GroundwaterEconomics

Charles A. Job

Lap) CRC Press\ ^ J Taylor Si Francis Group

Boca Raton London New York

CRC Press is an imprint of theTaylor & Francis Croup, an informa business

ContentsPreface xxiAcknowledgments xxiiiAuthor xxv

PART I Introduction

Chapter 1 An Introduction to the Economics of Groundwater 3

Background 3Approaches to Economic Analysis Relative to Groundwater 6Significant Groundwater Economics Issues 10Initial Economic Concepts 20Brief Overview of the Book 23References 23

PART lla Context

Chapter 2 Groundwater in the Ecosystem 29

Physical Significance of Groundwater 29The Hydrologic Cycle 29Natural Factors Affecting Groundwater Resources 33Other Factors Affecting Groundwater Supply. 38Groundwater Availability 38Groundwater Quality 39Groundwater Flow 42

Local/On-Site Flow 42Watershed Flow 43Regional Flow 43

Natural Sensitivity and Vulnerability 43Regional Sensitivity 43Local Sensitivity and Vulnerability 44Human Activity and Ecosystem Vulnerability 46

Biodiversity in Groundwater 47Ground and Near-Surface 48Karst 48First Aquifer 48Littoral Zones 49Deep Aquifer Environments 49Note on Biodegradation 49

Groundwater Occurrence and Human Interaction 50Wells 50Springs 50

vii

VIII Contents

Wetlands 50Groundwater-Surface Water Interaction 51

The Water Budget 54Groundwater and Climate Change 58Summary: General Observations on Natural Factors AffectingGroundwater in the Ecosystem 58Appendix: Hydraulic Conductivity 61References 61

Chapter 3 Groundwater in the Economy 67

Groundwater's Influence in the Economy 67Groundwater Availability 68Groundwater Quality 70Major Economic Groundwater Uses in National and International Contexts 72

International 72United States 74

Irrigation 74Drinking Water 75Industrial 76Per Capita Use 77All Groundwater Uses 77Groundwater Services Sector 77

Unintended Effects of Groundwater Use in an Economy 82Ecological and Aesthetic Uses of Groundwater 84Residual Absorption as a Use of Groundwater 84

Chemical Wastes 84Pesticides 85

Competition for the Subsurface Environment 85Health and Economic Productivity 85Other Socioeconomic Factors in Overview 85Economic Management Characteristics of Groundwater 86Economic Challenges and Market Failure 88A Model of Groundwater in the Economy 89Groundwater Function and Service 90Recycling and Reuse 92A Simple Model 92Expanded Ecosystems Services Model 94Economic Effects on Groundwater from Climate Change 96Implications for Sustainable Groundwater in the Economy 96Summary 97References 97

Chapter 4 Groundwater Access and Supply: Wells, Springs, and Green Management 101

Access Is Fundamental to Use 101A Typical Well 101Groundwater Resource Investigation 102

Elements of an Investigation 102Analysis of Available Information 104Cost of Investigation 104

Costs and Benefits of Groundwater Investigation 106

Contents ix

Land or Property Entry 108Factors Affecting Well Location 108Well Permits 113Well Drilling and Installation 113Well Size 119Private Domestic Wells 119Monitoring Wells 119Water Supply Well 119Well Pumps , 120

Solar-Powered Pumps : 121Wind-Powered Wells l..:..Z7. 124Other Well Types 124Aquifer Storage and Recovery 125

Direct Benefits 125Indirect Benefits 125

Heat Pump Wells 126Hydraulic Fracturing Wells 127Brine Production Wells 127Springs 127Dewatering 128Geothermal Production 130In Situ and On-Site Groundwater Treatment 130Benefits of Properly Installed and Maintained Wells 131Costs of Improperly Installed or Maintained Wells 132Ecological Aspects of Access to Groundwater and the Subsurface 132

Unsaturated Zone and Shallow Aquifers 132Rivers and Streams 133Wetlands 133

Green Management 133Water Source 133Water Quality 134

Summary 134References 135

Chapters Groundwater Law 137

A Complex Framework 137Socioeconomic Considerations 137Range of Uses Recognized in Law 138Groundwater Quantity and Quality 138Groundwater Mobility 139Groundwater as Property 139Groundwater Laws of the United States ; 140

State Groundwater Doctrines, Law, and Policy in the United States 140Terminology for Groundwater Categories in Case Law 141

