Evidence Supporting Cap and Trade as a Groundwater Policy Option for Reducing Irrigation Consumptive Use¹

Abstract

Thompson, Christopher L., Raymond J. Supalla, Derrel L. Martin, and Brian P. McMullen, 2009. Evidence Supporting Cap and Trade as a Groundwater Policy Option for Reducing Irrigation Consumptive Use. Journal of the American Water Resources Association (JAWRA) 45(6):1508‐1518. Abstract: In the American West water is becoming an increasingly scarce resource. Obligations to bordering states, endangered species protection, and long‐term resource sustainability objectives have created a need for most western states to reduce the consumption of irrigation water. In Nebraska specifically, the Nebraska Department of Natural Resources (NDNR) and local Natural Resource Districts (NRDs) are meeting a large part of this need by using a regulatory approach, commonly called groundwater allocation. The cost of allocation, which occurs in the form of reduced economic returns to irrigation, could be greatly reduced by using an integrated cap and trade approach. Much like environmental cap and trade programs which are used to reduce the cost of limiting environmental pollution, the trading of capped groundwater allocations can reduce the cost of limiting water use. In an analysis of a typical case in the Nebraska Republican Basin, we found that the impact of a water market to trade groundwater allocations depended on the size of the allocation and on the characteristics of the land and irrigation systems involved in the trade. Potential economic benefits from trade ranged from US$0 to US$120 per 1,000 cubic meters traded, from US$25 to US$250 per 1,000 cubic meters of reduction in consumptive use, and from US$16 to US$50 per hectare of irrigated land in the region. The highest benefits occurred at relatively high allocations, which capped withdrawals at 65‐75% of the expected unrestricted pumping level. These gains from trade would be split between buyers and sellers based on the negotiated selling price.

Evaluating the Possibility of a Water Trading Scenario Coupled With Water Use Restriction in the Texas Southern High Plains

“…This study also supports the fact that cap and trade groundwater management programs are a new concept that is just now emerging in the policy arena (Thompson et al, 2009). Thompson et al study objective was to evaluate the merits of a cap and trade policy for the Republican Basin in Nebraska, an area characterized by high irrigation water consumption.…”

“…The most relevant study for enunciating the possibility of implementing a cap and trade system for groundwater by Thompson et al (2009), clearly suggests the absence of previous empirical work on the marketing of capped groundwater supplies. This study also supports the fact that cap and trade groundwater management programs are a new concept that is just now emerging in the policy arena (Thompson et al, 2009).…”

“…The results from this study conclude that the impact of a water market to trade groundwater allocations is influenced by the size of the Environmental Management and Sustainable Development ISSN 2164-7682 2015 allocation and on the characteristics of the land and irrigation systems involved. It was found that potential economic benefits from trade ranged from US$0 to US$120 per 1,000 cubic meters traded, from US$25 to US$250 per 1,000 cubic meters of reduction in consumptive use, and from US$16 to US$50 per hectare of irrigated land in the region (Thompson et al, 2009). The gains from trade would be split between buyers and sellers based on the negotiated selling price, and the highest values were found to occur at relatively high allocations, where withdrawals were capped at 65-75% of the expected unrestricted pumping level (Thompson et al, 2009).…”

Controlling Groundwater Exploitation Through Economic Instruments: Current Practices, Challenges and Innovative Approaches

“…Moreover, there are also examples where markets in groundwater pumping rights are emerging. Finally, in at least one case, voluntary changes in water rights that allow binding reductions in agricultural groundwater pumping have occurred (Kuwayama and Brozović 2013;NE DNR and MRNRD 2010;NE DNR and TBNRD 2012;NE DNR and URNRD 2010;Thompson et al 2009). In the remainder of the section, we will focus on describing some of these recent, innovative approaches to groundwater management.…”

Social Science Contributions to Groundwater Governance

“…In relation to groundwater, these reforms have included reductions in groundwater entitlements and annual allocations, the introduction of trading in groundwater, and changes in rules to allow for the "banking" of surplus water in aquifers for later recovery and use (Contor 2009;Schlager 2006;Thompson et al 2009). Of course, these changes have the potential to have substantial impacts on stakeholders, including irrigators, industries dependent on irrigation and the nearby towns and cities.…”