Chapter 2. The OECD health check for water resources allocation: Groundwater guidance1
This chapter sets out policy guidance for groundwater allocation. The guidance in this chapter should be used as a supplement to the OECD Health Check for Water Resources when assessing allocation arrangements of groundwater systems and in cases where surface and groundwater systems are managed conjunctively. The guidance in this chapter first reiterates some of the general principles that apply broadly to all allocation regimes, then describes how the specific features of groundwater can be considered.
Many current groundwater allocation regimes are strongly conditioned by historical water usage patterns that evolved during periods when access to the resource was minimally regulated or not at all. Thus, they are typically not well-equipped to deal with growing pressures on the resource (OECD, 2015a). The entrenchment of weak or contradictory policies, such as under-pricing water or subsidising energy to pump groundwater, can make improving allocation arrangements contentious and costly. However, failure to improve allocation policies undermines the range of benefits that society could reap from groundwater via extractive and non-extractive uses (e.g. for the environment) both today and in the future. Building on the analysis in the previous chapter, this chapter sets out tailored guidelines for good practice for allocation in settings where groundwater is either the main source of water supply or managed conjunctively with surface water resources.
The policy guidance set out below builds on the general framework and guidance in the OECD Health Check for Water Resources Allocation in the 2015 OECD publication Water Resources Allocation: Sharing Risks and Opportunities. The guidance specific to groundwater described in this chapter should be used as a supplement to the OECD Health Check for Water Resources. The guidance first reiterates some of the general principles that apply broadly to all allocation regimes, then describes how the specific features of groundwater should be considered. Box 2.1 provides a summary of the Health Check. Each of the elements are discussed in detail in this chapter.
The Health Check uses a series of questions (“checks”) to identify whether key elements of an allocation regime are in place and how their performance could be improved. In some cases, options for the design of elements are proposed. References are also made to the case studies in Part II of this report. The case studies provide illustrations of how a particular “check” is applied in practice or highlight some of the challenges faced in implementation.
The policy guidance in the Health Check provides general principles, but these need to be tailored to specific conditions to ensure the allocation arrangements are “fit for purpose”. There is a wide variety of groundwater systems, which can be categorised by their geological features (sand and gravel; sandstone; karst; volcanic; or basement aquifers) or by the hydrogeological setting (major aquifers; complex hydrogeological structures; shallow aquifers). Groundwater systems can also be characterised according to socio-economic features (degree, intensity and type of use) or their stage of development (OECD, 2015b). Most groundwater systems interact with surface water systems to some extent, calling for conjunctive management that accounts for complex interactions between the resources. These factors should be considered in the assessment and design of allocation arrangements.
As groundwater systems are more intensively used, the benefits of a more elaborate allocation regime increase. In the early stages of developing a groundwater resource, a relatively simple allocation regime can be used with decisions made conservatively to avoid over-allocation and depletion. However, the basic building blocks of a robust regime should still be put into place at an early stage to avoid lock-in to unsustainable use and allow for adjustment at least cost, as needed, over time. As scarcity increases and the value of water use rises, the case for the introduction of a more elaborate allocation regime increases. When water over-allocation or unsustainable use already exists, there is an opportunity to use the characteristics of a more elaborate allocation regime to reduce the extent of the problem and bring use in line with sustainable limits (OECD, 2015a). Adequate monitoring and analysis of groundwater resources should be in place before problems become severe and allow policymakers to adjust the allocation regime as resource use intensifies.
Check 1. Are there accountability mechanisms in place for the management of groundwater allocation that are effective at the aquifer or other relevant scale?
Check 2. Is there a clear legal status for all water resources (surface and groundwater, as well as alternative sources of supply)?
Check 3. Is the availability of water resources (surface and groundwater, as well as alternative sources of supply) and possible scarcity well-understood?
Check 4. Is there an abstraction limit (“cap”) that reflects in situ requirements and sustainable use?
Check 5. Is there an effective approach to enable efficient and fair management of the risk of shortage that ensures water for essential uses?
Check 6. Are there adequate arrangements in place for dealing with exceptional circumstances (such as a drought or severe pollution events)?