Subflow of Surface Streams 141Underground Streams 141Percolating Waters 141Wastewaters 141

Water Quantity 142Absolute Ownership 143Reasonable Use 143

x Contents

Correlative Rights—Eastern United States(From the Restatement of Torts Rule) 143Correlative Rights—Western United States 144Prior Appropriation 144Management Area 144State Groundwater Drainage Law 144State Laws for Well Installation 145Federal Groundwater Quantity—Related Laws 146

Water Quality 146State Law Affecting Land Management Practices withGroundwater Quality Implications 148State Groundwater Quality Protection 148U.S. Federal Groundwater Quality Protection—Related Laws 150

Groundwater Quality Standards 151U.S. Federal Wetlands Laws 154

U.S. Federal Environmental Valuation of Groundwater-Related Actions 154U.S. Groundwater Financing Laws 155Other Economic Implications of U.S. Groundwater Rights and Laws 156Environmental Site Assessments 156

In the United States 156Internationally 157

Groundwater Laws of Other Countries 157Canada 157Mexico 161European Union 162Muslim Countries 166

Comparison of Approaches 166Conclusion 170References 170

Chapter 6 Groundwater Consumption for Health and Food 173

Part 1: Groundwater and Health 173Positive Health Effects 174Negative Health Effects 175

Naturally Occurring Contaminants 178Human-Caused or Anthropogenic Source Contaminants 188

Valuing Health Risks 194Barriers Protecting Health 195

Source Water Protection and Contaminant Characteristics 195Treatment of Groundwater 196

Groundwater Source Quality for Other Living Organisms 196Groundwater Source Quality for Commercial Applications 198

Summary ': 199References 200Part 2: Groundwater and Food Production 201Largest Use of Groundwater 201

Extent of Irrigation Water Demand 201Biofuels Demand on Groundwater 204Brief History of Groundwater Irrigation 204Recent Developments in Irrigation Wells 204Irrigation Wells in Use 205

Contents xi

Land Area Irrigated 206Irrigation Well Costs 207Irrigation Methods and Costs 212Irrigation Efficiency 216Irrigation Use of Groundwater 216Irrigation Productivity 216

Financing Irrigation Systems 218Ecosystem Effects of Irrigation 219

Waterlogging and Salination 219Depletion of Aquifers :. 219Land Subsidence ~.~.~. 220Accumulation of Salts, Nutrients, and Pesticides Residuals 221

Best Management Practices 223Institutional Factors 225Macroeconomic Considerations 225

Summary 226References 226

Chapter 7 Groundwater Quality Treatment and Waste Disposal 231

Treatment for Drinking Water : 232Household Treatment 232Central Water Supply Treatment 234Desalination 238Subsurface Disposal and Release of Drinking Water Treatment Residuals 239

Watershed Management 239Waste Releases to Groundwater and the Subsurface Environment 240

Onsite Wastewater Disposal 240Underground Injection 240Subsurface Releases and Modifications Associated with GlobalClimate Change 243

Carbon Dioxide 243Sea-Level Rise and Saltwater Intrusion 248Inland Brackish and Saline Water Intrusion 248Desalination Wastes 248

Remediation of Chemical Residuals in Groundwater 249Water Reclamation and Reuse 253Economic Considerations for Groundwater in Treatment and Disposal 255Summary 256References 257

PART lib Reprise

PART III Economic Fundamentals

Chapter 8 Microeconomics and Basic Economic Relationships 269

Economic Utility, Price, and Product 269Information Effects on Individual's Tastes and Preferences 272Economic Utility Again 273

xii Contents

Willingness to Pay 273Demand 275Benefits 276Supply 277An Example in Graphical Form 279Monopolies and Supply 279Price in a Competitive Market 281Economic Efficiency 281Assumptions Used to Derive "Competitive Markets" 281

Behaving Logically and Reasonably 282Maximizing Self-interest ..'. 284Price Allocates Resources 284Perfect Competition 285Perfect Knowledge among Buyers and Sellers 285Perfect Mobility of Goods and Productive Factors 286Perfectly Elastic Supply of Productive Factors 286Spontaneous Order and Efficiency 286Substitutability of Inputs 286

Decision Makers in Groundwater Production 287Decision Makers Affecting Demand for Groundwater 290An Example 291

Discussion 292Producer/Operator Decisions 294

Capital and Financing Aspects of Economic Production 295Capital Financing 295Discount Rate 296Depreciation of Capital 297Natural Capital 298

