Water, as it moves from the surface through the soil to an aquifer, takes on a differing economic value depending upon its location, abundance, and purpose. Location includes variables such as political boundaries, depth in the geologic strata, continent, latitude and longitude, and type of landform. Groundwater values, as interpreted through an economic lens, are based on supply and demand. Production and transportation and/or infrastructure factor into the cost of developing water. Part of the economic value is sustainability over a long period of time: possibly as short as two or three years for oil and gas drilling, as long as 20 to 30 years for municipalities, agriculture or industry, or even 50 to 100 years for planning purposes. Another economic aspect is the cost; different but related to the value. Pricing, related to the value and the cost, may not be available to most landowners. Many groundwater transactions purchasing water are hidden from the market, as are much of the private investments in groundwater, at least in Texas. This discussion addresses groundwater value, cost, and pricing generally in Texas.
Charles Job (2006) identified 12 issues associated with decisions makers evaluating ways to sustain ecosystems while withdrawing groundwater:
Although the connection among a region’s biota and groundwater can be obscure, groundwater as a source of springs exemplifies a clear connection of groundwater leading to ecosystem support. Several rare species exist in some aquifers, such as karst invertebrates in the Edwards Aquifer, blind beetles in Australia, or interstitial aquifer species in Indiana, often associated with spring openings, gravels, or karstic aquifers. The value associated with groundwater’s economic contribution to the ecosystem is complex and not often independent of surface water flow. Difficulty in separating groundwater out as a contributor to an ecosystem’s economic benefit results in few studies devoted to assessing the value of the groundwater component. Some studies may address the public good aspect of maintaining an aquifer for plant or animal species, such as in Pima County, Arizona, which implies a social benefit of maintaining the ecosystem. This study develops a cost analysis for how much it will cost to monitor or reverse groundwater declines, which could be thought of as the economic benefit of groundwater, yet the value of monitoring would be rather low compared to the cost of no longer having an aquifer.
In Texas, groundwater ownership is considered as a rule of capture. If you capture the water, it is yours to use if you do not mean to cause harm intentionally through its use, cause subsidence, or waste it. The groundwater market is hidden due to the private ownership rights to groundwater, except for municipalities that must disclose lease agreements which use taxpayer’s money. For example, San Antonio Water System (SAWS) recently developed a draft agreement referring to groundwater costs at $1,999 per acre-foot. Other older examples exist yet overall lease prices are difficult to compare among far flung parts of the state, aquifers, and unique locally-specific characteristics.
| Examples of Groundwater Pricing in Texas, Past, Future, and Hypothetical | ||||
| Location (date) | Aquifer | Price | Price/gallon | Notes |
| Canadian River Municipal Water Authority (2011) | Ogallala | $400-500/acre | Unknown | The price was not specified in acre-feet, just in acres. |
| Amarillo (1955) | Ogallala | Not available | Unknown | $1,000,000 deal in 1955, water rights never used |
| Milan County export/San Antonio (2014) | Carrizo-Wilcox | $460/acre-foot to Bluewater; $1900/acre-foot to San Antonio Water System from Bluewater | $0.0014 to $0.0058 | Water marketer paying to landowners estimated at 10 percent of profit to $50 per acre/foot, possibly up to $100 per acre. |
| City of Smiley, in 2020, Region L 2016 Water Plan | Carrizo-Wilcox | $770/acre-foot | $0.0024 | Note: most groundwater prices in this plan are estimated as unit costs at $770/acre-foot, and may include more than just the transaction cost |
| City of Waelder, Region L 2016 Water Plan | Queen City | $770/acre-foot | $0.0024 | Note: most groundwater prices in this plan are estimated as unit costs at of $770/acre-foot and may include more than just the transaction cost |
| Irrigation in 2020, central Gulf Coast area, Region L 2016 Water Plan | Gulf Coast Aquifer | $455/acre-foot | $0.0014 | Note: irrigation groundwater prices in this plan are estimated as unit costs at of $455/acre-foot and may include more than just the transaction cost |
| Austin, Texas (August 30, 2015) | Gulf Coast Aquifer | $254, 164/acre-foot | $0.78 | HEB grocery store price per gallon. |
| San Antonio, Texas (2007) | Unknown | $25 to $6000/acre-foot | $0.000077 to $0.018 | Article about groundwater pricing in 2007 |
| Groundwater Management Area 9, Texas Hill Country (2013) | Trinity Aquifer | $2,872/acre-foot | $0.0088 | Estimated from dissertation survey questions on groundwater resources* and willingness to purchase groundwater. |
Groundwater conservation districts, state authorized local regulatory agencies, plan for future aquifer conditions called desired future conditions. Groundwater conservation district cover about 70 percent of the state as of September 2015; the majority are multi-county and close to half are single county in jurisdiction. Groundwater conservation district rules may vary significantly but many groundwater conservation districts are authorized to collect taxes up to $0.50 per $100 valuation (the same since 1949), may collect well registration fees, or may collected permit fees for non-exempt wells. Production fees are also allowed in most districts and some districts choose to collect those fees. In some districts homeowners with a well living on over 10 acres or more, those with livestock wells, and if a well produces less than 25,000 gallons per day are exempt, but that exemption amount may vary locally from 10,000 up to 100,000 gallons per day. Interestingly, in the 1949 legislation, the exemption amount was much higher at 100,000 gallons per day. Other exempt uses include wells drilled for oil and gas exploration, mining, and other local exemptions may exist.
In the governing code, the Texas Water Code, Texas addresses water production exemptions for oil exploration simply as “drilling a water well used solely to supply water for a rig that is actively engaged in drilling or exploration operations for an oil or gas well permitted by the Railroad Commission of Texas provided that the person holding the permit is responsible for drilling and operating the water well and the water well is located on the same lease or field associated with the drilling rig.” Mining is addressed as exempt from permitting if drilling a water well authorized under a permit issued by the Railroad Commission of Texas for production from the well required for mining activities regardless of any subsequent use of the water
Aquifer conditions in major and minor aquifers are considered and planned for over a 50-year period through the groundwater management area joint planning process which began in 2005 and are revisited at least every 5 years. More information is available at http://www.twdb.texas.gov/groundwater/management_areas
Search results for “Water Economics” from I2M Web Portal (more).
Secrets for Negotiating Texas Groundwater Leases (PDF)
Estimating true groundwater value takes time and research (PDF)
BRAZOS VALLEY WATER ALLN Works, L.L.C. Groundwater Lease (PDF)
Agricultural Water Pricing: United States (PDF)
Southwest Water Economics
Aguanomics
California WaterBlog
Wisdom in Water, please…
Kevin Hiscock
ERA Economics
Alvar Closas
IGRAC
Michael E. Campana
World Bank Water
Guillermo Donoso
Brett Walton
Job, C., 2006, Groundwater Economics, CRC Press, 687 p. (Amazon)
George, P.G., Mace, R.E., and R. Petrossian, 2011, Aquifers of Texas, TWDB Report 380, July (here)
Please contact, Dr. Rima Petrossian, rpetrossian@yahoo.com, to address questions or provide comments. If you have a blog or twitter account about groundwater economics, we would be happy to add you to this list after review.