Check 7. Is there a process for dealing with new entrants and for increasing or varying existing entitlements?
Check 8. Are there effective mechanisms for monitoring and enforcement, with clear and legally robust sanctions?
Check 9. Are water infrastructures in place in order for the allocation regime to function effectively?
Check 10. Is there policy coherence across sectors that affect water resources allocation?
Check 11. Is there a clear legal definition of water entitlements?
Check 12. Are appropriate abstraction charges in place for all users that reflect the impact of the abstraction on resource availability for other users and the environment?
Check 13. Are obligations related to return flows and discharges properly specified and enforced?
Check 14. Does the system allow water users to reallocate water among themselves to improve the allocative efficiency of the regime?
Check 1. Are there accountability mechanisms in place for the management of groundwater allocation that are effective at the aquifer or other relevant scale?
In general, authorities and organisations responsible for allocation should have well-defined roles and accountability mechanisms that actually work in practice, as well as sufficient resources (financial and otherwise) to execute their functions. A clear and transparent process should be in place to facilitate stakeholder engagement in the determination of a sustainable exploitation strategy and other key allocation decisions (see the case study of Tucson, Arizona, Part II).
In the case of groundwater, a Management Plan (or other similar planning instrument) addressing groundwater resources or conjunctively managed surface and groundwater resources that has the status of a statutory instrument that must be followed can be used to set out a clear framework for allocation. The plan should have clear and explicit links to groundwater protection policies to ensure quality and quantity issues are managed in a co‐ordinated way. For example, in the Murray-Darling Basin, Australia, the Basin Plan limits water use at environmentally sustainable levels by determining long-term sustainable diversion limits for both surface and groundwater resources. A key component of the Basin Plan is the environmental watering plan, which co-ordinates all environmental watering across the Basin. The Plan also contains a water quality and salinity management plan and water quality targets which influence how environmental flows and the water resources are managed (OECD, 2015a). The Catchment Management Strategies used in England are illustrated in Box 2.2 (see also the case studies of Texas, U.S. and France, Part II).
In England, the Environment Agency has established a comprehensive network of river flow measurement sites and groundwater level monitoring boreholes, together with widespread ecological monitoring. It uses a Resource Assessment Methodology to determine how much water is reliably available for abstraction on a catchment by catchment basis. By taking account of the volume of water already allocated for abstraction, and how much (in terms of flow or level) the environment needs, it can then set out how much water is potentially available for further abstraction. It can also identify where unsustainable abstraction is taking place and the solutions to address the problem. This information is published in Catchment Abstraction Management Strategies (CAMS) which cover every catchment in England.
The detailed Abstraction Licensing Strategies (ALS) which make up the CAMS integrate groundwater availability and river flows, so that the effects of groundwater abstraction on surface water features are a key part of the assessment. An Environmental Flow Indicator (EFI) is used to assess whether river flows are sufficient to support a healthy ecology, and the EFIs control the volume available for abstraction across the entire flow range. The aim is not just to protect low flows, but to maintain flow variability. The more sensitive that the river’s ecology is to changes in flow or level, the more restrictive the conditions on abstraction. The impact of groundwater abstraction on river flows is considered in the management strategy for each aquifer unit, together with the sensitivity of wetland features to changes in groundwater level.
All ALS are consulted on and published, so that the availability of resources and the conditions on new abstractions (where allowed) are clearly set out. Each Groundwater Management Unit (GWMU) will fall into one of three categories (listed in the table below):
The intensive use of groundwater for public supply and irrigation has had an adverse effect on river flows and ecology across much of the south and east of England. In those parts of England where groundwater licences are still being issued many licences will contain a Groundwater Level Condition, which requires abstraction to reduce or stop once levels fall below a critical limit.
Source: Ian Barker (2016), personal communication; UK Environment Agency (2016).
Check 2. Is there a clear legal status for all water resources (surface and groundwater, as well as alternative sources of supply)?