National and International Implications of Groundwater Production 299Summary 300References 301

Chapter 9 Cost, Benefit, Price, and Value of Groundwater in Marketand Nonmarket Settings 303

A Framework for Categorizing Economic Results 303Market Goods and Services 304Market Failure 305Nonmarket Goods and Services '. 309Costs 310Public Bads 312Benefits 312Price 313

A Generalized Pricing Model 316Nonmarket Factors 318Asset Value 319Replacement Surcharge Pricing 319Estimating o[F(i)], the Cost of Foregone Opportunities for Water Use 322Price Elasticity of Demand for Water and Income Factors 325Scarcity and Pricing 325Underpricing 327

Contents xiii

Pricing Methods 327Institutions Facilitating Pricing 328Average versus Marginal Cost Pricing 331Full Cost Pricing 333

Values 333Other Categories of Effects 336

Risk Reduction Benefits 336Equity Effects 336

Summary 337References '. .' 337

Chapter 10 Macroeconomics 341

Macroeconomic Policy Activity 341Macroeconomics in Overview 342

National Macroeconomic Functions 343Macroeconomic Policy Development 345Effects of Macroeconomic Policies 347

Example 10.1—Energy Production 349Example 10.2—Water System Financing 349

Ecological Capacity in the Macroeconomy 350Macroeconomic Models of the Economy 351Groundwater Occurrence and Use (Again) 354Basic Raw Material for Many Industries 356Natural Capital 356Natural Capital and Depletion 359Macroeconomic Balancing and Policies 359Macroeconomic Policy Goals and Principles 360

Goals 360Principles 361

Macroeconomic Instruments 362Distribution Effects 362Convergence of Economic Models 363Summary 364References 365

PART IV Political Economy of Groundwater Management

Chapter 11 Groundwater Policy 369

Groundwater Policy Types 369Water Source Policy 371

Policies in High-Level Overview 371Local Level 371State Government 373National/Federal Government 375

Economic Considerations in Water Source Policies 375Contaminant Control Policy 377

Policies in High-Level Overview 377Local Level 377

xiv Contents

State Government 380National/Federal Government 380

Economic Considerations in Contamination Control Policy 381Criteria for Policy Evaluation 384

Ecosystem Scale 385Positive Ecosystem Response 385Equity 385Economic Efficiency or Effectiveness 386Dynamic Incentive 387Low Information Requirements „ 387Low Administration Cost ...7 387Agreement with Moral Precepts 388

Summary 388References 389

Chapter 12 Economic Analysis of Groundwater Policy 391

Policy Evaluation 391Note on Relation of Chapters 12 and 13 AddressingEconomic Evaluation 391

Local Relational Policies 392Ecosystem Scale 392

Property Rights and Liability Law for Water Sources 392Property Rights and Liability Law for Contaminant Control 393Community Information for Water Sources 393Community Information for Contaminant Control 393

Positive Ecosystem Response 393Property Rights and Liability Law for Water Sources 394Property Rights and Liability Law for Contaminant Control 394Community Information for Water Sources 394Community Information for Contaminant Control 395

Equity 395Property Rights and Liability Law for Water Sourcesand Contaminant Control 395Community Information for Water Sources and Contaminant Control 395

Economic Efficiency or Effectiveness 395Property Rights and Liability Law for Water Sources 395Property Rights and Liability Law for Contaminant Control 398Community Information for Water Source 400Community Information for Contaminant Control 402

Remaining Criteria for Evaluating Local Relational Policies 404Dynamic Incentive 404

Property Rights and Liability Law for Water Sourceand Contaminant Control 404Community Information for Water Source and Contaminant Control 404

Low Information Requirements 404Property Rights and Liability Law for Water Sourceand Contaminant Control 404Community Information for Water Source and Contaminant Control 404

Low Administration Cost 404

Contents xv

Property Rights and Liability Law for Water Source andContaminant Control 404Community Information for Water Sources and Contaminant Control 405

Agreement with Moral Precepts 405Property Rights and Liability Law for Water Sourceand Contaminant Control 405Community Information for Water Sources and Contaminant Control 405

Risk Management for Water Source and Contaminant Control 405Ecosystem Scale 405Positive Ecosystem Response 405Equity .".'....7.7.7". 406Economic Efficiency or Effectiveness 406Dynamic Incentive 408Low Information Requirements 408Low Administration Cost 408Agreement with Moral Precepts 408

