Economic Tradeoffs in Groundwater Management During Drought

by Kathleen Stone and Rob Gailey

Domestic well users in some areas were greatly impacted by additional agricultural groundwater pumping during California’s 2012-2016 drought, which substantially compensated for reduced surface water supplies. Implementation of the 2014 Sustainable Groundwater Management Act (SGMA) should improve long-term groundwater availability during drought for all system users by requiring groundwater management to avoid significant and unreasonable impacts of decreased groundwater levels.

To evaluate the economic impacts of local groundwater policy alternatives on two sometimes conflicting user groups in a local groundwater system, we analyzed agricultural and domestic groundwater use in Tulare County, California (Figure 1) during the 2012-2016 drought (Gailey et al., 2018; Gailey et al., 2019; Stone, 2019).

Figure 1 map.png

Figure 1. Study area in Tulare County, California

Using hydrologic and crop production data from the drought, agricultural surface water deliveries, crop water demands, and groundwater usage were estimated for much of the Tulare County valley floor. With these data, an agricultural-groundwater profit maximization model was created to relate groundwater use, agricultural profit, and resulting agricultural costs from potential groundwater use regulations. A similar relationship for domestic groundwater users was obtained from an existing domestic well costs model (Gailey et al., 2019). By defining alternative groundwater policies as depth-to-groundwater (DTGW) pumping limits, the models estimated agricultural opportunity and domestic well costs, respectively.

To reflect the need to mitigate results of level declines during drought under SGMA, we further added a groundwater recovery fee or cost for agricultural users, Cw, ranging from $0-$900 per acre-ft. This cost simulates future groundwater recovery costs from either importing replacement surface water or reducing future water use by fallowing lower-valued crops after the drought, to resupply drought groundwater drawdown, as required by SGMA.

The collection of these policy-related economic impacts on users forms a trade-off curve of impacts to the agricultural and domestic well users (a Pareto curve) for the range of drought drawdown policies. The groundwater policy which maximizes the total economic welfare for the region (both groups) was then identified (Figure 2).

Figure 2 plots

Figure 2. (a) Agricultural cost curves ($B) and domestic well users’ cost curve ($M), (b) User economic impact trade-off curves

Limiting drought-related drawdown increases agricultural costs and reduces domestic well user costs. Agricultural costs increase because reduced groundwater availability reduces crop production and profits. Domestic well costs decrease because supply shortages and accompanying costs from groundwater drawdown are reduced (Gailey et al., 2019). With increasing groundwater recovery costs, the agricultural cost curves and welfare-maximizing policies reach thresholds in which the recovery costs to pump more groundwater exceed the profit gained from additional groundwater pumping. With SGMA implementation, represented by a penalty for excess groundwater pumping, drawdown and domestic well costs are reduced substantially and the historical ratcheting-down of groundwater levels over the series of droughts is avoided.

Since agricultural profit greatly exceeds domestic well costs incurred during drought, opportunities should exist for compensating domestic well user costs from the additional profits preserved from agricultural pumping. The compensation provided by agricultural users might involve negotiations among user groups and regulatory authorities. Consistent with Gailey et al. (2019), one potential method to estimate a socially-equitable cost allocation is to model the groundwater drawdown caused by agricultural and domestic users and allocate costs proportionally to drawdown impacts, respectively. One method to implement cost allocation is to create a compensation fund with revenues from excess pumping fees.

Additional agricultural groundwater pumping during the drought, to compensate for reduced surface water supplies, greatly impacted domestic well users in some areas. Economically, these impacts on domestic well users were much less than the economic benefits of this additional pumping to agricultural users. SGMA policy implementation to achieve sustainability, requiring groundwater management to avoid significant and unreasonable impacts of decreased groundwater levels, will improve long-term groundwater availability to all system users, but some compensation and preparations for domestic well users could be usefully incorporated into local groundwater sustainability plans.

Further Reading

Gailey, R. M. and Lund, J. R. 2018. “Managing Domestic Well Impacts from Overdraft and Balancing Stakeholder Interests.” https://californiawaterblog.com/2018/05/20/balancing-ag-and-domestic-well-interests-during-groundwater-overdraft/

Gailey, R. M., Lund, J. R., & Medellín-Azuara, J. (2019). Domestic well reliability: evaluating supply interruptions from groundwater overdraft, estimating costs and managing economic externalities. Hydrogeology Journal 27(4): 1159-1182. https://doi.org/10.1007/s10040-019-01929-w

Stone, K. (2019). Economic Tradeoffs in Groundwater Management During Drought: Tulare County, California. (MS Thesis) University of California, Davis. Retrieved from https://watershed.ucdavis.edu/shed/lund/students/KStone_Thesis2019.pdf

Kathleen Stone recently completed her masters degree in Civil and Environmental Engineering at the University of California, Davis.  Rob Gailey less recently completed his PhD in Civil and Environmental Engineering at the University of California, Davis and has returned to professional consulting.

About jaylund

Professor of Civil and Environmental Engineering Director, Center for Watershed Sciences University of California - Davis
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