2009. Others simply cope with the escalating costs of daily life.

The state’s water districts, which supply water to communities, face higher costs for purchasing water imported from the Colorado River or Northern California. Many of those districts are adopting more recycling and reuse practices to increase local water supplies. That sets the stage for the creation of markets that may soon allow for water trading, which cuts reliance on imported water sources, and could ultimately bring down costs for consumers.

The push for urban water markets is partly motivated by rate inequalities from district to district. As noted in the accompanying story in this issue of Blueprint, Los Angeles County has more than 200 water systems, some of which have sky-high rates because they don’t have access to local water. So an opportunity exists for districts to end fragmentation that is fueling inequality. Water markets may address it.

“The idea behind water trading is that there are systems that have lots of groundwater and lots of wastewater — more than they need to meet their local demands. They have no other use for it, so it sits there unused,” said J.R. DeShazo, a professor of public policy and director of UCLA’s Luskin Center for Innovation. “They could sell that water [to another system], and both would be better off. It’s that simple.”

The search for a market

Simple as it sounds, large-scale urban water trading doesn’t exist in Los Angeles County because there is no institution in place to oversee trades and facilitate delivery of water. DeShazo’s research focuses on Los Angeles County, where an urban-to-urban water market would be the first of its kind in the country and could serve as a model for other metropolitan areas. DeShazo aims first to identify potential sellers and buyers and determine transportation costs, then propose an outline for a regional water market system. Such a system could lead to new revenue streams that would allow cities to invest in green infrastructure and potentially bring down costs for all.

Water trading isn’t a new concept. Farmers have been selling unused water for several decades, but these agricultural trades work best when farmers are close to the state water plant or the Colorado River Aqueduct system. The trades also are affected by state regulations tied to the Endangered Species
Act, which protect certain species of fish by limiting the amount of water that can be moved during summer months, according to Steve Hirsch, program manager of water transfers and exchanges for the Metropolitan Water District, which is involved in agricultural trades.

But in Los Angeles County, the framework for an urban water trading system is already in place. The region’s wholesaler, the Metropolitan Water District, consists of 26 member agencies that get water from the Colorado River or the State Water Project in Northern California, then sell it to the approximately 800 water districts serving the Southland. It already has a pipeline network in place that could facilitate regional trading. It also manages direct pipeline connections and areas with shared aquifers that could be used for trades.

“One idea is to get the Metropolitan Water District to start thinking a little more innovatively and more entrepreneurially,” DeShazo said. “If System A and System B are interested in a water trade, the MWD could move the water and charge the districts for the cost of transportation — perhaps with a profit written in.”

The MWD already distributes water to all of the systems in L.A. One city may decide it doesn’t need its full allocation, while another is seeking more water, so they could work out a “trade.” The first city could take, say, half the amount of its water allocation and have MWD redirect the rest to the city in need, while charging a transportation fee.

The MWD also participates in water transfers for farmers and exchanges with other states, such as Nevada and Arizona. But urban water trading is more challenging, says Deven Upadhyay, manager of MWD’s water resource management group, because even if agencies were to participate in trades, they still would need imported water. “We do a fair amount of trading, although I wouldn’t characterize it as one agency buying water directly from another,” he said. “Most of these agencies cannot meet all of their needs simply with their local supplies, which is why they’re then connected into our imported water system. We provide the supplemental water that is necessary for them to be able to meet their demands.”

Focus on recycled water

DeShazo says a challenge to creating a water market will be getting districts to look beyond their own needs. “They don’t think about their water systems as generating value for other parts of the community within the region outside of their jurisdiction,” he said.

That could change.

Last year, in response to the drought, Gov. Jerry Brown issued an executive order calling for cities to cut water usage by 25%. In addition, the governor’s Water Action Plan, released in 2014 and updated this year, calls for state, regional and local agencies to become more self-reliant by, among other things, increasing the use of recycled water and streamlining the permit process for local water reuse projects.

