New Research: Water Market Activity Is Increasing across Texas, Resulting in Greater Environmental Use of Water Supplies

Today, The Nature Conservancy in Texas (TNC Texas), in collaboration with the Texas Living Waters Project, released a first-of-its-kind, comprehensive analysis of thousands of transactions held through Texas’ water markets—a system of voluntary exchanges to reallocate water. Funded by the Cynthia and George Mitchell Foundation, the report finds that water market activity is increasing across the state, especially in the last decade, and that environmental transactions are the largest growth area in Texas water markets. Between 1987 and 2022, over $1.3 billion USD and more than four million acre-feet (AF) of surface water has been formally transacted—hundreds of thousands of which has gone to the environment.

For the first time in Texas’ history, municipal water demand is predicted to outpace agriculture by 2060. According to the State Water Plan, if no action is taken, Texas will face a statewide water shortage equivalent to an estimated $151 billion USD in annual economic losses by 2070—making water markets an essential tool to support a more sustainable economy. 

Although water markets in Texas’ Edwards Aquifer and Rio Grande Valley have a track record of success, this report suggests that there is an opportunity to efficiently scale water markets in basins across the state. Examining thousands of transactions statewide shows that the ability to sell or lease water between users has improved water security and drought resilience for Texas farmers and cities for over 30 years.

"There is a dire need to mitigate water scarcity in Texas in the coming decades, as well as to protect natural resources and ecosystems in our state," said TNC Texas' Water and Agriculture Program Director Kyle Garmany. "While Texas has made considerable investments in water markets, a few readily attainable policy changes could significantly enhance their ability to deliver benefits to people and the environment."

With new water market proposals already under consideration during the 2023 Texas Legislative Session, the report calls on Texas lawmakers to further strengthen and scale water markets for people and the environment.

“Amid unprecedented drought, Texans must value our limited water resources and use them efficiently to meet the needs of people and nature. Through this report, we show that water markets are one of a number of promising solutions helping ensure a sustainable future for Texans across the state," said Suzanne Scott, State Director of TNC Texas. "To tackle water scarcity head-on, we need state policy, practices and funding to strengthen and promote water markets and incentivize environmental water transactions to protect our springs, rivers, bays and estuaries.”

Notable findings from this new research include:

• WATER MARKETS ARE COST-EFFECTIVE AND FULFILL MULTIPLE NEEDS. The water scarcity problem in Texas is as much about inefficient distribution as it is about overall supply. Water markets can be an extremely cost-effective measure to flexibly deliver water when and where it’s needed, as opposed to building out new, expensive, untested infrastructure and supplies. Thousands of transactions have already reallocated water to municipal uses and increased environmental transactions in Texas water markets.
• ENVIRONMENTAL TRANSACTIONS CAN HELP PRODUCERS AND ECOSYSTEMS. Flow requirements for species and habitat are currently unmet in many Texas river basins, and the decline in freshwater flows is a major reason why nearly half of all native fish in Texas are listed for conservation concerns. Environmental water transactions—which have increased over the past decade—incentivize producers to leave water in streams for compensation, making water markets one of the most effective, viable pathways for Texas to get freshwater to these critical ecosystems and the large economies they support. This voluntary transaction also provides farmers with vital income during times of drought.
• WATER MARKETS CAN CONTINUE TO HELP CITIES SATISFY GROWING DEMAND. Increased water scarcity due to population growth and drought are driving Texas cities to develop new and alternative water supplies. More and more water has been reallocated over the last decade, and urban areas like Corpus Christi and Austin are innovating and looking for new ways to meet rising demands. The Texas Legislature has made significant investments in water markets through the Texas Water Trust and Texas Water Bank. Increased support and greater policy alignment could scale benefits to both cities and rural areas.

The Texas Living Waters Project is a collaboration of conservation groups working to ensure Texas has the water it needs for thriving communities and abundant fish and wildlife. For over two decades, the project has advocated for state policy and urban planning that protects communities from drought and flood while safeguarding Texas streams, rivers, bays, and estuaries for the benefit of all. The project is currently led by the National Wildlife Federation’s Texas Coast and Water Program, the Lone Star Chapter of the Sierra Club, The Nature Conservancy in Texas, Hill Country Alliance and Galveston Bay Foundation.