A clear legal status should be in place for all types of water resources (surface and groundwater, as well as alternative sources of sypply, such as treated wastewater). This status needs to define whether the resources are publicly or privately owned, or in cases where there is no ownership of water resources, per se, who has the authority to determine access to the resource (see the case study of France, Part II). Any contradictory and overlapping legal arrangements relating to the ownership of the resource itself as well as legal entitlement to access and use water resources should be clarified.
In the case of groundwater, as the resource is increasingly brought under the public domain, a clear process for transferring from private ownership to regulated use should be put into place (see the case study of the Upper Guadiana Basin, Spain, Part II). Customary rights to access the resource also need to be considered.
Check 3. Is the availability of water resources (surface and groundwater, as well as alternative sources of supply) and possible scarcity well-understood?
A robust scientific basis is needed to identify the available water resources. In the case of groundwater, there is a need to understand how groundwater may be interconnected with surface water, and how groundwater use is changing over time. This requires an assessment of groundwater resources with a view to determining where abstraction may give rise to negative externalities (see examples in the case studies of Denmark and Mexico, Part II). The comprehensiveness of the assessment should correspond to the degree of unsustainable use and/or quality degradation, with groundwater resources under greater pressure deserving more in-depth assessment as compared to those where depletion or quality degradation is not yet an issue and not expected to be in the near future. While new monitoring technologies, such as satellite-based telemetry,2 are improving the scientific understanding of groundwater, in general, it is not possible, nor is it necessary, to obtain complete knowledge of water systems. Instead, the aim should be to acquire sufficient knowledge of the available groundwater resources in order to make appropriate and tailored decisions. The information should be made publically available in a way that encourages public understanding.
Managing system interconnectivity is essential for ensuring the hydrological integrity of the system. For instance, careful consideration needs to be given to the impact of groundwater bores located next to a river. In such situations, extraction from the bore may in fact actually be extraction from a river which has high connectivity to the groundwater resource. In order to avoid double-counting that will result in over-use in such circumstances, the amount of water that may be taken from the river needs to decrease and the amount of water taken from the aquifer can increase. Arrangements need to be in place to adjust for changes in flows between groundwater and surface water systems. Where economically viable, surface water or treated wastewater can be used for artificial or induced recharge (see examples in the case studies of Tucson, Arizona and Kumamoto, Japan, Part II). For example, water banking schemes that store water in aquifers to save for drier periods can be a relatively cost-effective way to increase water supplies during drought (Wheeler et al., 2016).
Check 4. Is there an abstraction limit (“cap”) that reflects in situ requirements and sustainable use?
Defining a limit on the maximum volume or proportion of water that can be abstracted from a system is arguably the most difficult and yet most important challenges in managing water scarcity. Two types of abstraction limits are needed:
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A long-term limit that defines the maximum volume of water that can be abstracted at any point in time. Once this limit has been fully allocated, no new entitlements should be issued unless the process is accompanied by an arrangement that reduces someone else’s entitlement by an equivalent amount. A mechanism to adjust the long-term limit is needed for adaptive management. This is especially the case in regions where recharge can be highly variable and the expectations of adverse impacts of climate change, but can also relate to the need to adapt to other drivers of change, for instance as a result of new scientific evidence about ecosystem needs. The long-term limit can be used to guide strategic water-dependent investments.
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A short-term limit on the amount of water that can be taken during a particular period. In addition to limits on the maximum amount of water that can be taken over the long-term, in most systems, it is also necessary to be able to adjust the amount of water that can be taken within a given time period, which can be adjusted depending on variations in recharge.
In the case of groundwater, only a portion of groundwater resources (consisting of total stocks and flows) should be considered as exploitable. Setting an abstraction limit requires consideration of the amount of water that should be left in the aquifer to meet non-extractive uses (e.g. flows for ecosystem needs, protection of water quality) and future uses (see examples in the case studies of Denmark, Mexico, Texas and France, Part II). From an economic perspective, optimal groundwater exploitation would maximise the present value of benefits minus costs, which requires balancing extractive and non-extractive uses and current and future uses.
