California’s Water Sector Moves Into The 21st Century

Tuesday, September 29, 2015
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California’s water sector is going through a paradigm shift.

Four years into a historic drought, the state has taken multiple steps to ease its impacts on our water resource availability through a series of legislative and regulatory efforts including the passage of Proposition 1 – California’s $7.5 billion water bond – the first ever comprehensive statewide groundwater law, and measures to curb water use and expedite water recycling.  Some of these efforts have a forward-looking perspective and will change the way our water resources are managed in the years to come.  

As various communities throughout the state are debating how to overcome the current water shortages and secure reliable supplies for the future, there is an opportunity to rethink our current water supply portfolio and how we want it to look like in the future.  

Over the past century, California has invested heavily in one of the most sophisticated and complex centralized engineered water systems in the world, encompassing a series of dams, aqueducts, channels, pipes, pumps, and purification and treatment plants, to import water from water rich regions of the state (such as the Sierra Nevada Mountain ranges) to meet our residential, industrial, and agricultural needs.

Nevertheless, aging infrastructure, population growth, ecosystem and environmental degradation, and recurring droughts in various magnitudes during the past few decades have stress tested the functionality and reliability of this world-class water system.  The current drought has highlighted some of these challenges. Four years into a historic drought, California has just suffered one of the driest winters on record. Many of the state’s reservoirs are less than half full, and the natural reservoir that the state relies on for a third of its water supplies, the Sierra Nevada snowpack, hardly had any snow.  To make up for the current surface water supply shortages, the state’s groundwater resources are under increasing pressure and are being extracted at an unsustainable rate. 

Opportunity knocks

While California’s water sector offers many opportunities to innovate and deploy new strategic solutions, in practice the sector has barely tapped this potential. The existing drought offers an opportunity to aim at building a reliable water future for California. As the state gets ready to invest in its water system and implement the new regulatory requirements to ease the impact of the drought, we should not lose sight of our long-term challenges with water availability and reliability and how these short-term solutions fit into our future water management strategy. Long-term thinking is crucial.

Here I offer two thoughts, which I believe to be essential in moving the state forward on an innovative path toward a secure water future. 

Innovative and Diverse Water Portfolio

California’s energy sector provides a great example on how to turn a crisis into an opportunity.  California’s energy crisis of the 1990s instigated a fundamental change in the energy sector. The growth in the clean energy sector in California was partly driven by the new energy policies and the sectors movement toward clean and renewable energy portfolio standards, which ultimately created new energy markets – such as solar and wind energy – and led to diversification of our energy portfolio.  This strategic paradigm shift also spurred private investment in the clean energy sector nationwide, which ultimately increased the rate of innovation in the sector, since California is one of the largest economies in the world and the most populated state in the US.

There is no lack of innovative solutions that can transform our current water sector and diversify California’s water supply portfolio. Innovative strategies that embrace new thinking by emphasizing creating a portfolio of solutions including a combination of effective governance, demand management, and unconventional water supply augmentation are currently being developed in California and elsewhere. California can take the torch and act as a living laboratory to test and demonstrate some of these promising solutions. It can replicate the success it has had with the electricity sector and become the leader in transforming the water sector. It can establish new markets by strategically investing in research and development and reducing the risk and cost of scaling and commercialization of innovative solutions.

Reliable Financing Portfolio

Indeed, many communities in California are considering a new water management model to tackle their current water challenges. Some of these communities are moving away from the centralized grey infrastructure strategy and trying to reimagine conventional water management by taking a more holistic, integrated, and innovative approach to regional and local water resource management and diversifying their water supply portfolio. This new model has the potential to manage stormwater, wastewater, drinking water, reclaimed water, and natural water resources in an integrated and synergistic manner while offering more flexibility in responding to changing climate and meeting regulatory obligations.

However one of the challenges these communities are facing is access to stable and sustainable financing options. While there is no single solution to financing the necessary improvements in California's water systems, the state must establish a more comprehensive and stable financing portfolio to help coordinate local, regional, and statewide efforts, and to expand the scope and scale of the projects that can be pursued.

Some of the innovative solutions in the sector fall outside the scale and scope of traditional financing options, such as large government loans, municipal bonds, and conventional public-private partnership. Financing and funding mechanisms – such as a public benefit charge on water – can help raise sufficient funds to bring down the cost of development and implementation of innovative solutions.  In addition, an increase in public investment can spur growth in private sector investment, which can have a multiplying effect in moving the sector forward.

Water, a Known Unknown

We as a society often forget the complexity of the system that ensures uninterrupted access to this essential resource.  We do not know where our water is coming from and what we are paying for. Another important element in securing a reliable financing portfolio for the water sector is fundamentally revisiting the way we value water as a resources. The water sector has to adjust the water rate structure and pricing policies in a way that would capture the full cost of delivery, decouple revenue from the quantity of water sold, and correctly reflect the marginal cost of consumption and scarcity. Unless the water sector moves to comprehensive and accurate water pricing and explores new, more innovative financing strategies, as well as a more innovative and friendly regulatory environment, California's pressing water problems will remain underfunded and unresolved.


Sustainable Groundwater Management Act of 2014

Signed in September 2014 by Governor Jerry Brown, the Sustainable Groundwater Management Act of 2014, for the first time in California’s history, codifies local control of groundwater resources and empowers regulation of such resources. The Act consists of three bills – AB 1739, SB 1168, and SB 1319 – which creates local groundwater sustainability agencies charged with implementing long-term groundwater resource availability and sustainability plans and protects the agencies from undue state intervention. Prior to the law, there was little-to-no oversight on the pumping of groundwater within communities.

Eureka Issue 1504

Facts on the Issue

Number of US Patents Filed in the Clean Energy Sub-Sector

Source: Stanford Woods Institute for the Environment, “The Path to Water Innovation,”
Note: Number of patents here used as a proxy for rate of innovation

Private Investment in the US Clean Energy Sector ($ billions) vs. Patents Filed

Source: Stanford Woods Institute for the Environment, “The Path to Water Innovation,”

Comparison of US Patents Filed Under the Patent Cooperation Treaty

Source: Stanford Woods Institute for the Environment, “The Path to Water Innovation,”
Note: Purification is the only water sub-sector with significant number of patents filed

Charts provided by Newsha Ajami

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