Earlier this summer, California’s State Water Board set in motion a significant precedent by adopting urban water conservation regulations designed to make water conservation “a California way of life.” Rather than merely request voluntary action, the mandate requires that 405 urban water suppliers—serving 95% of the state’s population—meet conservation targets starting in 2027. This shift from voluntary drought-driven restrictions to permanent measures aims to mitigate California’s growing risks from water scarcity in the face of climate change, demographic changes, and highly variable water usage across the state.
At Bluefield Research, we believe these new regulations are critical not just for California but a harbinger of things to come in other geographies. As the most populous state in the U.S. with 39 million people under its flag, California’s well-documented, mercurial weather patterns necessitate that long-term, sustainable water management solutions become the norm. Further, this landmark policy reflects the urgent need for change and offers a blueprint for other states, regions, countries, and governments going forward.
While early in its rollout, a couple of takeaways should be considered:
California’s new regulations represent a departure from the one-size-fits-all mandates of the past. Each water supplier will now set water use objectives based on local factors such as climate, land use, and population density. Some municipal water suppliers will be required to cut back on the amount of water they provide to customers by as much as 40% over the next 15 years. Northern California utilities, which typically experience milder climates and lower water usage, will face lower conservation targets compared to the hotter, more arid inland regions of the Central Valley and Southern California desert communities. Statewide, urban water use per person is expected to drop by 21.8% between 2022 and 2050 with the proposed regulation, compared to 17.9% without it.
The financial landscape of California’s water management is set to transform significantly. Initially, the estimated cost of compliance with the conservation mandate was projected to top US$13.5 billion, though recent revisions and a more efficient allocation of resources have helped lower this figure to US $4.7 billion. Moreover, the anticipated savings from reduced water purchases are estimated to top US $6.2 billion, including an estimated US$1.0 billion in lost revenues, underscoring the potential long-term economic benefits. However, the mandate is not funded, thereby exposing ratepayers and utility customers to substantial rate hikes going forward. The shift in investment focus from large-scale infrastructure to operational efficiencies also highlights a strategy that could alter utility spending priorities across the water sector.
A critical component of California’s long-term water strategy will need to be an emphasis on water reuse, advanced treatment technologies. As the state grapples with increasing climate variability, the need for resilient water supplies is paramount. Currently, Bluefield has identified approximately US$11.1 billion of planned municipal water reuse projects in California, making it the largest state for these opportunities going forward. Investments in potable and non-potable water reuse systems, alongside advanced treatment solutions like desalination, will play a key role in meeting future water demands. The challenge will be in bridging the demand-side (i.e., commercial, industrial, residential) of the equation with the supply-side (i.e., wastewater treatment plants).
Climate-Driven Considerations: Climate change poses a significant threat to California’s water resources, requiring more proactive measures to ensure long-term sustainability. According to the National Oceanic and Atmospheric Administration (NOAA), California has experienced 11,942 storm and climate events totaling US$33.7 billion in damages–of which 77% are water related. The new regulations call for a shift from reactive drought measures to proactive water management strategies designed to get ahead of anticipated climatic shifts.
Climate change impact
According to the National Oceanic and Atmospheric Administration (NOAA), California has experienced 11,942 storm and climate events totaling US$33.7 billion in damages–of which 77% are water related.
Bluefield has data on over 11,000 U.S. storm and climate impacts.
California stands as another example of a region facing severe droughts and implementing successful water management strategies. For instance, Australia responded to the Millennium Drought by investing over AU$5.2 billion in water infrastructure during its peak in 2009, which included flexible, localized measures, significant investments in water reuse and desalination, and a shift towards operational efficiencies. These actions not only improved water resilience but also highlighted the importance of setting clear, measurable goals and embracing innovative solutions, such as the AU$6.8 billion expected investment in digital solutions by 2030. By learning from such examples, California can refine it’s water conservation efforts to ensure that conservation endeavors are robust and adaptable to future climate challenges.
As California embarks on this ambitious path, the success of these new mandates will ultimately hinge on implementation and the state’s ability to execute on planning, enforcement, and basic economics. Capital intensive water utilities are volume-based businesses, so taking an axe to their revenue sources can only go so far without real implications, such as higher water bills and diminished service, for all stakeholders.
While the financial and operational shifts may pose initial challenges, the regulations’ long-term benefits in water security, economic stability, and environmental resilience are seemingly undeniable. These localized measures represent a crucial step forward in addressing the state’s complex water needs and set a strong precedent for others to follow.