Economic Instruments for Water Sources and Contaminant Control 408Ecosystem Scale 410Positive Ecosystem Response 410Equity 410Economic Efficiency or Effectiveness 411

Water Source User Charges and Taxes 411Water Source—Transferable Water Rights 413Contaminant Control Policy Relying on User Charges, Taxes,and Penalties 415Contaminant Control Policy Relying on Subsidies 420Contaminant Control Policy Relying on Product Charges 423Contaminant Control Policy Relying on Transferable Release Permits 423

Markets for Formerly Free Services 424Remaining Criteria for Evaluating Economic Instruments 425

Dynamic Incentive 425Low Information Requirements 425Low Administration Cost 425Agreement with Moral Precepts 426

Environmental Performance Standards 426Ecosystem Scale 426Positive Ecosystem Response 426Equity 427Economic Efficiency and Effectiveness 427

Water Source Quantity Limits 427Contaminant Concentration Limits in Ambient Environment,Releases/Emissions, and Content 429

Remaining Criteria for Evaluating Environmental Performance Standards 434Dynamic Incentive 434Low Information Requirements 434Low Administration Cost 434Agreement with Moral Precepts 435

Another Perspective: Competition for versus Management of the Resource 435Summary 438References 440

xvi Contents

Chapter 13 Cost-Benefit Information and Analysis 443

Background on Cost-Benefit Analysis 444Types of Actions Affecting Groundwater 447Questions Addressed 447Guiding Principles 448Evaluation Approaches 452

Impact Analysis 452Cost-Effectiveness Evaluation 452

Life-Cycle Costs 457Benefits Assessment 457

Benefits by Type of Action 458Benefits of Actions Affecting Groundwater 458Benefit Estimation Methods 465Benefits Transfer 472

Cost-Benefit Analysis 477Net Benefits Calculation 479Quantifiable Nonmonetizable and Nonquantifiable Costs and Benefits 480Costs and Benefits Considering Groundwater in a HydrologicCycle Context 486

Distribution Effects and Equity 490Effects on Communities and Government Entities 491Effects on Businesses 493

Environmental Management Effects 494Efficiency Recharacterized—Alternative Accounting 497Cost and Benefit Estimate Issues 499

Inflation 499Discounting and the Time Value of Money 500Intergenerational Considerations 503Lag Time between Costs and Benefits 503Regional Variability 504Regional Multiplier Effects 504Risk and Uncertainty 506

Risk 506Uncertainty and Sensitivity Analysis 509

Double Counting 509Operationalizing Inherent Value 509Information Completeness 510Review of Key Groundwater Factors Affecting CBA 511Summary 512References 512

PART V Groundwater Future

Chapter 14 Sustainable Development 519

Defining Sustainable Development 519Defining Economic Growth 521An Alternative Approach to Measuring National Production 521Cautions on Cost-Benefit Evaluations 524Natural Capital Shortage 524

Contents xvii

Principles of Sustainable Development 524Principles Applying to All Waters 524Specific Sustainability Principles for Groundwater 526

Range of Alternative Approaches 528Targeting Sustainable Groundwater Policies 530

Comprehensive Integrated Water Resource Management 533Set Clear Aquifer Management Objectives 533Source Water Protection 534Restrictions on Chemical Use in Vulnerable Recharge Areas 536Monitoring Groundwater Status..! 536Use of Low-Impact Development '...'. 537Widespread Use of and Incentives for Efficient Water-Using Technology 537Water Recycling in Manufacturing 538Water Reuse for Public Supplies 538Full Cost Pricing 538New National Accounting 539

Safe Yield and Sustainable Development 542Maintain Capital, Maximize Service, Minimize Throughput 543Who Benefits and Who Pays the Cost of the Different PolicyApproaches—and How Much? 543Summary 544References 544

Chapter 15 Transboundary, International, and Climate Change Considerations 547

Global Groundwater Use 547International Aquifers—A Shared Resource 547Transboundary Issues 548Costs and Benefits Related to Transboundaryand International Groundwaters 551Evolution of International Water Law 552International Frameworks for Transboundary Groundwaters 553Economics of Local Transboundary Aquifer Use 556Effects of Climate Change on Groundwater , 559

Potential Effects Identified 559In Coastal Areas 559Across Continents 560Implications for Nations, States, and Localities 560

Effects of Underground Storage of Carbon Dioxide 560Economic Effects 560Transboundary and International Factors 561Aquifer Storage as a Climate Change Adaptation 561