Both policy-related and technical limitations on the quantity of groundwater available for sustainable use need to be recognised. Technical restrictions limit economically viable abstraction, when pumping costs exceed benefits. Policy-related limitations may include obligations related to minimum flows to ensure base flow of connected surface water bodies, environmental flows, or maintaining the groundwater stock to avoid subsidence or quality degradation. Environmental demands on groundwater can be significant and need to be accounted for in groundwater management plans. For example, in the Netherlands, environmental functions adjusted to different types of land use pose a major constraint on groundwater abstraction in Dutch groundwater policies and plans. In Spain, environmental needs are explicitly accounted for in the National Hydrological Plan (Margat and van der Gun, 2013).
Check 5. Is there an effective approach to enable efficient and fair management of the risk of shortage that ensures water for essential uses?
“Essential”, high value water uses, such as drinking water, should be defined and assured the highest priority in case that temporary bans on water use are put into place. Water needs for the environment should also be secured (see the case study of Mexico, Part II).
In cases where surface and groundwater resources interact or can be used as substitutes, securing access for essential uses should be managed conjunctively.
Check 6. Are there adequate arrangements in place for dealing with exceptional circumstances (such as a drought or severe pollution events)?
The conditions that constitute an “exceptional circumstance”, such as a drought or severe pollution event, need to be clearly specified (see the case study of France, Part II). Stakeholders should be involved in the process of determining what constitutes exceptional circumstances. A responsible authority that has authority to declare an exceptional circumstance and manage the response needs to be designated. Water users need to be informed regularly about the developments relating to exceptional circumstances and how they will be affected by the response. The more advance warning that users can be provided, the more opportunity that they will have to adjust their behaviour and effectively manage their risk.
In the case of groundwater systems, users may increase their reliance on groundwater pumping when a drought limits the availability of surface water. A severe pollution event may impact either surface water or groundwater supplies. Groundwater systems are particularly vulnerable to pollution, which can accumulate over long periods of time.
Check 7. Is there a process for dealing with new entrants and for increasing or varying existing entitlements?
When the defined resource pool is fully allocated, the resource should be considered “closed”. Once access to the resource is closed, the only way a new entrant may secure an interest in abstracting water from the resource or an existing use may expand an existing entitlement is to ensure that another user foregoes use of an equivalent amount, thereby transferring the water entitlement to the new entrant or the existing user expanding an entitlement (see case studies of Upper Guadiana Basin, Spain and France, Part II). This applies generally to both surface and groundwater systems,
Check 8. Are there effective mechanisms for monitoring and enforcement, with clear and legally robust sanctions?
A robust allocation regime should aim for an appropriate level of monitoring of the resource, ecosystem requirements, abstractions, and recharge that reflects the level of pressure on the water resource (see case studies of Denmark and Texas, Part II). Rigorous monitoring requires monitoring the volume of water being taken by each user. This requires the installation of meters, meter reading, and accounting protocols. Appropriate accounting arrangements that track water use and consumption, as well as leases and trades (where permitted), need to be in place to support the monitoring of resource use and water entitlements. Appropriate sanctions, such as fines or curtailment of water entitlements need to be in place and applied as required (see case study of Texas, Part II).
Uncontrolled uses and any significant interception need to be periodically reviewed to gauge their potential impact on the integrity of the system. When uncontrolled uses and significant interceptions begin to have a significant impact on the water system, they must be brought into the formal water entitlement system. This sends a clear signal to existing entitlement holders that the expansion of these uses will not undermine the efficiency of any investments they have made.
In the case of groundwater, data on resource use are scarce and remain incomplete and monitoring aquifers is technically demanding and costly. New monitoring technologies, such as satellite-based telemetry, are showing promise in improving groundwater monitoring, however these still need to be complemented by ground-based measurements. When metering each user to not practicable or too costly, other options could be considered, such as monitoring a group of users with a collective entitlement within a specific area.
Check 9. Are water infrastructures in place in order for the allocation regime to function effectively?
Adequate water infrastructures are needed to store, treat, and deliver water to various users. A lack of such infrastructure can place constraints on the flexibility of allocation regimes. Authorities need to ensure that sustainable financing mechanisms are in place to support investment in water infrastructures and their operation and maintence.