In Los Angeles, Mayor Eric Garcetti, in his Sustainable City pLAn, called for the city to capture 12 billion gallons of stormwater per year by 2025 on top of the 8.8 billion gallons it already captures and reuses (see this issue’s Table Talk with the mayor). By doing so, Los Angeles is expected to reduce imported water by 50% by 2025 and source half of its own water by 2035, according to Matt Petersen, L.A.’s chief sustainability officer. Other Southland cities have announced aggressive goals as well.

To augment local water supplies, cities can invest in water recycling and stormwater capture and reuse. There are two kinds of reuse processes: indirect, which is widely used in California, and direct reuse. With indirect systems, water reclaimed by a city through stormwater capture or wastewater can be treated and purified, then used for landscaping, or it can be put back into the ground, or into a reservoir or aquifer, then treated for use as potable water. The idea behind this process is that physical or biological processes will degrade contaminants in the water during its time in the ground or in a reservoir. According to the EPA, there have been no documented cases of human health problems due to contact with properly treated recycled water.

Experts see great potential in direct reuse. “Engineers have been saying for 10 years that you don’t have to waste all that time by letting nature ‘kiss it’ by putting wastewater back into the groundwater and then taking it out, or putting it in a reservoir,” DeShazo said. “You can do direct reuse, where you just take the wastewater, put it in a purifying system to treat it, and it’s piped directly to the people who want to drink it.”

Safety barriers are set up along the way to ensure purity. “It’s cleaner than most groundwater. … We have the technology to do this, and we can do this fairly cost-effectively,” DeShazo said. “The biggest challenge to direct reuse, which is probably going to be one of the most economical recycling technologies, is public acceptance — getting people to recognize that all water was once wastewater.”

Australia, Singapore and Israel have already adopted direct reuse. But before it becomes commonplace here in California, drought conditions would have to be much more severe, causing prices to double or triple. At that point, water becomes so valuable that it pays for the system to reuse it.

Until that day comes, there may be resistance, though Mayor Garcetti, among others, argues that the public’s skepticism has dwindled in the years since opponents vilified the idea as “toilet to tap.”

The benefits of an urban water markets, meanwhile, are easily recognizable. During a drought, there may be cutbacks on imported water, causing shortages that could be addressed through trading. Local water sourcing also makes the state more resilient to earthquakes, which could knock out the Sacramento Bay Delta levies or the Colorado Aqueduct. A market also has the potential to help cities with excess supply raise additional revenue that could be put back into water recycling and reuse programs or used to offset local taxes and lower costs for consumers. Districts on the receiving end of water trades also would see cost savings that could be put to other uses.

For its part, MWD is investing in projects designed to help municipalities bolster their local water supplies. “We run programs where we are incentivizing agencies — we’re actually paying agencies to develop local supplies,” Upadhyay said. For example, the MWD paid Orange County to develop wastewater recycling that would ultimately be put into the ground to augment its groundwater basin. “What that project did is offset a need for us to deliver imported water to them. By offsetting that need, that imported water is then freed up to be able to go to any other customer in our service area.”

In the meantime, municipal and county leaders continue to search for ways to increase local water. The need for more sources trickles down to the consumer level with a push for more greywater adoption. Greywater technology, DeShazo says, is just starting to become more cost-effective and is expected to be written into building codes for new construction in the next few years.

That’s welcome news for Miller, of Greywater Action, who in addition to offering workshops for homeowners spends time working with cities and water districts throughout the state to help educate people on water reuse.

“Our goals are to change our relationship to water and how we interact with it. We want people to learn to use water sustainably, appropriately, to make the best use of water,” Miller said. “It’s very fun and rewarding to know that I’m doing my laundry, and I’m also watering my fruit trees at the same time.”

Lisa Fung

Lisa Fung

Lisa Fung is a Los Angeles-based writer and editor, who has held senior editorial positions at The Los Angeles Times and

Post navigation



A Problem: Water and Inequality

Water districts charge widely varying prices. Why?