Agricultural and Resource Economics

Postgraduate profiles


James Skurray


Institutional options for managing extraction and externalities in a large groundwater basin with heterogeneous users


The Gnangara groundwater system underlies approximately 2,200 km2 of the Swan Coastal Plain in Western Australia and is under unprecedented stress due to reduced recharge and increasing over-extraction. Perth, Western Australia (pop. 1.7m) derives 60% of its public water supply from the Gnangara system. Horticulture and domestic self-supply are other major consumers of Gnangara groundwater. The system supports important wetlands and groundwater-dependent ecosystems, many of which are vulnerable and threatened. Stored reserves in the superficial aquifer fell by 700 GL between 1979 and 2008. Over a similar period, annual extraction for public supply increased by more than 350% from the system overall. Some management areas are over-allocated by as much as 69%.

Section 1

One potential policy response is a trading scheme for groundwater use. There has been only very limited trading between Gnangara irrigators. (In the context of this project, groundwater trading involves transfers of the right to extract water, rather than of water extracted.) Design and implementation of a robust groundwater trading scheme faces hydro-economic challenges. Impacts at the respective selling and buying locations may differ in scale and nature. Negative externalities from groundwater trading may be uncertain as well as non-monetary.

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 section examines issues that could reduce public welfare if groundwater trading is not subject to appropriate governance arrangements. It outlines opportunities to address key risks within the design of a groundwater trading scheme. We focus on issues with hydrological bases or information requirements. These include the appropriate hydrological definition of the boundaries of a trading area, the establishment and defining of sustainable yield and the 'consumptive pool', and the estimation of effects of extractions on ecosystems and human users. We suggest several possible design tools.

Section 2

Groundwater extraction can have varied and diffuse effects. Groundwater transfers have the potential to cause spatial and temporal redistribution of the impacts from pumping, as well as their concentration and qualitative transformation. Environmental damages are commonly not reflected in market transactions.

This section proposes a menu of possible management strategies that would help preclude unacceptable impacts by restricting transfers having certain attributes, ideally ensuring that permitted transfers are at least welfare-neutral. Management tools would require that transfers limit or reduce environmental impacts, restricting negative externalities mainly to monetary costs. Provision for compensation of these financial costs could be built in to the system. While these tools can limit impacts from a given level of extraction, they cannot substitute for sustainable overall withdrawal limits.

Section 3

The development of a market in groundwater usage rights can be inhibited by constraints arising from the institutional context. Such impediments may reduce the potential gains from trade and may generate high transaction costs for prospective traders. This section analyses the regulations and policies influencing groundwater transfers in the Gnangara groundwater system, and identifies significant impediments to a groundwater market.

Property rights are found to be conditional, temporary, and vulnerable to amendment. Regulatory approval is required for all transfers. Facilitating infrastructure is lacking, and price information is unavailable. Management area boundaries reflect land ownership and use, rather than hydrogeological realities; the limitation of transfers to within these boundaries therefore eliminates much of the potential for gains from trade. Over-allocation and weak monitoring also impede the development of a market, as well as allowing extensive environmental degradation. The current management system is likely to obscure unmet demand for water-rights transfers between users and usage-types.

Section 4

The Gnangara basin is currently managed according to command and control principles, by the state's Department of Water. This section examines some of Ostrom's "situational variables" for the analysis of institutional choice - the self-provision of institutional arrangements by appropriators in common-pool resource situations - as they relate to the Gnangara case. We approach the topic of collective governance not as a niche concept which may be fitted only to certain specific cases, but as a basic mode of human co-operation and interaction when faced with inter-dependent interests and in the absence of militating factors. We therefore conduct the analysis from the perspective of identifying elements of the current management approach - as well as of the shared norms, expectations, and attitudes of the appropriators - which could be altered to allow collective governance to develop, at least at some scale within the overall management regime.

We use data from a set of water licence documents obtained from the Department of Water. A number of factors are identified as inhibiting the development of collective governance at present. Current arrangements are top-down in nature, with all rules, and any monitoring and enforcement, supplied by the state-level management agency. Current norms and expectations among appropriators appear to be competitive rather than co-operative, and discount rates appear to be high. In view of the size of the resource, and the large number and heterogeneity of appropriators, we conclude that the use of 'nested' organisational units - beginning at the smaller scale - will be a key component of efforts to develop the social and institutional capital requisite to successful collective governance. Further, we identify historical and other factors in this case whose net effect is to prejudice the unassisted development of collective governance institutions by appropriator efforts alone, and conclude that significant external support will be required from government agencies.

The thesis concludes by drawing broader policy implications from the above sections. We consider the relationships between the institutional impediments described and the management tools and policy options suggested earlier. Finally we discuss whether these relationships present particular opportunities and challenges, and what might therefore be the appropriate management priorities – both in case-specific and general terms.

Why my research is important

The underlying problems motivating this research are:

• the widespread overuse of groundwater in semi-arid climate environments worldwide;

• the prevalence of environmental and other third-party impacts directly related to the unsustainable extraction and use of groundwater; and

• the rarity of effective – and effectively implemented – management approaches to limiting or managing these impacts.


  • National Centre for Groundwater Research & Training
  • Australian Postgraduate Award (APA) and UWA Safety Net Top-Up scholarships

Agricultural and Resource Economics
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Wednesday, 26 August, 2009 10:07 AM

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