California’s water system is under siege. A pivotal report, “Inaction’s Economic Cost for California’s Water Supply Challenges” by Jay Lund, Alvar Escriva-Bou, and Josué Medellín-Azuara from UC Davis and UC Merced, commissioned by the California Municipal Utilities Association (CMUA), quantifies the looming threats to the state’s water supply. It projects a staggering 4 to 9 million acre-feet per year reduction—12% to 25% of current water use—driven by climate change, groundwater regulations, environmental mandates, and shrinking Colorado River allocations. Without decisive action, the economic toll could reach $14.5 billion annually, with up to 67,000 jobs lost, particularly in agriculture-dependent regions like the Central Valley. The report underscores the urgent need for infrastructure investments in storage and conveyance to secure California’s water future.
This new report largely aligns with an economic impact study commissioned in 2020 by the Water Blueprint for the San Joaquin Valley (Blueprint). The 2020 study by Dr. David Sunding and Dr. David Roland-Holst at U.C., Berkeley, revealed devastating impacts to the Valley’s economy and other parts of California as a result of continued water supply cuts, with at-risk populations bearing the brunt of the job losses.
The UC Davis/UC Merced Report: A Wake-Up Call
The new report explains the forces eroding California’s water supply and the catastrophic economic consequences of inaction, including:
- Water Supply Reductions: The state faces an unavoidable loss of 4–9 million acre-feet annually due to:
- Groundwater Overdraft: The Sustainable Groundwater Management Act (SGMA) will eliminate 2–3 million acre-feet of groundwater use by 2040, primarily in the San Joaquin Valley.
- Climate Change: Warmer temperatures and altered precipitation patterns will reduce water availability by 1–3 million acre-feet through increased evaporation and winter-heavy flows.
- Colorado River Cuts: California’s share of the river will shrink by 0.5–0.8 million acre-feet due to basin-wide imbalances and climate impacts.
- Environmental Flows: Increased Delta outflows and salmon protections will reduce supplies by 1–2 million acre-feet.
- Other Losses: Aquifer salination and infrastructure degradation could cost an additional 0.1–0.2 million acre-feet.
- Economic Impacts: The report estimates:
- Direct Losses: $1.8–$11.1 billion per year, with urban losses up to $6.5 billion and agricultural losses up to $4.6 billion in a “worse future” scenario (9.5 million acre-feet loss).
- Total Losses: Including indirect and induced effects, losses could reach $3.4–$14.5 billion annually, with 24,300–67,500 jobs lost, especially in agriculture and related sectors like food processing.
- Non-Linear Costs: Doubling water shortages more than doubles economic losses, as essential uses are cut.
- Regional Disparities: The Central Valley faces steeper agricultural losses due to high-value crops, while urban areas see higher per-unit costs but lower overall impact due to smaller water use.
- Spillover Effects: Agricultural shortages ripple through supply chains, reducing demand for inputs (e.g., labor, machinery) and outputs (e.g., food processing), amplifying economic damage. Urban shortages, while less disruptive to GDP, erode consumer welfare and burden households.
- Management Challenges: California’s decentralized water system, with thousands of local, regional, and state entities, struggles with coordination. The report highlights that shifting water shortages to less valuable uses (e.g., low-profit crops) via markets or policies could cut losses by up to 50%, but this requires robust infrastructure and leadership.
- Call to Action: The report advocates for investments in water supply augmentation (e.g., storage, reuse) and demand management (e.g., conservation, cropping changes). It stresses that state leadership is critical to coordinate responses, modernize infrastructure, and integrate environmental goals.
The UCD/UCM report scenarios—ranging from a “likely future” (5 million acre-feet loss) to a “worse future” (9.5 million acre-feet loss)—illustrate the urgency. For example, a 5 million acre-feet shortage could cost $4.3 billion directly, but allocating all losses to agriculture reduces this to $2.7 billion, highlighting the value of flexible allocation. The findings align with prior studies, such as Lund et al. (2024), which quantified these supply reductions, and Escriva-Bou et al. (2023), which detailed agricultural vulnerabilities in the San Joaquin Valley.
Repeating the Call for Infrastructure Investment
The report echoes the Blueprint message of the need for infrastructure investments and policy updates to help resolve water shortages and economic losses. Storage and conveyance systems can capture wet-year surpluses, stabilize supplies during droughts, and ensure reliable deliveries. These investments also support environmental flows and SGMA compliance, balancing human and ecological needs. The report emphasizes that while some projects may be costlier than their benefits, the scale of potential losses—up to $14.5 billion annually—justifies strategic action. Coordinated state, regional, and local efforts are essential to maximize impact and minimize delays, a point echoed in Hanak et al. (2011), which advocates for integrated water management.
Furthermore, outdated regulatory policies must be updated using new science. Better water management decisions that currently cut supplies for water users while delivering no benefits to listed species must change. In 2024, at the urging of the Blueprint, Governor Newsom and Interior Secretary Deb Haaland suspended a portion of the Fall X-2 regulation, which was providing no benefit to Delta smelt, as it was originally intended to do. That single action saved 100,000 acre-feet of water and more can be achieved by completely eliminating this and other ineffective management actions.
Key Projects to Enhance Water Supply and Reliability
The following projects align with the report’s recommendations and can significantly improve California’s water resilience:
- Under a project funded by the U.S. Bureau of Reclamation,
the Water Blueprint, is working with the California Water Institute to develop a pragmatic, cost-effective water plan for the San Joaquin Valley to more efficiently use water surplus to the needs of the environment and downstream users with the e=intent of having sustainable farms and ranches, healthy communities and thriving ecosystem. This plan is likely to include affordable storage projects, including groundwater storage, restoration of conveyance capacities in canals and flood bypass channels, and new delta infrastructure. A draft of the plan is expected to be available for public review later this year.
California’s water challenges are daunting, but the solutions are within reach. The UC Davis/UC Merced report makes clear that inaction will lead to severe economic and social costs. By eliminating ineffective policies that cost hundreds of thousands or millions of acre-feet of water per year as well as investing in new and updated infrastructure and the Healthy Rivers and Landscapes program, California can secure its water future. These projects enhance supply reliability, support economic stability, and address environmental needs, but their success depends on State leadership and regional collaboration. As the report and supporting studies suggest, now is the time to act to ensure California’s rivers, farms, and communities thrive for generations.
