Groundwater use rights permits concessions and licensing

In this chapter, we use the term 'groundwater use rights' as the umbrella expression for any instrument that defines the right of a user to abstract groundwater according to certain parameters, such as volume and duration. Different countries have given these rights different names, such as permits, concessions, licenses and entitlements. All these instruments confer a certain right in a defined way, and what is called a permit in one country and context may be called a concession in another.

Groundwater use rights are often ambiguous and difficult to define. This is due to the previously mentioned difficulty assessing the magnitude and availability of the resource itself. Groundwater modelling is intricate and expensive, and if no good models are available that provide information about available yield over time, the basis for giving any type of water rights, be it concessions or tradable rights, is very weak. Users and water developers' knowledge can be useful to some extent. For example, in Mexico users strongly overstated their water use. Partially as a result, the country is now considering the buy-back of water rights since effectively too many rights were given at the time of initial allocation.

Once groundwater use reaches a certain point with respect to availability, i.e. once the resource becomes scarce, well-defined groundwater use rights can become a key method to control overabstraction, and countries such as the USA1 and Mexico have taken the step to implement groundwater rights systems. Well-defined groundwater use rights entitle individual users or user groups to an abstraction allocation at a certain point in time or during a specified time period. Without a clear definition of who the users are and how much water they are entitled to, the users themselves have no incentive to use the water efficiently, because they have no guarantee that if they save water today, the aquifer's yield will permit them to abstract what they need tomorrow. In addition, if water allocations are to be shifted to different users, without defined groundwater use rights, there is no information about how much can be reallocated, who would win and who would lose and how compensation might be structured.

It is important to note that to achieve better groundwater management, groundwater use rights need not be tradable. Obviously, tradability would introduce an increased option for efficiency, but often the first, most important step is to register the users and get a better estimate of the types and magnitude of abstraction. This information can then be compared to information about aquifer recharge and thus long-term water use sustainability (Kemper, 2001; World Bank, 2002-2005).

Proponents of water trading consider tradable rights a very powerful instrument because they induce the right holder to apply a long-term perspective. The holders will consider not only what the water can directly produce for them (e.g. tonnes of rice), but also the opportunity cost of the water (e.g. the value added by using the water in car manufacturing, which is the payment that could be expected if the groundwater right were traded). Thus, the highest value of water use is taken into account and provides an incentive for more efficient use and reallocation of surplus water to a higher-valued use.

Often even without codified rights systems, both formal and informal groundwater markets have developed in water-scarce areas. However, these markets typically do not provide incentives for long-term use perspectives, because use rights are unclear. For instance, in the informal groundwater markets in Gujarat, India, water is sold without consideration of the limits of the resource, and while the allocation of the resource may be more efficient than if the markets did not exist, the groundwater level is nevertheless being drawn down. The ability to sell whatever water is pumped may even be an added incentive to overabstraction. This serves to remind that water markets are complex institutional set-ups in themselves and need substantial regulation if they are to fulfill sustainability and equity objectives.2

Further, the establishment of rights and markets does not mean they will actually be used to increase use efficiency. For example, Mexico has long had a formal groundwater market, but the market has not been very active, in part due to the transaction costs built into the system (World Bank, 2006). By contrast, the groundwater market in New Mexico, USA (which is also driven by conjunctive use regulations), is very active (DuMars and Minier, 2004). Reallocation by trading means getting compensated.

Water use rights are thus rules that need to be designed, changed and adapted to different situations. They are advocated here as a tool to provide a long-term horizon to water users. As mentioned earlier it is important to note that tradable groundwater use rights per se will not resolve overexploitation of an aquifer unless a certain percentage of the aquifer volume is reserved to achieve a certain stabilization. Theoretically, this could take place, for instance, in the same way as air pollution rights trading, where each year a certain, decreasing amount of water is designated as tradable, effectively decreasing the consumptive use on a yearly basis. This implies, however, that groundwater users forego a certain amount of water every year and thereby lose income opportunities or that they have, in the meantime, implemented more efficient technologies and therefore can accept this restriction for the good of all. It will depend on the locality-specific circumstances if groundwater users will easily come together and agree on such restrictions. For instance, in Mexico, groundwater management user groups, the so-called COTAS, have now existed for about 10 years, but while they have been able to promote awareness-raising activities and also, to some extent, water-saving investments, there are very few COTAS that have as yet decided to restrict total water use of the aquifer or take active steps towards its stabilization. Also in water-scarce Yemen, where a World Bank-financed project supported the introduction of more efficient irrigation water use, the Project Implementation Completion Report pointed out that while farmers readily accepted the new technologies, they tended to use the saved water to expand their planted areas, thus leading to improved livelihood for farmers in the short run, but not leading to improvement of the aquifer conditions, which will have long-term implications for the farmers (World Bank, 2001). In Arizona, USA, on the other hand, farmers have to reapply for groundwater use permits periodically, and each time the total permitted abstraction volume is adjusted downwards, based on assumed changes in technology (Jacobs and Holway, 2004). Also on the North China Plain, Foster et al. (2004a) report that agricultural water-saving measures, such as improved irrigation water distribution through low pressure pipes and drip and micro-sprinkler technology, improved irrigation forecasting, and deep ploughing, straw and plastic mulching, etc. have reduced non-beneficial evapotranspiration and led to real water savings in the order of 35-40 mm/year in various pilot areas. At the same time, farmers' incomes have increased to above the national average. Clearly, these are encouraging examples, which show that the institutional arrangements need to include not only water user participation and awareness raising, but also enforcement and sanctioning mechanisms.

In the absence of prior well metering, a pragmatic first step to assign water use rights is an initial assessment by groundwater management agencies (e.g. North China Plain) or a self-assessment by groundwater users of their historical use (e.g. Mexico). These assessments may overestimate the historical use, such as in the Mexican and Chinese cases, but groundwater administrators do accept them as a starting point. The challenge then is to eventually reduce the overall volume of rights in order to arrive at the actual amount of groundwater withdrawn. Only in this next step will groundwater use actually be decreased. This gradual decrease can only take place if the institutional framework is sufficiently developed to permit follow-up actions (e.g. re-registering of wells and permits, and use of licensed drillers). Quite clearly, this is a long-term process that requires considerable resources and, perhaps more importantly, social and political will. This latter factor can be especially problematic since costs will be more immediate than benefits.

Another important aspect in the allocation of groundwater rights is the distinction between open access and common property resources (see Schlager, Chapter 7, this volume for detail). Aquifers are a typical example of a common property resource and are often also an open access resource, when neither private nor collective groundwater use rights exist. The introduction of water use rights can remediate this situation by offering an incentive towards a long-term perspective by individuals and an interest in controlling fellow users. As pointed out previously, however, high transaction costs can be expected in the introduction of groundwater use rights due to existing vested interests by current users. They can be especially high if an aquifer is already overexploited and decisions for curbing groundwater use have to be taken. For this reason, it is recommendable to start groundwater management in situations that require less sacrifice, i.e. lower costs for stakeholders, and not to wait until situations become critical.

It should also be pointed out that groundwater use rights could be accorded to groups on a collective basis. The reasoning regarding incentives remains the same, i.e. if the group has a water use right, there is an interest to preserve or stabilize the aquifer on behalf of the group. Naturally, intragroup enforcement of agreed actions is also essential in this case.

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