By Jennifer Chaussee

SAN FRANCISCO (Reuters) - California’s drought is expected to cost the state an estimated $2.2 billion this year, along with a loss of more than 17,000 jobs, as farmers are forced to fallow some valuable crops, a report by scientists at the University of California in Davis showed on Tuesday.

The report stressed the need for local governments to better manage emergency water reserves, including using measurement tools to track the amount of groundwater that is used during dry years and a statewide system for transporting stored water to where it is needed.

“The 2014 drought is responsible for the greatest absolute reduction in water availability for California agriculture ever seen,” the report said, adding that the results "underscore California’s heavy reliance on groundwater to cope with droughts."

"Without replenishing groundwater in wet years, water tables fall and both reduce regional pumping capacity and increase pumping energy costs,” it said.

The report, funded in part by the state’s agriculture and water resources departments, was released hours before state water regulators were to consider rolling out new conservation rules that could put strict limits on the amount of water people are allowed to use and impose fines on those who violate the restrictions.

California is in the third year of a catastrophic drought that has diminished the Sierra Nevada snow pack, which normally feeds the state's rivers and streams with cool water.

Democratic Governor Jerry Brown declared a drought emergency in January, committing millions to help stricken communities and temporarily easing protections for endangered fish to allow pumping from the fragile San Joaquin-Sacramento River delta.

UC Davis scientists Richard Howitt and Jay Lund, who co-authored the report, said pockets along the state’s Central Valley, where farmers are relying on emergency groundwater reserves as other water resources have run dry, will be hit especially hard by economic losses.

Overall, the drought is expected to cause $2.2 billion in total economic losses in California this year, the report said. The estimated crop revenue loss amounts to $810 million, mostly due to water shortages that have forced many farmers to let their fields lie fallow.

Some 60 percent of fallowed cropland, where farmers once irrigated grazing fields or grew annual crops such as corn and beans, are in the San Joaquin Valley, where 70 percent of the state's agricultural revenue loss is concentrated.

Most of the 17,100 lost jobs, including seasonal and part-time agriculture work, are in the San Joaquin Valley. California ranchers also have begun selling their livestock in droves to ranchers in the northwestern U.S. states.

“It’s critical that Californians develop an ethic of water preservation,” said Karen Ross, secretary of the California Department of Food and Agriculture, stressing the need for more water storage and for capturing water run off during storms.

(Editing by Cynthia Johnston and Bill Trott)