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The Fox Canyon Water Market: A Market-Based Tool for Groundwater Conservation Goes Live

Posted by Havala Schumacher, NRCS Program Analyst in Conservation
Jul 29, 2021
The Santa Clara River
The Santa Clara River, Southern California’s last free-flowing river, is impacted by groundwater pumping. Photo Credit: Melinda Kelley, TNC

“In Ventura county, our whole strategy has been to protect the coastal and river habitat – and one way to do that is to support agriculture.”– Sarah Heard, Director, Conservation Finance, The Nature Conservancy

Ventura County, California, is an agricultural powerhouse. In 2017, its revenues from agriculture were an estimated $2.1 billion. It also faces extraordinary population pressure, with nearly 450 people per square mile – about five times the average population density of the United States. Both agriculture and infrastructure are dependent on, and impacted by, the availability of water – which has itself been impacted by California’s rapidly-diminishing groundwater reserves.

Groundwater is a critical resource for much of California agriculture, and in 2014 the state took steps to ensure the future sustainability of groundwater supplies by passing the Sustainable Groundwater Management Act (SGMA). This established a groundwater use framework across all sectors of society.

Following passage of SGMA, The Nature Conservancy (TNC) applied for and received a $1.8 million Conservation Innovation Grant from USDA’s Natural Resources Conservation Service (NRCS) to develop the Fox Canyon Water Market. This grant helped enable TNC, in turn, to provide essential support for Fox Canyon Groundwater Management Agency and project partner California Lutheran University in their effort to establish a market-driven and producer-lead approach to reduce groundwater pumping.

Under this cap-and-trade style system, agricultural producers in the Fox Canyon area are subject to fixed groundwater allocations based on historical use. Producers can then purchase or sell their unused allocation. If a producer can reduce their groundwater use, they can sell any unused portion of their allocation and realize income from their water savings. Some special features of this market are that it is online, anonymous, and uses an algorithm-driven matching platform, resulting in a level playing field and a fairer deal for farming operations of all sizes.

All markets need rules, stakeholder support and capacity to function, and the Fox Canyon Water Market is no different. The project credits several “enabling conditions” for its early success including:

  • Water scarcity – a limited supply and increasing demand for groundwater required innovative solutions;
  • Fixed allocations – participating producers voluntarily agreed to a fixed allocation of groundwater;
  • Agricultural stakeholder support – from the outset, this project was highly collaborative and producer driven;
  • Market design expertise – the project leveraged the experience of TNC and partners in designing environmental markets, and included robust pilot testing; and
  • Capacity and funding – enabled both by TNC’s robust planning and stakeholder engagement efforts and the support of funders including NRCS.

After years of development, the market exchange opened in March 2020. Still in a pilot phase, the market has already seen 58 acre feet of pumping allocations change hands, with more expected as the end of the water year approaches. Through this innovative project, TNC and its partners hope to demonstrate that market-based approaches can be a meaningful, fair, and sustainable way to achieve water conservation while engaging and supporting agricultural producers.

High-value crops from the Fox Canyon
The Fox Canyon produces high-value crops such as strawberries. Photo Credits (clockwise, L to R): Farm Bureau of Ventura County; Kiliii Yuan, TNC; Sarah Heard, TNC
Category/Topic: Conservation