Executive summary

As the predominant reservoir of freshwater on Earth, groundwater provides an important source of water supply for drinking, irrigation and industry and contributes to sustaining groundwater-dependent ecosystems, such as streams and wetlands. Pressures on the quantity and quality of the resource have increased significantly over recent decades. Globally, groundwater withdrawals have risen sharply; nearly tenfold in the past 50 years (Shah et al., 2007). At the same time, the resource is becoming increasingly degraded due to pollution and saline intrusion. Unsustainable groundwater use creates negative environmental externalities, including land subsidence, saline intrusion and the deterioration of groundwater-dependent ecosystems. Groundwater depletion also increases the cost of use, as pumping is required from ever-increasing depths, which may disadvantage small scale users. This depletion can also result in water shortage directly affecting users, with an impact on economic activities.

These mounting pressures have largely outpaced the modernisation of groundwater allocation regimes. Allocation regimes consist of the combination of policies, laws, regulations and institutional arrangements (entitlements, licenses, permits, etc.) that determine who is able to use water resources, how, when and where. In practice, many current groundwater allocation regimes are strongly conditioned by historical water usage patterns that evolved during periods when the resource was more abundant, demand was lower and access was minimally regulated or not at all. Acute governance challenges arise from the lack of data, fragmented legislation and the largely decentralised use of the resource. 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 societal benefits from groundwater via extractive and non-extractive uses (e.g. for the environment) both today and in the future.

The benefits obtained from groundwater take many forms – from the economic value derived from productive uses for drinking water supply, industry and irrigation, to the ecological value provided by supporting key species in groundwater-dependent ecosystems to the option value of storing groundwater as a buffer against future water shortages. Groundwater allocation policies need to account for these different types of extractive and non-extractive values as well as balance the needs of current and future generations.

This report examines the distinctive features of groundwater and sets out policy guidance for groundwater allocation. This guidance should be used as a supplement to the general guidance on allocation in the OECD Health Check for Water Resources Allocation. The Health Check consists of a series of 14 questions (“checks”) to identify whether key elements of an allocation regime are in place and how their performance could be improved. The full Health Check is set out in Chapter 2 of this report. Part II of this report analyses nine case studies (Denmark; Tucson, Arizona; Kumamoto, Japan; Mexico; the Upper Guadiana Basin, Spain; Texas; France; Gujarat, India and North China), highlighting how elements of the Health Check can be addressed in diverse contexts.

A number of distinctive features of groundwater systems (compared to surface water) merit particular attention in the design of allocation regimes. There is significant scientific uncertainty about the state (quality and quantity) of groundwater resources and data on groundwater use are scarce and incomplete. There is a need to better understand how groundwater may be interconnected with surface water so as to manage the resources conjunctively, and monitor 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.

To respond to the rapid growth of unregulated groundwater use, many governments have taken action to redefine groundwater ownership and use rights as within the public domain. This provides the basis for a legally enforceable regulatory regime. As the resource is increasingly brought under the public domain, a clear process for transferring from private ownership to regulated use needs to be put into place. Customary rights to access the resource also need to be considered.

Groundwater resources consist of both stocks and flows, which require a long-term exploitation strategy that considers both. Some aquifers are considered non-renewable (containing “fossil” groundwater), so the use of these resources is akin to irreversible mining. Only a portion of groundwater resources (consisting of total stocks and flows) should be considered as exploitable. From an economic perspective, optimal groundwater exploitation would maximise the present value of benefits minus costs, which can guide efforts to define an abstraction limit on the resource. Setting such a “cap” on abstraction requires balancing extractive and non-extractive uses uses (e.g. flows for ecosystem needs, protection of water quality) and current and future uses.

Groundwater generally exhibits the characteristics of a common pool resource, which makes excluding users from access difficult and costly. Users often access the resource directly, in a decentralised way. This makes monitoring groundwater use 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 is not practicable or too costly, governments can consider using collective entitlements to allocate water to a group of users within a specific area.

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. Electricity or irrigation subsidies can encourage excessive groundwater pumping. Policies to safeguard groundwater quality by reducing potential contamination from pesticides, fertilisers, urban run-off and other pollution sources are particularly important.

As scarcity increases and the value of water use rises, the case for the introduction of a more elaborate allocation regime grows stronger. In the early stages of developing a 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. Adequate monitoring and analysis of water resources should be in place before problems become severe and allow policymakers to adjust the allocation regime as resource use intensifies. A periodic “health check” can provide a pragmatic approach to realise the benefits of improved allocation.