Hydrological challenges to groundwater trading: Lessons from south-west Western Australia
Highlights
► Externalities from trading may be uncertain and not monetarily compensable. ► Differing spatial distributions of water use will have differing total costs. ► Trades should leave overall welfare constant or improved. ► Scheme design should incorporate future effects and impacts on third parties. ► Sustainable use, trading rules, zones, and exchange rates have potential as tools.
Introduction
The south-west of Western Australia (WA) has experienced an 11% decline in average annual rainfall since the mid-1970s as compared to the higher-rainfall period between 1914 and 1975 (DoW, 2009a). Fig. 1 shows total annual rainfall for the period 1905–2008 for a sample site in the area of interest. This decline has been attributed, in part, to climate change resulting from emissions of greenhouse gases (CSIRO and BoM, 2007). Projections of future impacts of climate change for the south-west of WA show increased annual temperatures and decreased annual rainfall (CSIRO and BoM, 2007). The trend towards a warmer and drier climate, coupled with population growth and development, is putting increasing pressure on Western Australia’s diminishing water supplies, and presenting a significant challenge to water resource managers.
Perth is the capital city of the Australian state of Western Australia and has a population of over 1.6 million (ABS, 2010a). Water use in the Perth metropolitan area is around 650 gigalitres (GL) or 527,000 acre-feet (AF) per annum. Of this, around 43% or 286 GL is supplied by the Water Corporation (the water utility supplying the Perth metropolitan area) through the Integrated Water Supply System to domestic customers (Water Corporation, 2009). The remainder, about 57% or 370 GL (Water Corporation, 2009), is privately supplied in Perth and surrounding areas, and is used in agriculture, mining, and public open space, as well as from domestic garden bores for garden watering.
Unlike most other state capital cities in Australia, Perth relies heavily on groundwater sources for its public and private water supplies. Storage levels in reservoirs in surrounding catchments, traditionally the mainstay of Perth’s water supplies, have declined significantly over the past 25 years due to reduced rainfall and a 50% decline in stream flows (Water Corporation, 2009). Surface water now accounts for only 20–35% of public water supply. This has led to an increasing reliance on groundwater to meet demand (Water Corporation, 2009). The main source of Perth’s groundwater is the Gnangara groundwater system (GGS), a system of aquifers underlying much of the Perth Metropolitan area. We describe this further in the following section.
The Water Corporation has forecast an increase in demand from 286 GL (232,000 AF) per annum to 515 GL (∼418,000 AF) per annum by 2060, based on a projected increase in the population of the Perth metropolitan area to over three million (Water Corporation, 2009). In the nearer term, increasing population is expected to cause an increase in annual demand for potable water alone of 50 GL (∼41,000 AF) by 2020 (GSST, 2009). Perth’s population increased by over 20% between 2001 and 2009 (ABS, 2010b). The Water Corporation forecasts a potential supply shortfall of 365 GL (296,000 AF) per annum by 2060. Given the projected future decline in rainfall, run-off to dams is expected to continue to diminish, further reducing the contribution of surface water to public supplies. Recharge of groundwater systems, including the Gnangara system, is also expected to diminish further, restricting the availability of groundwater for public supply.
The Water Corporation has identified a portfolio of options to help meet the supply–demand gap (Water Corporation, 2009). Recently, water from Perth’s first seawater desalination plant has augmented supplies. A second desalination plant is currently under construction. In addition, recycled water from waste-water treatment plants is increasingly being used for industrial purposes and on parks, gardens, and sports grounds.
One supply augmentation option is rural–urban water trading. Although the Water Corporation has in the past permanently ‘traded’ surface water with Harvey Water (a south-western irrigation co-operative), rural–urban water trading is currently neither common nor straightforward. There is only a small rural–rural water market, based mainly on trading within the irrigation co-operatives operating in WA.
Water trading is increasingly accepted across Australia as an efficient mechanism for managing water resources in fully allocated systems with strong competition for available water (e.g., NWC, 2009, NWC, 2010). Properly functioning water markets can facilitate more efficient use of water, both through making the value of water (i.e., its opportunity cost) transparent and by providing a mechanism for water to ‘move’ from lower value to higher value uses. In this way markets offer an alternative to the more traditional ‘command and control’ approaches to water resource management (e.g., Howitt, 1994, Hearne and Easter, 1997).