While most groundwater users abstract water directly with their own pumps, water infrastructures may be needed to treat and deliver water to various uses and users and support artificial recharge for water banking or other purposes (see case study of Tucson, Arizona, Part II).
Check 10. Is there policy coherence across sectors that affect water resources allocation?
The existing policy settings related to water resources management as well as water-related sectors, such as agriculture, energy, and urban development need to be coherent (see case studies of Kumamoto, Japan and Texas, Part II).
In the case of groundwater, even a well-designed allocation regime can be undermined by perverse incentives in other sectors, such as subsidies that encourage over-consumption of groundwater or pollution that degrades water quality. For example, electricity or irrigation subsidies can encourage excessive groundwater pumping (see case studies of Mexico and Gujarat, India, Part II). Policies to protect groundwater quality by reducing potential contamination from pesticides, fertilisers, urban run-off and other pollution sources (such as a pollution tax), are particularly important (see case study of Denmark, Part II).
Check 11. Is there a clear legal definition of water entitlements?
Well-functioning allocation regimes need to have clear, quantified, legally defined water entitlements, whether formal legal entitlements or customary rights (see case studies of Denmark and Upper Guadiana Basin, Spain, Part II).
In the case of groundwater, options for defining how users can access water and how much they are allowed to take range from a requirement that the user own land above the groundwater to a requirement that all abstractions require water entitlements that are controlled and metered. Permits for wells or boreholes should require a pumping test to demonstrate the yield (to ensure that the groundwater resource can support the abstraction permitted in the associated entitlement) and any local effects, such as adversely affecting nearby boreholes, environmental uses (streams, wetlands), or the quality of the resource.
To improve the flexibility of the allocation regime, water entitlements can be unbundled from land titles, although, to date, this is not a widespread practice. There are benefits to defining water entitlements as a proportion, or shares, of the available resource pool (as opposed to an absolute volume) (see case study of Texas, Part II). This approach allows for flexibility to respond to changing conditions (e.g. increased or decreased recharge) without having to pay compensation for adjusting water entitlements. This approach is also consistent with the full assignment of risk. Conversion from a volumetric or seniority regime to a proportional regime is possible, although it may be challenging.
Water entitlements must be defined for an appropriate duration, with a clear, reasonable expectation for renewal (see case study of Denmark, Part II). This could be a fixed period of time, or water entitlements could be defined in perpetuity. The longer the entitlement is granted for, the more it will encourage long-term investment in water-related activities. Uses that require significant investment to benefit from the water entitlement merit a longer duration.
In the case of groundwater, the degree of uncertainty related to the availability of the resource and the potential adverse effects of abstraction should also inform the duration of the entitlement. A higher level of uncertainty about resource availability would justify a shorter duration to allow for further monitoring of the resource.
Check 12. Are appropriate abstraction charges in place for all users that reflect the impact of the abstraction on resource availability for other users and the environment?
Appropriate abstraction charges should be levied on users, in line with the “beneficiary pays” principle (see case study on Denmark3). An abstraction charge can provide an incentive to allocate and use water more efficiently, although its impact on behaviour will depend on the price elasticity of demand (where this is low, users are less responsive to price changes; where it is high, users are more responsive to price changes).
In the case of groundwater, in practice it is easier to apply an abstraction charge to large-scale uses, such as municipal water supply, industrial users, or large-scale irrigators, but is much more difficult and costly to apply to small-scale irrigators.
In designing an abstraction charge, the charge should reflect environmental and resource costs associated with abstraction. It should also contribute to recovering costs associated with managing the resource, including monitoring costs, which can be significant. The level of the abstraction charge can be differentiated based on the local context, to reflect differences in the vulnerability of the environment and other users to changes in the groundwater level (Ambec et al., 2016). When groundwater is metered, a volumetric charge can be applied. If groundwater use is unmetered, a flat abstraction charge or one based on a proxy, such as area of irrigated land, can be used as a more rudimentary alternative (Ambec et al., 2016). The charge should be set in a manner coherent with abstraction charges for surface water bodies, to account for potential substitution effects.