Institutional Factors for Water Cooperation 561Summary 563References 563

Chapter 16 Groundwater in the Future Balance 565

Public Goods Are Undersupplied in the Marketplace 565A Public Common Property Resource 565Polluter Pays Principle 567Resource Value Promoted by Government Action 567

xviii Contents

More Resource Information for Setting Public Resource Objectives 568Monitoring Is Essential 568Physical/Hydrogeologic Relationships 568Global Climate Change 569Marginal Brackish Waters Becoming Essential 569

Maintain Natural Capital for Sustainability 570Importance of Scale and Public Objectives 570Accounting 571Replenishment of Mined Aquifers 571Pollution Prevention, Residual/Waste Reduction, and Counterto Cautionary Tax '. 572Water Conservation and "Green" Management 573Trade 573Information Aids Communities in Valuing Groundwater 573

Aquifers and Watersheds—Appropriate Management Units 574Aquifer and Watershed Planning 574Aquifer-Watershed "Footprint" as Basis for Use 575Accounting Area of Interest 575Economic Evaluation 576

Distribution of the Resource to All Who Rely on It 577Intragenerational Equity and Distribution 577Sustenance during Drought 577Intergenerational Considerations 577

Efficient Allocation of the Resource 577Efficient Resource Allocation Follows Natural Capital Decisions 577Alternative Water Sources and Treatments 578Overall Resource Protection and Allocation through Pricing Mechanismsand Tax Policy 578Full Cost Pricing 579Economic Effects beyond Points of Use 579Property Transfer Site Assessments 579Level Playing Field 582Residuals Management 582Residuals Trading 583Benefits Analyses 583Measure Efficiency Differently : 583

Ecosystem Significance in Community Values 583Balancing Ecosystem and Community Values 583Multiple Pathways to Valuing Groundwater 584Value through Action in the Community 584

References 585

PART VI Case Studies

Case Study 1: Production Well Costs and Benefits 589References 592

Case Study 2: Economics of Groundwater Depletion 593Background 593Zarqa Basin 593

Contents xix

Economic Analysis 594Results 600Discussion 602References 602

Case Study 3: Groundwater Contaminant Remediation Economics 603Background 603Initial Groundwater Monitoring Results and Public Health Concerns 604Alternative Emergency and Remedial Actions 604

Alternative 1—Hookups to the Rockford Public Water Supply 604Alternative 2—New Residential Water Wells 605Alternative 3—Point of Entry Water Treatment Devices 605Alternative 4—No Action 605

Economic Analysis 608Safe Water Supply 608Long-Term Remedial Action 609

Soil 609Groundwater/Leachate 609

References 610

Case Study 4: Wellhead Protection: Benefits and Costs 611Background 611Case Study: Middletown, Ohio (All Monetary Units Arein 1994 U.S. Dollars) 612

Contamination Response 612Wellhead Protection 613

Discussion 615References 616

Case Study 5: Economic Assessment of a National Regulation—WasteDisposal Wells ....617Introduction 617

Cost Assumptions and Estimates 621Cost Estimates 624National Cost of the Regulation 628

Discussion 628References 628

Case Study 6: Contingent Valuation of Municipal Water Supply 629Background 629

Other Information about the Survey 629Discussion 630Reference 630

Case Study 7: Determining Water Rates 631Water Rate Example: Fontana, California 634

Revenue Recovery Issues 638Discussion 638References 638

Case Study 8: Groundwater Valuation in Rural Settings 639Benefits of Protecting Groundwater in Four Geographic Regions 639Hedonic Pricing: Market Value of Groundwater Basedon Crop Value 639

xx Contents

Contingent Valuation of Option Price and Value forGroundwater in Cape Cod 640References 640

Case Study 9: Wetland Benefits Evaluation 641Introduction 641Benefits Evaluation 642Discussion 642Reference 643

Case Study 10: Groundwater Sustainability to Balance Urban andAgricultural Needs 645Background 645Hydrogeologic Model 645Analysis 645Results 646Discussion 646Reference 646

Case Study 11: Balancing Ecosystem, Water Use, and Pricing 647Background 647Ecosystem Balance and Conservation 647A Hypothetical Case: Does Water Conservation Pay? 648Results 648

Purchase Groundwater Commodity 648High-Efficiency Toilet and Showerhead, Including Labor for Installation....649Cost-Benefit Comparison 649

Discussion 649Conclusion 650References 650

Index : 651