The potential for an urban water market in Los Angeles and beyond

Water infrastructure challenges are numerous and widespread across the country, from massive lead service line replacements needed in Michigan to combined sewer overflows in New Jersey to resilience concerns in Louisiana. Since the country’s water infrastructure is so highly localized and fragmented – with more than 52,000 individual water systems scattered from coast to coast – regions must explore new ways to coordinate plans and investments to align with their growth patterns. This is especially true in regions struggling to consistently manage scarce water supplies in the face of population pressures, droughts, and other climate concerns.

The development of an urban water market represents a particularly innovative way to encourage more sustainable and equitable water management across an entire region. By serving as a new centralized platform to coordinate action among various water systems, an urban water market would promote several best practices to overcome fragmentation, including establishing new regional plans, encouraging more balanced water rates to end users, and providing new financial incentives to invest in a greater variety of water sources and projects.

As part of such a market, creating new regional institutions or joint-powers authorities (JPAs) to oversee water supply, treatment, and distribution would unite activities among individual water systems. Likewise, by developing more comprehensive plans and identifying more cooperative solutions – including the potential for water trading – regions could improve governance, expand financing options for existing blue infrastructure, and enhance incentives for new green infrastructure investment.

Los Angeles is perhaps one of the best cases of how these regional dynamics can play out in practice. As one of the country’s largest – and thirstiest – metropolitan areas, Los Angeles has long contended with a number of water management issues, including the need for greater conservation, efficiency, and affordability, but the enormous diversity of its water infrastructure presents a clear challenge to achieving these objectives. Los Angeles County alone contains over 200 drinking water systems, while the entire metro area includes over 400 systems serving 19 million people. Meanwhile, amidst a severe drought in recent years, the region’s lack of local water and reliance on imported water has heightened the urgency to consider new management strategies.

An urban market holds promise in several key ways to address these water challenges.

First, Los Angeles has taken many steps to address its short-term and long-term water needs, but an urban market would help ensure future plans consider a regional perspective. For example, the city’s One Water LA Plan is helping better integrate action among several different water agencies and other stakeholders for future drinking water, wastewater, and stormwater improvements, with an eye toward reducing imported water by 50 percent by 2024, among several other objectives. However, Southern California as a whole has yet to develop collaborative water management strategies across multiple jurisdictions, hobbling its ability to invest in infrastructure, deliver more efficient service, and lead to more equitable outcomes.

Second, an urban water market would encourage municipal and county leaders to better standardize water management decisions across the entire region, especially when addressing economic inequities. Since many water systems in the region can vary widely in their physical scope – and associated costs – residents currently face unequal access to affordable drinking water. As a result, some households can end up paying as little $200 annually while others can pay over $2,000 each year, a disparity which a more unified water management strategy could help more clearly identify and address from place to place.

Third, an urban water market would increase resiliency to droughts and climate change, particularly by exploring more local, sustainable water sources. Up until now, many of the water supply options available to each system have been largely determined by geographic and historical processes, rather than allocation on the grounds of equity, efficiency, or the environment. For example, many smaller systems in the region that serve only a few hundred residents (or fewer) depend exclusively on groundwater; on the other hand, larger systems serving tens of thousands of residents are supplied with imported water via an extensive system of pipes and aqueducts.

In particular, by creating a new market to “trade” water and provide greater predictability in long-term supplies, these same systems could more flexibly respond to emergencies or variability in demand. Here’s how it would work:

  • Larger systems would be encouraged to develop “surplus” water resources via enhanced storm water and recyclable water storage, and trade this surplus as sellers in the market.
  • The availability of water for purchase, in turn, would help smaller systems that depend on limited, potentially contaminated groundwater supplies to diversify their supply portfolio as buyers in an urban water market.

Currently, larger systems with such capacity have no incentive to develop surplus water because they cannot put this water to productive use or trade it without a market platform. Trades via the market would take place via direct buyer-seller pipelines, via shared groundwater aquifers, or via virtual trading facilitated by a third-party wholesaler water agency, depending on systems’ preferences or existing collaborative relationships.

Similar to many regions nationally, Los Angeles is grappling with a number of different water infrastructure challenges, but it is also exploring new, innovative ways to better manage its supplies and promote more sustainable decisions.  Rather than continuing to rely on a highly-fragmented network of independent water systems – which often operate as natural monopolies with captive consumers – Los Angeles is well-positioned to consider an alternative approach. Even though California’s drought ended just recently, several cities and water systems across the state are moving forward with impressive, comprehensive water resource planning efforts within their boundaries. The bigger issue moving forward, however, is the search for a policy framework that addresses these problems across existing boundaries.

The implementation of an urban water market would be the first of its kind in the U.S. in this respect, building off earlier agricultural-to-urban water transfers and elevating the importance of more resilient, sustainable practices. Perhaps even more significantly, it could lead to a new regional precedent – and practical model – to consider in arid urban regions well beyond Los Angeles, ultimately accelerating infrastructure improvements for years to come.