In the case of non-renewable groundwater resources, setting an efficient price, in theory, requires including Hotelling rents,4 to reflect the trade-off between mining water now or in the future (Olmstead, 2010).
Check 13. Are obligations related to return flows and discharges properly specified and enforced?
Water entitlements need to be specified in a way that defines the “net” amount of water consumed, rather than the “gross” amount of water abstracted, when relevant. This requires accounting for water that has been abstracted, but returns a portion to the system via recharge. Notably, improvements in irrigation efficiency can significantly reduce groundwater recharge. In practice, there are numerous technical challenges that make it difficult (if not impossible) to measure net consumptive use with precision. However, rules of thumb can be applied to provide an estimation of net consumption according to the type of use. This approach can be used to maintain the integrity of the allocation regime, even while efficiency of use increases.
In considering the impact of return flows on groundwater, it important to recognise that recharge will be affected by a number of factors, including aquifer characteristics (e.g. unconfined shallow aquifers versus deep confined aquifers).
Check 14. Does the system allow water users to reallocate water among themselves to improve the allocative efficiency of the regime?
Once the elements of a robust allocation regime are in place, allowing water entitlement holders to trade, lease or transfer water entitlements can improve efficiency in allocation and resource use (see case studies of France, Gujarat, India and North China, Part II). To avoid potentially negative impacts of trading arising from changing the location of water use, water entitlements and trading arrangements must be consistent with the overall limits of the resource. Where the trade, lease or transfer of water entitlements is possible, clear rules should be in place to facilitate transactions. Voluntary forfeiture of un-used water entitlements should be provided for.
Transaction costs related to trading, leasing or transferring water entitlement and allocations should be kept as low as possible. This requires limiting trading costs to administrative costs that are unavoidable and also limiting third party interference in individual transactions.
References
Ambec, S. et al. (2016), “Review of international best practices for charges for water management”, Toulouse School of Economics, Background paper for OECD, 10 October 2016.
Barker, I. (2016), Personal communication.
Margat, J. and J. van der Gun (2013), Groundwater around the World: A Geographic Synopsis, CRC Press/Balkema, Taylor and Francis, London.
OECD (2015a), Water Resources Allocation: Sharing Risks and Opportunities, OECD Studies on Water, OECD Publishing, Paris, https://doi.org/10.1787/9789264229631-en.
OECD (2015b), Drying Wells, Rising Stakes: Towards Sustainable Agricultural Groundwater Use, OECD Studies on Water, OECD Publishing, Paris, https://doi.org/10.1787/9789264238701-en.
Olmstead, S. (2010), “The economics of managing scarce water resources”, Review of Environmental Economics and Policy, Vol. 4(2), pp. 179-198, https://doi.org/10.1093/reep/req004.
Perman, R. et al. (2003), Natural Resource and Environmental Economics, Pearson, Addison Wesley, 3rd edition.
UK Environment Agency (2016), “Managing water abstraction”, UK Environment Agency, Bristol.
Wheeler, S.A. et al. (2016), “Lessons to be learned from groundwater trading in Australia and the United States”, Integrated Groundwater Management, A. Jakeman (ed.), https://doi.org/10.1007/978-3-319-23576-9_20.
Notes
← 1. This document and any map included herein are without prejudice to the status of or sovereignty over any territory, to the delimitation of international frontiers and boundaries and to the name of any territory, city or area.
← 2. See for example, reference to NASA’s Gravity Recovery and Climate Experiment (GRACE) in Chapter 1.
← 3. Abstraction charges for groundwater are present in a number of countries, including, but not limited to: Australia, Belgium, the Czech Republic, Denmark, Estonia, Germany, Israel, Poland, the United Kingdom and the U.S.
← 4. The Hotelling rule requires that the real rate of return to a resource owner equals the social discount rate. When a non-renewable resource is available in known, fixed quantity, the Hotelling rule implies that the net price of the resource should grow at the social discount rate (Perman et al., 2003).