Although known as "the Golden State," water is undoubtedly California’s most precious resource. Beginning with the gold rush during the mid-1800s, water has guided California’s settlement and defined its landscape. At the turn of the century as settlers turned to farming and ranching, they depended on irrigation to transform arid California into the country’s most productive agricultural region. Today, California’s growing population has led to increased urban and industrial demands, not to mention the constant need for water to keep California’s rich environment healthy.

As California’s water needs increase, the rules that govern California water grow more complicated. The result is a myriad of laws and policies so complex that it defies understanding and makes reform seemingly impossible. One solution both policymakers and water users are discovering can help alleviate water shortages is water markets. Water markets balance supply with demand. Although water markets do not create new supplies, they reallocate water to make more efficient use of existing supplies, promote water conservation, and allow water users to get more out of their water supply than they otherwise could.

While policymakers and state resource agencies have acknowledged that water markets play a role in California water policy, they do not recognize the extent of that role. Nor do they address the fact that California’s water problems do not stem from an inadequate water supply, but from poor management and allocation of existing supplies.

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