The Effects of Energy Prices on Groundwater Extraction in Agriculture in the High Plains Aquifer
In this paper we examine the effects of energy prices on groundwater extraction using an econometric model of a farmer’s irrigation water pumping decision that accounts for both the intensive and extensive margins. Our results show that energy prices have an important effect on both the intensive and extensive margin. Increasing energy prices would affect crop selection decisions, crop acreage allocation decisions, and the demand for water by farmers. Our estimated total marginal effect, which sums the effects at the intensive and extensive margins, is that an increase in the natural gas futures contract price of 1 cent/1000 btu would decrease water extraction by an individual framer by 102.88 acre-feet per year, which is approximately 63% of the average amount pumped in a year by a farmer.
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