Water market transactions involve the sale or lease of a wide range of ownership interests in water. A water right entitles the owner to divert or pump water from rivers, streams, and groundwater basins. Water rights are the most commonly traded category of ownership interest. Other commonly traded entitlements include shares in groundwater banks, surface reservoir storage rights, and entitlements to treated wastewater.
The overall size of water markets in the western U.S. is relatively small compared to other more commonly traded natural resources, however, given the relative scarcity of water supply, the region has seen the creation of nascent, but rapidly growing markets for the transacting of water rights. Water trading occurs in every western state, with more than 20 distinct regions where market activity routinely occurs.
California, particularly the Southern part of the state, is the largest market by volume and value. The value and volume of water traded annually in California is nearly four times that of other states. Other prominent markets are in the Front Range of Colorado, Arizona, and Central Texas (near Austin and San Antonio). These markets have formed at local and regional levels in response to a variety of market conditions, public policy, and ultimately the need to supply water for growing and changing demands.