By Ellen M Bruno
The Sustainable Groundwater Management Act (SGMA) opened the door for groundwater markets to emerge in much of California. Groundwater markets refer to the voluntary, compensated transfer of the right or allowance to pump groundwater, as well as the rules and institutions that govern trading. Many groundwater sustainability agencies expressed initial interest in developing groundwater cap-and-trade schemes under SGMA, and a handful have made actionable progress towards implementing them. While groundwater markets have potential to substantively reduce the costs of groundwater conservation, they also carry the possibility of unintended consequences. Additionally, these markets may not be equally accessible by all participants.
Identifying Challenges and Opportunities
On November 4, 2025, a group of 30 researchers, lawyers, agency managers, and growers with subject-matter expertise met in Davis to discuss the challenges and potential opportunities for small farmers to participate in groundwater markets that are currently developing under SGMA. The goal of this roundtable was for both practitioners and researchers to communicate their current state of knowledge and jointly identify areas for further work.
Through presentations and open discussion, the group identified and discussed key challenges. Among the issues raised were identifying ways of addressing equity concerns, preserving the vitality of small farmers, mitigating any negative labor and employment effects of markets, and preventing forms of market influence that could disadvantage small farmers.
How to Allocate Rights is a Key Decision
The first session featured opening remarks by UC Davis ARE Professor Eric Edwards on the initial allocation of pumping rights and implications for equity. Dr. Edwards emphasized that allocations – which are distinct from the ability to trade – are often assigned based on past use. This carries important equity implications, because it gives a greater share of the pie to those who have used more groundwater in the past.
The group asked: Can farmers be compensated to achieve equity goals? Could regulators distribute a greater share of allocations to those that are small/disadvantaged so that they possess an asset? What are the pros and cons of allocating non-tradable pumping rights to those using only a small volume of groundwater with the goal of preserving small farms? The discussion largely centered on the structural challenges facing small farmers under SGMA and the role of trading versus the initial allocation of tradable permits.
Many participants noted that multigenerational family farmers think about managing the land for long-term sustainability. This was expressed in contrast with corporate or investor-owned agricultural operations, which may focus more on short-term profits. Locally owned farming operations are often thought to provide greater community benefits through regional purchasing behavior.
Source : ucanr.edu