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Price sensitivity to precipitation and water storage in California

Nature Sustainability volume 8, pages 1505–1512 (2025)Cite this article

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Abstract

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.

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Fig. 1: Where water trading occurs in California.
Fig. 2: Water prices and precipitation over time.

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Data availability

The water transactions data from WestWater Research, LLC, are proprietary and are not publicly available. Contact WestWater Research, LLC to enquire about data access and pricing. Precipitation data are available via the California Data Exchange Center at https://cdec.water.ca.gov/snow_rain.html. Data on reservoir capacity and stored surface water are available via the California–Nevada River Forecast Center at https://www.cnrfc.noaa.gov/. Entitlements data are available via GitHub at https://github.com/hagertynw/data-surface-water.

Code availability

Code used to estimate results is available via Code Ocean at https://codeocean.com/capsule/3314412/tree.

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Acknowledgements

This study was supported by USDA NIFA Award #2021-68012-35914 (K.J.) and the Giannini Foundation of Agricultural Economics (K.J., J.H. and M.T.). We thank A. Ayers, B. Wright and seminar participants at Oklahoma State University, the University of Manitoba and the University of Alberta. We also thank WestWater Research, LLC, for providing data and institutional knowledge. The views expressed here should not be interpreted as reflecting the opinions of WestWater or of any other person associated with WestWater.

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Authors and Affiliations

  1. Department of Resource Economics and Environmental Sociology, University of Alberta, Edmonton, Alberta, Canada

    Madeline Turland

  2. Department of Agricultural and Resource Economics, University of California, Davis, Davis, CA, USA

    Colin A. Carter, Bulat Gafarov, Jens Hilscher & Katrina Jessoe

  3. Giannini Foundation of Agricultural Economics, University of California, Davis, Davis, CA, USA

    Colin A. Carter, Bulat Gafarov, Jens Hilscher & Katrina Jessoe

  4. Center for Watershed Sciences, University of California, Davis, Davis, CA, USA

    Katrina Jessoe

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  1. Madeline Turland
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Contributions

M.T., K.J., B.G., J.H. and C.A.C. conceptualized the research. M.T. conducted the data analysis. All authors contributed to interpreting the results. M.T. and K.J. led the manuscript writing, and all authors revised it critically and approved the final version.

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Correspondence to Madeline Turland.

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Supplementary discussion, Figs. 1 and 2 and Tables 1–7.

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Turland, M., Carter, C.A., Gafarov, B. et al. Price sensitivity to precipitation and water storage in California. Nat Sustain 8, 1505–1512 (2025). https://doi.org/10.1038/s41893-025-01659-w

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