Both refer to California. The first is acting as a noun, the subject of the sentence. Thus, it means "California." The second the possessive form of "it." It means "California's." "To reduce risk from both, California can return some of California's land to water." As a side note, even native speakers are often confused about the spelling of the word "its" when we learn it in school. The possessive form of nouns is normally written with an apostrophe. Dan's book, California's mountains, the dog's leash. But "it" is an exception. The possessive form of "it" is "its," with no apostrophe: "English has its quirks." "The car has a dent in its left side." The word "it's" with an apostrophe is a different word. It's a contraction for "it is." "It's interesting learning a new language." "Where is our big cooking pot?" "It's in the cabinet under the counter."

Both are referring to California here.

The antecedent for both "it" and "its" is "California."

Hi Min, this is Hugo, I'm Brazilian and I live in California, US; text me if you want to talk in English; I like to travel, restaurants, and dogs. I hope you have a great week!