Stanford University: California Water on the Market: Q&A with Barton “Buzz” Thompson
March 3, 2021
O’Melveny Of Counsel Buzz Thompson sat down with Stanford University’s Bill Lane Center for the American West to discuss what observers can glean from three months of market trading on the future value of California’s water. In addition to his practice, Thompson serves as Faculty Director for Stanford’s Water in the West program and is founding director of the Woods Institute for the Environment.
“Beyond the ethical questions of valuing water, the economic value of water and its price generally diverge,” Thompson explained. “Because we need water to survive, the value of water is the value of life itself. Someone without any water would give everything they have for that water. But despite its high value in use, water typically has a relatively low market price because it is often abundant.”
Like all commodities, California’s water prices follow the dictates of supply and demand, noted Thompson. Infrastructure in particular is an important variable in the equation. “Water is not worth as much if you can’t get it to where the water is needed. So the price of water is highly local. . .During droughts, however, California has often merged the water rights, so that it is easier to move water from one system to another. This has allowed water to flow the most needy areas, reducing the cost of droughts and other water shortages.”
Thompson is hopeful futures markets will help farmers mitigate their operational risk. “Water markets existed before the new water futures and are an important way by which society can ensure that water, particularly as it becomes scarcer, is used wisely,” he said. “Water markets need to be carefully regulated to protect the human right to water and the environment. But with appropriate protections in place, water markets are an exceptionally important and valuable tool.”
Read the full interview here.