In this paper, we present some of the background, challenges, and possible approaches to designing an economically and environmentally robust groundwater trading scheme. An objective of the paper is to inform and promote inter-disciplinary discussion on the topic. Using as a case-study a major Western Australian aquifer system, we orient groundwater trading within the Australian water reform agenda. We then present some of the economic conceptual context for groundwater trading, and introduce key issues such as third-party (including environmental) impacts. This foundation is then used to address a number of the primary hydrological challenges to the design of an effective groundwater trading scheme. Finally, we present a selection of possible approaches to mitigating some of the issues discussed.
Section snippets
Gnangara case overview
The GGS covers an area of approximately 2200 square kilometres (DoW, 2009a), extending roughly 90 km north from the Swan River, and east for around 40 km from the coast (see Fig. 2). The system comprises multiple aquifers at varying depths: uppermost is the unconfined superficial aquifer or ‘Gnangara Mound’; the Mirrabooka aquifer is semi-confined; the deeper, ‘confined’ aquifers are the Leederville and the Yarragadee.
Perth, the fourth-largest city in Australia (ABS, 2010b), is dependent on the
Water reform in Australia
The Australian Government’s recent water reform agenda commenced with the 1994 Council of Australian Governments’ (COAG) Water Reform Framework. This aimed to achieve efficient and sustainable water use by establishing an integrated and consistent approach to water resources management throughout Australia. COAG set out a framework for the encouragement of water trading, elements of which included:
- •
a comprehensive system of water allocations or entitlements, including separation of water
Hydrological challenges to establishing trade
In this section we describe a number of the requirements for effective implementation of a groundwater trading scheme, focussing on requirements that have a hydrological basis and/or that require hydrological information regarding the groundwater resource. As Ostrom notes with regard to the appropriation of common-pool resources such as groundwater, “[a] major source of uncertainty is lack of knowledge. The exact structure of the resource system itself – its boundary and internal
Potential tools/approaches
Potential third-party impacts could be limited by the implementation of market rules, embedded in the relevant management policies (such as the water allocation plan and/or the water use approval system). Such tools may function best in combination (subject to the avoidance of excessive complexity and resultant transaction costs).
State-wide policy in WA is that trades must not result in “unacceptable” environmental or social impacts, “either through direct impacts or through the concentration
Conclusion
In groundwater-dependent regions, the implementation of groundwater trading based on sustainable extraction volumes is one potential policy response to water scarcity. Western Australia’s major metropolitan area exhibits growing demand for groundwater, while facing conditions of diminishing supply. Groundwater-dependent ecosystems are under increasing pressure due to the extraction of groundwater for a range of human uses. Implementation of groundwater trading would be consistent with the
Acknowledgements
The authors are grateful to the National Centre for Groundwater Research & Training which is an Australian Government initiative, supported by the Australian Research Council and the National Water Commission.
Philip Commander kindly provided information on the hydrogeology and management history of the case-study area.
Dr. Jeff Connor of CSIRO Sustainable Ecosystems commented on a draft.
The first author thanks Rachel Macy.
We are grateful to an anonymous reviewer for helpful comments and
References (56)
- et al.
On the spatial nature of the groundwater pumping externality
Resource and Energy Economics
(2010) - et al.
Gains from expanded irrigation water trading in Egypt: an integrated basin approach
Ecological Economics
(2010) - et al.
The economic and financial gains from water markets in Chile
Agricultural Economics
(1997) Empirical analysis of water market institutions: the 1991 California water market
Resource and Energy Economics
(1994)- et al.
Water transfers, agriculture, and groundwater management: a dynamic economic analysis
Journal of Environmental Management
(2003) - et al.
Removing barriers to facilitate efficient water markets in the Murray-Darling Basin of Australia
Agricultural Water Management
(2009) - ABS (Australian Bureau of Statistics), 2010a. 3218.0 Regional Population Growth, Australia, Table 5 Estimated Resident...
- ABS (Australian Bureau of Statistics), 2010b. Regional Population Growth, Australia, 2008–2009. <www.abs.gov.au>...
- et al.
Reassessing the management of groundwater use from sandy aquifers: acidification and base cation depletion exacerbated by drought and groundwater withdrawal on the Gnangara Mound, Western Australia
Hydrogeology Journal
(2009) - ARMCANZ (Agriculture and Resource Management Council of Australia and New Zealand), 1996. Allocation and Use of...