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Potential approaches to the management of third-party impacts from groundwater transfers: Managing externalities from groundwater trading

Author

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  • Skurray, James H.
  • Pannell, David J.

Abstract

Groundwater extraction can have varied and diffuse effects. Negative external effects may include costs imposed on other groundwater users and on surrounding ecosystems. Environmental damages are commonly not reflected in market transactions. Groundwater transfers have the potential to cause spatial redistribution, concentration, and qualitative transformation of the impacts from pumping. An economically and environmentally sound groundwater transfer scheme would ensure that marginal costs from trades do not exceed marginal benefits, accounting for all third-party impacts, including those of a non-monetary nature as well as delayed effects. This paper proposes a menu of possible management strategies that would help preclude unacceptable impacts by restricting transfers with certain attributes, ideally ensuring that permitted transfers are at least welfare-neutral. Management tools would require that transfers limit or reduce environmental impacts, and provide for the compensation of financial impacts. Three management tools are described. While these tools can limit impacts from a given level of extraction, they cannot substitute for sustainable overall withdrawal limits. Careful implementation of transfer limits and exchange rates, and the strategic use of management area boundaries, may enable a transfer system to restrict negative externalities mainly to monetary costs. Provision for compensation of these costs could be built in to the system.

Suggested Citation

  • Skurray, James H. & Pannell, David J., "undated". "Potential approaches to the management of third-party impacts from groundwater transfers: Managing externalities from groundwater trading," Working Papers 161074, University of Western Australia, School of Agricultural and Resource Economics.
    • Handle: RePEc:ags:uwauwp:161074
    DOI: 10.22004/ag.econ.161074
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    File URL: https://ageconsearch.umn.edu/record/161074/files/WP130008R.pdf
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    References listed on IDEAS

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    1. Zekri, Slim, 2008. "Using economic incentives and regulations to reduce seawater intrusion in the Batinah coastal area of Oman," Agricultural Water Management, Elsevier, vol. 95(3), pages 243-252, March.
    2. Brozovic, Nicholas & Sunding, David L. & Zilberman, David, 2010. "On the spatial nature of the groundwater pumping externality," Resource and Energy Economics, Elsevier, vol. 32(2), pages 154-164, April.
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    Cited by:

    1. Ghosh, Sanchari & Willett, Keith D., 2021. "Water Permit Trading for reservoir water under competing demands and downstream flows," 2021 Annual Meeting, August 1-3, Austin, Texas 313858, Agricultural and Applied Economics Association.

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